Why Doing Good Makes More Business Sense

There has been an on-going debate about the purpose of business. Some define this purpose as delivering profits and positive cash flow, building shareholder-value. What customer is going to give you money if you ask them to spend just so their funds can enrich your shareholders? Your customers want to hear what they are going to get out of the transaction before they part with their hard-earned money.

For many of those who cling to this narrow definition of the purpose of business, they claim they are following the precepts of Milton Friedman, who in his book, Capitalism and Freedom, said: “there is one and only one social responsibility of business – to use resources and engage in activities designed to increase its profits”.

Envisage the interview where you say to the potential candidate; ‘we are looking for units of production to enable us to increase shareholder value and you seem to fit the bill’. If this candidate had options, would she leap at this opportunity to enrich the shareholders of the business over and above all other considerations?

How many of our most precious resources, our people, will deliver of their best, be engaged and be abundantly productive if they are told their role is to only build shareholder value? That is if they stay put and do not leave for another organisation where there is a greater sense of stakeholder value, where they are going to be well-treated, given a greater sense of involvement, be trained and developed and where there is a benefit for them other than their monthly salary.

Picture yourself in the negotiating room where executives of the enterprise are brow-beating suppliers, saying they need keener pricing to enable them to enrich the shareholders? What chance they will get the most advantageous agreed pricing on this basis? If we are purely driven by short-term profits and immediate shareholder-value, as stated in the year-end accounts, then what damage might we do to the mid and long-term future of the organisation as we slice and gut the cost-base to increase short-term profits? Is there a stronger argument for those running enterprises to consider their responsibility as something more than just increasing profits, the annual distribution of dividends to shareholders and increasing the value of shares?

Even Milton Friedman thought so. The full quote from Capitalism and Freedom said: “there is one and only one social responsibility of business – to use resources and engage in activities designed to increase its profits… so long as it stays within the rules of the game”. This then raises the question; what are the rules of the game?

Without a doubt, the art of business is staying in business so profits, cash and shareholder-value are vital for survival. But long-term sustainable survival demands investment for the future, not just short-term results. Long-term survival demands high-quality human-resources willing and able to innovate, take risks and a culture geared up to accept failure. How many people have a boss who is willing to praise those who fail often?

As long as they are failing quickly and cheaply, these risk-takers ought to be encouraged rather than admonished or worse, fired. So what is the purpose of your organisation? When stated, does this purpose engage all stakeholders, encouraging employees and shareholders, customers and suppliers, the broader society within which the enterprise operates?

If we have a corporate social responsibility strategy, do the end-results of this activity deliver some ‘good’? Can we behave ethically, doing good and deliver a more secure sustainable-future or do we have to maximise annual results to the detriment of everything else?