What is the role of business in society today

22 09 2011

(speech given at PWC in debate with Stefan Stern,Vicky Pryce, Michael Green and David Phillips)

Keynes famously said that practical men are usually the slaves of defunct economists. I am going to prove how practical I am by quoting from two of that ilk.  First Adam Smith in the section of the ‘Wealth of Nations’ in which he discusses the hidden hand of the market, went on in the same passage to say of a businessman:

‘By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.I have never known much good done by those who affected to trade for the public good.’

Karl Marx, when asking himself what was the principal function of capitalists, answered:

Accumulate,accumulate. That is Moses and the prophets!

Now it looks as if we are at the onset of the deepest global slump since the 1930s. Surely the question of this debate, ‘What is the role of business today?’ should be a rhetorical one.  The role of business people in society  today is to grow their companies and through this grow the economy.  Businesses in the UK have around £60b in cash sitting on their balance sheets doing nothing useful. They should be investing more of this in research and innovation than the pitiful amounts they currently are; they should be taking more advantage of the huge new consumer markets in the emerging economies; they should be trying to grow, to create jobs and to raise living standards here and elsewhere. All the wealth of society is created by businesses. Jobs are created not only for those who work in those businesses but also the taxation that pays for education, health and the other public services. A focus on growth and the creation of surplus, or profit; that should be the role of business in society today.

But business has become too cautious to play this role to its full potential. Business today has more cash on its collective balance sheet than anybody can remember, but instead of looking for productive ways to invest it is playing the financial casinos, investing in arcane financial instruments in the vain hope that it can find a safe haven for its cash.

Perhaps it is not surprising that businesses find it diffiulct to focus on their core fucntion.It sometimes seems the main role of business today is to be the whipping boy for every special interest group in society. Business has to be seen to be environmentally aware, morally conscious of its obligations to the developing world, an active force for racial and sexual equality, careful about what it researches into and particular about its use of scientific breakthroughs and new technologies. It seems to have taken on the doctors’ mantra, first do no harm. This is damaging for innovation and growth. These days’ businesses are expected to avoid making a mess in the process of making anything. They seem to have forgotten what the purpose of business is first and foremost making things and developing services. It’s a terrible cliché, but you really cannot make an omelette without breaking eggs.

 If you read the mission statements of many large corporations they will mention their main business in passing before going through a long list of all the ways they are making the world a better place through their corporate social responsibility agendas. You may think that some if not all of these issues are ones that society in general should be in favour of, I may too for that matter. But I fear that this concentration on broader social issues that fall under the CSR area are the wrong ones for business to be focused on.

If you look at some of the corporate disasters of recent years one wonders how much of the damage could have been avoided if businesses were completely focussed on their core business. Would BP have been more careful in the Gulf of Mexico if they had not been simultaneously trying to convince us they were Beyond Petroleum? Would UBS managers have been more likely to have spotted its rogue trader had they not been busy engaged in human rights, the environment and empowerment, all key objectives
according to their website. Not to mention producing a 44 page document on the proper way to dress for business. I remember sitting through an address about how wonderful Toyotas’ environmental policy was at the precise time its cars were accelerating off the road while their terrified drivers were helpless.

Directors and managers, like all of us, have limited attention spans and limitations to what they can concentrate on. I would like to see more businesses sticking to their knitting. Now some might say that all the CSR is superficial, pandering to an external agenda, a kind of box ticking exercise. If that is true then CSR is just a cynical PR exercise, if it is not then it takes up management attention that would be better spent on its core business. Either way it is wrong. Let the politicians and the campaign groups argue for and legislate for a better society, business should get on with business.

Those who are really interested in global wellbeing should consider this: the average global wage is around £5000 per annum. In order to bring that average up to £25,000, the average wage in the UK, the global economy would have to grow by a factor of 5. This growth is what would make the real difference to the people we aspire to help in underdeveloped parts of the world.

By the way, it would also be a good idea if politicians and others laid off those dynamic sectors of our economy, pharmaceuticals, bio engineering, energy and aerospace for example which are often treated as if they are the spawn of the devil. Without these progressive industries we will be truly condemned to a desolate economic future.

Business has become far too risk-averse in every way, too cautious to take chances with innovation, too scared to make risky investments in case of upsetting interests groups, too distracted and too cowardly all round. It has lost the confidence to say that the business of business is business.It is going to take an enormous amount of risk taking and innovation to get this economy  out of its slump, caution and risk aversion are standing in the way.

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One response

26 01 2014
Marissa Haiden

Hi, My comment below is part of an assignment for a Business Ethics course, where posting my comment online is part of the assignment requirements, which is why this is abit longer than your usual comments –

This article looks to answer the important question of what is the role of business in society today, and I believe this has been done by comparing two of the main ethical theories that can be used by businesses. The two theories that have been identified in this article are –

• Stockholder theory – when identifying this theory, it was primarily seen in regards to its profit maximisation view, where the actions of business management have the sole intention of maximising the return on investment to stockholders, while acting with the “law and social rules of the country” (The Open Polytechnic of New Zealand, 2013). This is a deontological ethical theory, as the morals of an action are measured in terms of duties, regardless of the likely consequences of others (The Open Polytechnic of New Zealand, 2013).
• Stakeholder theory – where the actions of the business management consider the impact of the action on all possible stakeholders in the business, which can include the wider society. I feel this is a consequentialist ethical theory, like utilitariansm, where the morally right action is the one which will cause the most amount of happiness and least unhappiness when compared with alternative actions.
From analysing this article, I believe the author is in favour of the profit maximisation view / stockholder theory, however I feel there are some flaws and issues that can arise from this over the stakeholder theory, which I will detail below, along with some other ethical theory considerations.

The first, and most emphasized point from this article overall, is that “the role of business people in society today is to grow their companies and through this grow the economy” with a focus on “growth and the creation of surplus”. What is not made clear in this statement, is exactly to whose benefit this is done, and at what point does growth need to be controlled, or even reversed. It needs to be considered as written by Velasquez (2004), “world resources are finite, at some point supplies will simply run out” (page 236), and if this were to happen, you would see collapses in major economic, political and social institutions. As resources are depleted, we need to ask more ethical question of ourselves both at a business and society level, such as do we need to keep harvesting this resource, are there alternates that can replace it so that we can leave this resource intact, or in fact is the end product that uses it one that could be removed from the market place without affecting the way society functions. If business people were to use the utilitarianism, and the stakeholder ethical theory for their decision making as to when / how much growth is required, that would have a beneficial effect on society as it would consider the available resources, the impact on the environment and what is actually needed by the customers and society, both now and in the long term. If business is run to purely maximise the profit now, it is likely that the future impact will not be considered, with business being run with blinders on.

This follows onto a related point, “that business has become too cautious to play this role to its full potential”, I believe this is related as risk is more often than not associated with some form of change, and change is often carried out for growth of a business. Whenever risk is taken, there is always the potential that someone will lose out (otherwise it isn’t really a risk). So, in addition to saying that business needs to take more risk, this needs to be elaborated by saying where the risk should lie, and how that decision should be made. For example risk could be placed on the survival of business as a whole, an individual division / person, or with the public eg. by testing an unknown product on them. There will be conflicting thoughts on where risk should lie, as the business wants to ensure its longevity, by minimising risk to itself, but if the risk pays off, the beneficiary or it will be the business (or more specifically its shareholders). Therefore the morally right thing is for the risk to rest to lie squarely on the business, and more specifically on the decision makers / originators of the idea, whether it be the stockholders / owners, or the managers of the business, as it is unfair for staff to have high levels of risk forced on them, as this could negatively affect their performance with shortcuts taken, or staff spending unnecessary time focussing on finding a scapegoat to take the blame in the event that the risk doesn’t pay off and has a negative outcome for the business.

Another strong point made is that management attention should be spent on the core activities of the business. I agree that it is very important that this should be done, as otherwise the business would cease to function in delivering its intended product / service. Where this can lead to a problem however is where this focus is so self-serving that it results in the core activities being done at the expense of the stakeholders external to the organisation eg. developing a product that will likely damage the environment in its use and/or production. Therefore, it is morally right for some focus to be dedicated to the activities occurring outside the business.

In conclusion, I feel that while business should focus on making money for their stockholders, this can, and I feel should be done using the a stakeholder theory, which can help to ensure a positive outcome for all parties affected by the business, both internally and externally.

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