What Is The Business Of Business?

Authored / contributed by Albert E. from Ulm, Germany

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Strategic Planning  15 min 22.53 K 50
By building social issues into strategy, big companies can recast the debate about their role in society.
The great, long-running debate about business's role in society is currently caught between two contrasting, and tired, ideological positions. On one side of the current debate are those who argue that, to borrow Milton Friedman's phrase, "the business of business is business." This belief, most established in Anglo-Saxon economies, implies that social issues are peripheral to the challenges of corporate management. The sole legitimate purpose of business is to create shareholder value. On the other side are the proponents of corporate social responsibility, a rapidly growing, rather fuzzy movement encompassing companies that claim that they already practice the principles of CSR and skeptical advocacy groups arguing that they must go further in mitigating their social impact. As other regions of the world?parts of continental Europe, for example?move toward the Anglo-Saxon shareholder value model, the debate between these points of view has increasingly taken on global significance.

Both perspectives obscure, in different ways, the significance of social issues to business success. They also unhelpfully caricature the contribution of business to social welfare. It is time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics.

Large companies must build social issues into strategy in a way that reflects their actual business importance. Such companies need to articulate their social contribution and to define their ultimate purpose in a way that is more subtle than "the business of business is business" and less defensive than most current CSR approaches. It can help to view the relationship between big business and society as an implicit social contract?Rousseau adapted to the corporate world, you might say. This contract has obligations, opportunities, and advantages for both sides.

To explain the basis for such an approach, it may help first to pinpoint the limitations of the two current ideological poles. Start with "the business of business is business." The issue here is not primarily legal: in many countries, such as Germany, companies have a legal obligation to stakeholders, and even in the United States the legal primacy of shareholders is open to very broad interpretation.

The problem with the "business of business is business" mind-set is rather that it can obscure two important realities. The first is that social issues are not so much tangential to the business of business as fundamental to it. From a defensive point of view, companies that ignore public sentiment make themselves vulnerable to attack. Social pressures can also serve as early indicators of factors essential to corporate profitability: for example, the regulations and public-policy environment in which companies must operate, the appetite of consumers for certain goods above others, and the motivation of employees?and their willingness to be hired in the first place.

Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attacks on business are turning a blind eye to impending forces that have the potential to alter the strategic future in fundamental ways. Although the effects of social pressures on these forces may not be immediate, that is not a reason for companies to delay preparing for or tackling them. Even from a strict shareholder perspective, most stock market value?typically, more than 80 percent in US and Western European public markets?depends on expectations of corporate cash flows beyond the next three years.

Examples abound of the long-term business impact of social issues. That impact is growing fast. In the pharmaceutical sector, the past decade's storm of social pressures?stemming from issues such as public perceptions of excessive prices charged for HIV/AIDS drugs in developing countries?are now translating into a general (and sometimes seemingly indiscriminate) toughening of the regulatory environment. In the food and restaurant sector, meanwhile, the long-escalating debate about obesity is now resulting in calls for further controls on the marketing of unhealthy foods. In the case of big financial institutions, concerns about conflicts of interest and the mis-selling of products have recently led to changes in core business practices and industry structure. For some big retailers, public and planning resistance to new stores is constraining growth opportunities. And all this is to say nothing of the way social and political pressures have reshaped and redefined the tobacco and the oil and mining industries, among others, over the decades.

In all such cases, billions of dollars of shareholder value have been put at stake as a result of social issues that ultimately feed into the fundamental drivers of corporate performance. In many instances, a "business of business is business" outlook has blinded companies to outcomes, or to shifts in the implicit social contract, that often could have been anticipated.

Just as important, these outcomes have not just posed risks to companies but also generated value creation opportunities: in the case of the pharmaceutical sector, for example, the growing market for generic drugs; in the case of fast-food restaurants, providing healthier meals; and in the case of the energy industry, meeting fast-growing demand (as well as regulatory pressure) for cleaner fuels such as natural gas. Social pressures often indicate the existence of unmet social needs or consumer preferences. Businesses can gain advantage by spotting and supplying these before their competitors do.

Paradoxically, therefore, the language of shareholder value may in this respect hinder companies from maximizing their shareholder value. Practiced as an unthinking mantra, "the business of business is business" can lead managers to focus excessively on improving the short-term performance of their businesses, thus neglecting important longer-term opportunities and issues, including societal pressures, the trust of customers, and investments in innovation and other growth prospects.

The second point that the "business of business is business" outlook obscures for many companies?the need to address questions about their ethics and legitimacy?is related to the first. For reasons of integrity and enlightened self-interest, big companies need to tackle such issues, with both words and actions. It is neither sufficient nor wise to say that it is for governments to set laws and for companies simply to operate within them. Nor is it enough simply to point out that many criticisms of businesses are unmerited or that those throwing the mud ought also to examine their own practices and social responsibility. Irrespective of whether the criticisms are valid, their cumulative effect can shape the strategic context for companies. It is imperative that businesses seek to lead rather than merely react to these debates.

Moreover, in certain parts of the world?particularly some poor developing countries?the rule of law and basic public services are notable by their absence. This reality can render the "business of business is business" mind-set positively unhelpful as a guide for corporate action. If companies operating in such an environment focus too narrowly on ill-defined local legislation or shy away from broad debates about their alleged behavior, they are likely to face mounting criticism over their activities as well as a greater risk of becoming embroiled in local political tensions.

Is CSR the answer? If only it were. The point is not to criticize the many laudable CSR initiatives undertaken by individual companies or to dispute the obvious need for businesses (as for any other social entity) to act responsibly. It is rather to examine the broad prescriptions proposed by groups and activists involved with CSR. These prescriptions commonly include stakeholder dialogue, social and environmental reports, and corporate policies on ethical issues. This approach is too limited, too defensive, and too disconnected from corporate strategy.

The defensive posture of CSR springs from its origins. Its popularity as a set of corporate tactics was driven, in large part, by a series of anticorporate campaigns in the late 1990s. These campaigns were in turn given impetus by the antiglobalization protests mounted around the same time. Since then, companies have been drawn to CSR by nice-sounding if vague notions such as the "triple bottom line": the idea that companies can simultaneously serve social and environmental goals as well as earn profits. Companies have seen CSR as a way to avoid nongovernmental-organization (NGO) and reputational flak and to mitigate the rougher edges and consequences of capitalism.

This defensiveness starts the argument on the wrong foot?certainly as far as business leaders should be concerned. Big business provides huge and critical contributions to modern society. These are insufficiently articulated, acknowledged, or understood. Among them are productivity gains, innovation and research, employment, large-scale investments, human-capital development, and organization. All of them are, and will be, essential for future national and global economic welfare. Big business also supplies investment vehicles that are likely to be central to the provision of pensions in the aging countries of the Organisation for Economic Co-operation and Development (OECD). In developing countries, meanwhile, the entry of multinational companies through foreign direct investment has often contributed critical capital, technology, skills, and other poverty-reducing economic spillovers. It is no coincidence that developing countries place such emphasis on attracting big business and the investment it can bring to their economies.

CSR is limited as an agenda for corporate action because it fails to capture the potential importance of social issues for corporate strategy. Admittedly, companies undertaking a stakeholder dialogue with NGOs will be more aware, in advance, of potential issues. But tracking NGO opinion is only part of the process of understanding the range of social pressures that can ultimately affect core business drivers such as regulations and consumption patterns.

An obvious next step for companies, having understood the possible evolution of these broad social pressures, is to map long-term options and responses. This process clearly needs to be rooted in the development of strategy. Yet typical CSR initiatives?a new ethical policy here, for example, or a glossy sustainability report there?are often tangential to it. It is perfectly possible for a company to follow many prescriptions of CSR and still be caught short by seismic shifts in the socially driven business environment. One of the compounding problems is the fact that many companies have chosen to root their CSR functions too narrowly, within their public- or corporate-affairs departments. Although such departments play an important tactical role, they are often geared toward rebutting criticism and tend to operate at a distance from strategic decision making within the company.

In the limitations of both CSR and of the "business of business is business" thinking lie the outlines of a new approach?as relevant for Chinese, German, and Indian companies as for US and British ones. Three main strands stand out. The first is a helpfully simple prescription: businesses should introduce explicit processes to make sure that social issues and emerging social forces are discussed at the highest levels as part of overall strategic planning. This point means that executives must educate and engage their boards of directors. It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues, in much the same way that most companies analyze customer trends today. The risk that stakeholders?including governments, consumer groups, lawyers, and the media?will mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties. For example, the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems, the inevitable media focus on the issue, plus the interest of some lawyers in finding fresh corporate targets for litigation. By the time businesses seriously engaged with the question, they were in a defensive posture, merely struggling to catch up with the public debate. In the future, companies will need to be much better at understanding and anticipating such issues.

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and society?the contract that is the subject of this article. Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at society's expense. The reality is much more complex. The activities undertaken by business have clearly brought social benefits as well as costs. Similarly, however, there are two sides to a contract, and business must acknowledge that in return for the ability to function, it is subject to rules and constraints. At times, the contract can come under obvious strain. The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power. Similarly, in Germany at present, business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced.

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively. To do so, companies can choose from a range of potential tactics, such as more transparent reporting, shifts in R&D or asset reorganization to capture expected future opportunities or to shed perceived liabilities, changes in approaches to regulation, and, at an industry level, the development and deployment of voluntary standards of behavior.

Some companies and sectors are already experimenting with such approaches. Nonetheless, there is scope for much more activity, provided it is aligned with corporate strategic goals. Reshaping conduct on an industry-wide and increasingly global basis may be particularly important, given that the perceived misdeeds of one company can rebound on its sector as a whole.

An important point to remember is that companies, depending on their circumstances, will have quite different tactical responses, so off-the-shelf or simply nice-sounding solutions may not always be appropriate. Transparency offers a good example. It is easy, but wrong, to say that there can never be enough of it. What might be good for a pharmaceutical company trying to restore the consumers' trust could be damaging for a hedge fund manager. A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company.

This observation leads me to the third strand of the new approach for business leaders: they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business.

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value, although that should continue to be seen as the critical measure of business success. However, it may be more accurate, more motivating?and indeed more beneficial to shareholder value over the long term?to describe the ultimate purpose of business as the efficient provision of goods and services that society wants.

This is a hugely valuable, even noble, purpose. It is the basis of the contract between business and society and the basis of most people's real interactions with business. CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people want?and doing so in a way that uses resources efficiently relative to other possible uses. From this perspective, the creation of shareholder value or profits is the measure, and the reward, of success in delivering to society the goods and services we desire, which is the more fundamental business objective. The measures and rewards reflect the predominant values of the relevant society.

By moving away from a rigid focus on the term shareholder value, big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract. The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs. What might this point mean specifically? There is no shortage of big social issues today that directly affect many big businesses and require new debate. These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions, whose economic liftoff would present a major potential boon to global markets as well as to international security; promoting a more sophisticated and sensitive approach, by both companies and governments, to balancing the societal risks and rewards from new technologies; spearheading dialogue on the health care and pension challenges in many developed countries; and supporting efforts to resolve regional conflicts.

Obviously, the relevant issue must be matched to the specific business. Some companies and business organizations have taken strong public stances on these and similar issues. But in general, high-level, concerted corporate activism is more notable by its absence. Business leaders shouldn't fear taking a more forward role advocating the idea of a contract between business and society. Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think. Despite the poor image and bad press of big business in recent times, polls suggest that people retain a belief in its ability to provide a positive contribution to society.

More than two centuries ago, Rousseau's social contract helped to seed the idea among political leaders that they must serve the public good, lest their own legitimacy be threatened. The CEOs of today's big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure, for the long term, the invested billions of their shareholders.
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Kennet

 Kennet
 From United Kingdom

CORPORATE SOCIAL RESPONSIBILITY

"The disposition to the affections, which tend to unite men in society, to humanity, kindness, natural affection, friendship, esteem, may sometimes be excessive...The defect of this disposition, on the contrary, what is called hardness of heart, while it renders a man insensible to the feelings and distresses of other people, renders other people equally insensible to his; and, by excluding him from the friendship of all the world, excludes him from the best and most comfortable of all social enjoyments."

(Adam Smith (1723 - 1790), Scottish Moral philosopher, The Theory of Moral Sentiments (1759)

When I first saw and read that combination of words, corporate, social and responsibility, the cynic in me smiled for the simple reason that I am of the opinion that business and businessmen tend to subscribe to the theory, the belief, the notion that business is fundamentally about making as much profit as possible and that competition, competitiveness and flexibility fit somewhere in the equation but the notion of empathy, corporate social responsibility and accountability do not.

Indeed, I suspect that businessmen, certainly at the higher levels within companies and organizations, subscribe to the widely held belief their primary function in life is to make a much money as possible for their shareholders, that stakeholder is not a recognized word and that responsibility for employees, suppliers, communities and society, do not feature in the mathematics. In order to achieve the desired outcome, a healthy balance sheet the idea that a company or an organization owes any loyalty to its employees has gradually disappeared even though some directors and managers might still believe that a "pay slip" means that loyalty has been bought.

The culture of any company starts at the top with the Chairman, Chief executive and board of directors and maybe even major shareholders. If you accept shareholders do not own but have a stake in companies, not just buildings, plant, equipment, products, services but also culture and reputation, then corporate social responsibility might be a dirty phrase. Indeed, I suspect that one way that companies manage to expand in developing nations, by outsourcing jobs to areas of much lower costs and overheads, is by possibly by cutting any corners there may be in relation to social, cultural, ethical and may be even environmental and moral standards as a means of getting ahead in the game of business. But that is not right and should not be allowed to happen or, is it all fair when it boils down to making more bucks?

Capitalism is, for the time being and probably for the foreseeable future, the economic system that is keeping the world, literally, "turning and burning", that is if it is acknowledged and accepted that greenhouse gas emissions are causing irreparable damage to the earth"s environment. However, competitive capitalism creates only a few real winners, some who achieve a modicum of success and a great many losers and that includes individuals, groups, societies or even countries. Is it time to take a much closer look at other positive economic systems and see how they compare?

Politicians and economists, of both persuasions, appear fond of referring to Adam Smith"s book, The Wealth of Nations, and putting their own spin and interpretation on his words and phrases to strengthen the case for policies of privatization, private ownership and "laisser-faire", based on the assumption that society does not exist and individuals are responsible for their own success or failure, but how does that support the notions of nation and society?

That is why I referred to Smith"s earlier book, The Theory of Moral Sentiments, and to the opening quotation that seems to imply, at least to me, that man is a social animal who, by and large, believes in qualities such as humanity, kindness and friendship and that we tend to look for social and economic policies, politicians and political parties who make an effort to balance entrepreneurship, success and self-gratification with individual and corporate social responsibility. It may be that I am not my brother"s keeper, in the widest possible sense, but surely in any developed and civilized society there are social responsibilities? Besides, it is oft suggested you can tell how civilized a nation is by the way it treats its" old and young.

I also believe that Adam Smith was implying those who do not accept the notion that society exists are more likely to be excluded from the friendship and affection of his neighbours. Perhaps this is where Ebenezer Scrooge, in Dickens" Christmas Carol, enters the stage and is central to the whole of the story until such time as he understands that with his wealth and fortune and his place and position in business and neighbourhood he would gain more by learning to trust business acquaintances, employees and his immediate society by adopting a degree of responsibility for those less fortunate.

This is what the likes of Cadbury, Rowntree and Lever appeared to understand, that providing decent working conditions and building good housing and facilities near their factories was good for business. I seem to remember there was even a hint at a minor improvement in achieving a life/work balance for Bob Scratchit. Or, have I read that wrong?

For the last few decades, probably longer, we have been told that jobs for life are a thing of the past and some companies in some countries, following the accepted mantra about profit, have adopted the management practice of "hiring and firing" at will. It has given rise to the realization by people that companies no longer support their workforce and that they are individuals whose sole responsibility and commitment is to themselves and their families and not to companies and shareholders.

Unfortunately, for business leaders that is, they cannot say they were not warned of the probable consequences of treating employees with indifference and a degree of contempt. Whatever, it seems that in the present business climate, basically of corporate greed and a growing gap between the pay and conditions of directors and senior managers with "fat cat" salaries and pay-offs, and that of ordinary employees, the concepts of trust, loyalty and commitment are, with the possible exception of naval and military organizations, now finished. In fact, corporate scandals in the USA have, surely, shown that the system can be manipulated by a few simply for personal gain.

Again, with the introduction and use of management fads such as delayering, re-alignment and business process re-engineering accompanied by resource re-allocation, including junior and middle management positions, in addition to those on the shop-floor, indicate that any possibility of career progression and therefore commitment to a company has all but disappeared, so how does one motivate people to succeed without providing opportunity. And, the associated programmes of downsizing and outsourcing jobs now mean that the notion of employees supporting a company or an organization through hell or high water has gone along with the loss of trust, commitment and loyalty.


In the last few years we have all read of instances where companies have decided, in order to reduce overheads and improve the "bottom line", to outsource jobs from, for example, the United States or the United Kingdom, to countries where labour costs are considerably cheaper, for example, China, Pakistan and India. This has happened mainly in manufacturing industries but is gradually happening in the service sectors where jobs in areas such as call-centres associated with banking, insurance and travel are being moved to countries like India and increasingly IT sector jobs associated those same services are also being transferred to India and Russia.

Why do governments, politicians and businessmen not understand the way to grow an economy is by investing in research and development, in products and plant, by investing in training people and in the national infrastructure and not by outsourcing, exporting or selling-off employment opportunities for successive generations? As Adam Smith suggested,

"The capital, therefore, employed in the home-trade of any country will generally give encouragement and support to a greater quantity of productive labour in that country, and increase the value of its annual produce more than an equal capital employed in the foreign trade of consumption; and the capital employed in this latter trade has on both these respects a still greater advantage over an equal capital employed in the carrying trade."

(Adam Smith (1723 - 1790), Scottish moral philosopher, The Wealth of Nations (1776))

It is hardly surprising, after the corporate scandals, debacles and pension-fund warnings issued by companies let alone the corporate "fat-cat" image of Chairmen, directors and senior managers over the last few years that public trust in business leaders, the concept of corporate governance and responsibility is at an all time low. Worse, I strongly suspect that there will be little change in attitude by those with power because they appear to work from the old adage, "the more you get the more you want". As the Canadian-born US Educator and Senator S I Hayakawa suggested,

"Animals struggle with each other for food or for leadership, but they do not, like human beings, struggle with each other for that that stands for food or leadership: such things as our paper symbols of wealth (money, bonds, titles), badges of rank to wear on our clothes, or low-number license plates, supposed by some people to stand for social precedence."

(S I Hayakawa (1906 - 1992), Canadian-born US Senator and Educator)

Most would agree that senior business managers have, with large salary increases, large private pension contributions, generous share options and a wide variety of other self-awarded perks, brought this on themselves and on their companies. I suspect that it will take many years of pressure from one source of another, and perhaps even the introduction of some form of legislation and regulation, before much greater effort is made in acknowledging corporate social responsibility. There are those who, perhaps naively, believe checks and balances on directors pay, perks and share options are carried out by investors at annual general meetings when they approve company reports and the remuneration reports, but it is not the case.


The public, and belatedly pension fund managers who invest the monies of employees, have, sometimes, displayed moral outrage at the inequitable distribution of rewards including share options. However, it seems to be a problem where directors of public companies are determined and forceful and where there are absent shareholders and weak non-executive directors. As Adam Smith pointed out in The Wealth of Nations,

"The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own... Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company... Without an exclusive privilege they have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it."

(Adam Smith (1723 - 1790), Scottish Moral philosopher, The Wealth of Nations, (1776))

Many employees no longer trust their senior managers to provide any kind of direction when it comes to governance, ethics and corporate social responsibility and even less on warm-words about the state and value of company pension schemes.

The loss of security in work and the loss of integrity has gradually but inexorably translated into a general decrease in commitment to organizations in favour of commitment to personal career and progress and much greater demands for a life/work balance. What some companies are failing to understand is that corporate social responsibility is here and it will continue to grow embracing a moral dimension and that people in communities and society will come to expect such a response.

I suspect that with the regular reports of political economic incompetence, public sector inefficiency and corporate greed or failure in one area or another, it will take a very long time for that trust to return, if indeed it ever does. So, how did we end up in this mess?

Some organizations may have established internal training programmes on governance, company ethics, behaviour and corporate social responsibility and the data protection act but few appear to have spelled out precisely what is meant by ethics and how any ethical dilemmas might be addressed by a company when sourcing products. Others have introduced an internal system of "whistle-blowing" such that if an established code of corporate ethics has been issued and someone is seen to violate that guide then they encouraged to report it and in some cases to a third party, but how effective is that system and are whistleblowers protected, and if not then why not? But, yet others still choose to ignore corporate social and environmental responsibilities.

However, when big cases of "whistle-blowing" are reported in the media the resultant investigations and even court cases have often lead to the whistleblower being removed, ostracized or even made redundant, a euphemism for being sacked, even in the hugely bureaucratic European Commission which has not had its budgets audited and approved for years, whilst the perpetrators appear to escape unscathed. And, dealing with transparency, integrity, responsibility and accountability how many company annual reports include statements, not comments, on how they are dealing with areas such as revenue, number of employees and comparisons with previous years and whether they might recruit in the coming year?


How many companies make a real and conscious effort to be seen to support local causes or make positive moves to contribute to the growth of a local community? How many bother in their report to make mention of company policies on the environment, support for local initiatives and charitable donations? How many make clear what the company assets are including buildings, plant and other equipment and, more importantly, how their activities affect not just the social and economic well-being of the local community but also, given the on-going interest in global warming, how it affects their immediate environment?

This suggests, perhaps, that in addition to failing to communicate policies and plans and win the trust and confidence of their employees and their customers, senior business managers are also failing to present a positive image of their companies such that trust can be re-built. In my view this problem stems from the difference between management and leadership.

There are those, still, who suggest that managers are also leaders and that leaders are also managers. Frankly this is nonsense for the fundamental reason that a manager is a person who has been given responsibility, by someone else, for making decisions but a leader is the person who has the necessary skills, knowledge, experience and ability to assume responsibility for resolving a difficult situation and, he or she will not necessarily be the senior person present in a group.

Corporate responsibility should be considered as part of corporate culture with examples of openness, integrity, reliability, accountability and responsibility starting at the very top and communicated to permeate down through organizational structures. But what about ordinary employees, what can they do to shake of the taint or smell of corporate scandal, greed, failure or irresponsibility? On the surface not a lot and the only option they appear to have is to leave and find a company or organization or a particular job that more closely matches their wants and needs and that possibly aligns with their views and attitude to, for example, ethical and moral values and corporate social responsibility (CSR).

Nonetheless, you might not be surprised to note that many employees like their workplace and their work colleagues and that is a result of group or team spirit but not teamwork. However, apparently, not many particularly like the work they do, they do not like their managers and some do not like their company or organization for a variety of reasons. This could have something to do with glossy recruitment practice and advertisements that over-hype the company, the job, the position, the professional or academic qualifications required and often the remuneration and career prospects. It is the difference between possible, perceived or even raised expectation and reality.

It could also have something to do with instability brought about by constant change, progressive or otherwise, that leaves them unsure of what they are doing or should be doing or suddenly changes their area of work or responsibility and is not what they were originally recruited to do. Unfortunately, that side of business will not change for the fundamental reason that many people subscribe to the theory that not only is constant change necessary but that constant change is progress. How many companies even bother to ask their employees how they feel about the company, the organization, company products, company image, general working conditions, job opportunities, promotion prospects and pay? I wonder how many are in the slightest bit interested in what the employees think their about the company and its culture and reputation.
Sometimes people discover, or realise with experience, that the values of an organization do not fit their own moral, ethical or social values or do not provide the career and promotion prospects they believed were on offer. They must decide to remain, and possibly feel unfulfilled and frustrated, or leave to pursue other possibilities. Only time will tell, if sufficient employees leave an organization, whether companies and directors will begin to understand that "macho" management style does not always work and more especially when there is a clear lack of corporate ethics and social responsibility within a company.

However, we must all accept that, as individuals, we have a collective responsibility to maintain our own level of ethics to ensure best business practice is not sacrificed on the altar of corporate profit.

But, does this economic model apply to all advanced, industrialised nations? The simple answer is no. Raw and unfettered capitalism only encourages greater and greater competition to the extent that some concentrate solely on maximizing profits and adopt an aggressive, gung-ho attitude to both business and to management. This approach means that other stakeholders, especially employees and communities are not considered in the profit equation; it also means there will be only a few winners and the rest will be losers; and, it proves there are no or few ethics and morals in business.

From reports in the media it seems that business in general has become more corrupt in that businessmen appear more concerned with profit before people, making money maybe even avoiding forms of taxation by whatever means and turning the positions of director and manager into a gambling process rather than a profession with integrity, social, ethical and moral values and more than a degree of concern for environmental issues. In that respect they subscribe to and are, perhaps, following the advice of the US economist Milton Friedman who wrote,

"Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of social responsibility other than to make as much money for their shareholders as possible."

(Milton Friedman (1912 - 2006), US Economist, Capitalism and Freedom (1962)

That is why there is a need for regulation not only to ensure that there is real competition in every area of business and commerce but also to ensure that boundaries are not crossed too often. It is not just regulation with respect to human rights but regulation concerned with health and safety issues, with standards of workplace conditions, machinery, operating systems and hours worked. And on the matter of the need to regulate commerce Adam Smith suggested,

"To widen the market and to narrow the competition is always the interest of the dealers ... The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
(Adam Smith (Smith (1723 - 1790), Scottish Moral philosopher, The Wealth of Nations)


Whilst the UK appears to have adopted the American model of capitalism of "laisser-faire" associated with free-markets, competitiveness, greed, job insecurity, weak labour laws, low pensions and poor benefits, reduced public expenditure in some areas and enormous and growing social inequality, our neighbours in Europe have not gone quite as far and still appear to retain a system of progressive taxation that is based on income and revenue so that those who are paid the most contribute more to the needs of society. The Scandinavian countries, France, Germany Italy, Spain and the Netherlands have higher levels of public expenditure and many of their peoples appear much more content. As the US economist J K Galbraith wrote,

"The rational liberal, in the future, will resist tax reduction, even that which ostensibly favours the poor, if it is at the price of social balance. And, for the same reason, he will not hesitate to accept increases that are neutral as regards the distribution of income."

(John Kenneth Galbraith. (1908 - 2006) US Economist, The Affluent Age (1958).

Many countries in the European Union have much more generous state pensions and benefits, there is a greater degree of cohesion and social security but unemployment figures are, for the time being, poor. However, the Scandinavian countries, Denmark, Sweden and Norway have much higher levels of investment in public services, standards of education are very high, employment is high, benefits are high, productivity and entrepreneurship are high and so is competitiveness.

So, why can advanced industrial countries not consider their economic and social model? I wonder what would happen with a change of national politics in those countries and would a shift in political direction lead to an increase in disenchantment and disruption. I suspect that the majority of people see no point in living on meagre handouts from social security and instead would choose to look after themselves and their families through paid employment. To that end it must be the responsibility of politicians and senior businessmen to create opportunities for employment and to pay a reasonable wage to avoid "means-testing" benefit schemes getting out of hand.

It is quite possible that a majority of people hope and believe that companies might act not only in a responsible manner in their pursuit of profit but that they, by that I mean Chairmen, Chief Executives and Boards of directors, will comply with every facet of the law to ensure that their company, their organization, maintains ethical standards, which include integrity, openness and respect for their employees, customers and suppliers as well as looking after the best interests of shareholders. However, when a company becomes too big and too powerful and is able to influence national policies covering, for example education, energy, employment and economics then they can undermine individuals and society and impinge on democracy.

Capitalism, just like any system with human involvement, should have rules, regulations and guidelines and it should be so constructed to ensure that everyone, and not just a few, benefits from the methods and means of creation, production and manufacture. But, regrettably, it seems politicians and senior business figures often do not subscribe to social, moral and ethical values, and regulatory systems are not strong enough or policed to ensure compliance in order to stamp out corruption in politics, business, industry and commerce.


The creation of wealth should not be diametrically opposite to the implementation of corporate social responsibility, indeed providing goods and services of a good quality that people need and at a reasonable price should be the norm and not the exception; allowing the community to invest in a company is sensible; and, putting something back into the community makes corporate sense because that way the community flourishes and individuals have income to spend on the goods and services offered by companies. That is why corporate responsibility should be part of any company"s core strategy as part of the process of ensuring that business activity, policy, procedures and internal workings are transparent, can be compared to other companies and organizations in the same business sector and with other major businesses so that customers are clearly aware of their business dealings.

Successful companies should understand and appreciate the need to invest in people as well as products, plant, procedures and practices within their organization as part of their commitment to corporate and social responsibility as well as environmental issues. Indeed, it would make corporate sense to act in a responsible social manner as part of the process of adopting a shared responsibility to economic and social issues by taking into account the needs of the community they serve for the fundamental reason that it has been shown time and again that adopting ethical values tends to improve business and improve the "bottom-line" but only when customers pay attention to those same social, ethical and environmental issues. Therefore, not to make an effort to alter business strategy to improve social, environmental and ethical values might be seen as corporate irresponsibility.

Although a great deal is and has been written about the importance of Corporate Social Responsibility when it comes to applying any and all of the policies and procedures associated with CSR many large organizations, including Quasi Non-Governmental Organizations, (QUANGOs), government departments and global companies, appear to pay lip-service to the notion of responsibility and accountability for social, moral, ethical and environmental issues. It is time governments and politicians set an example with appointments to QUANGOs to ensure openness and integrity in all business and political dealings.

The case appears even stronger in those companies and organizations that have outsourced work to other companies and established manufacturing plants in other countries. Indeed, I believe that a majority, in the pursuit of profit by any means, might make passing reference to the issue but ignore any notion of implementing measures that might improve the lot of their employees and their local communities and regions.

It was encouraging to read the award for Impact on Society for small companies in 2003 went to Adnams, a local Brewer and Wine Merchant in Suffolk, because, according to the judges, their values were based on achieving customer satisfaction, making environmental improvements, maintaining links in the local community and retaining a strong commitment to their employees thus underpinning an understanding of the need for individual motivation and communication between owners, managers and employees whilst making every effort to establish standards, improve efficiency and sustainability. These are many of the clear reasons for business success and, it is most unfortunate that too many companies, concentrating on profit before people and products, fail to take this onboard. That is why CSR and all it implies is important for the continuing health and wealth of companies and communities.

Also, we have to acknowledge that, because of the increase in the global population there is increasing pressure on the earth"s natural resources especially water and food production, and that the numerous and various flora and fauna and mineral resources on our planet and in our oceans are finite. That is why we must make much greater efforts not only to re-cycle and re-use minerals and metals and natural elements but to make greater efforts to provide alternate sources of power, solar, wind or whatever else is renewable and where possible reduce greenhouse gas emission.

It is why companies involved in all aspects of fuel production and exploration should invest more to seek to minimize greenhouse gas emissions; why those in the motor industry must devise leaner and meaner operating machines; and, why people must understand that demanding more and more wealth and manufactured products only increases deprivation in other areas and this gives a moral as well as an ethical twist to social responsibility. It is time that capitalists and politicians in whatever capita system understood and accepted that every man has the right to a decent life and to a decent living before having to cater to the greed, demands and excesses of those who already have. As Francois Noel Babeuf, a French journalist and commentator on social and moral values, wrote in the 18th century,

"Nothing has been better proven than this maxim: that one succeeds in having too much only by causing others not to have enough."

(Francois-Noel Babeuf (Gracchus) 1760 - 1797) French Journalist and social commentator)

Politicians, the wealthy, directors and the most senior management must begin to realize the stupidity of greed as increasing numbers of people in developed nations fall below what is defined as the poverty income level, because pay and perks at the highest levels, especially in the banking and finance sector, always increases at a greater rate than at the lower levels, and spending in the retail sector decreases, because money, instead of "trickling-down" to the poorest levels always flows upwards, leading to increasing levels of social unrest. As the Greek philosopher Aristotle suggested,

"Wealth getting that results from exchange is justly censured; for it is unnatural and a mode by which men gain from one another. The most hated sort of wealth getting, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest."

(Aristotle (384 - 322BC), Greek philosopher and teacher, Politics Bk 1 Chapters 10 and 11)

Companies and organizations offering goods or services are established by people with loans and investment from other people; companies and organizations consist of people working, operating and committing time and effort at different levels; companies and organizations consist of people within a community, depending on location and siting, and that is why the community should be able to invest in companies simply because the community has a vested interest in the success of the organization.

Companies are managed by people in positions of responsibility and accountability; and, companies employ people who use their efforts, knowledge and skills to innovate or manufacture and provide goods or services to meet the needs of people, customers, clients, passengers or patients. That is why, as part of corporate social responsibility, companies should learn to invest in the communities they serve because it is the people living in those communities who spend their money and provide them with profits.
There is no proof but, since a majority of the electorate and the working population do not own companies, do not own shares and are in receipt of dividends from companies and, are most unlikely ever to be in that position, I strongly suspect they agree with the notion of corporate social responsibility and the need for moral, ethical and environmental standards and values in best business practice. As Niall Fitzgerald, former CEO of Unilever suggested,

"Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it... because it is good for our business."

(Niall Fitzgerald (b. 1945 -) Irish businessman, former CEO Unilever)

We all have a duty and responsibility to consider social, moral and ethical issues when we purchase any goods, use any products or make use of utility services to ensure that we do so taking environmental matters into consideration and noting the attitude of individual companies to corporate social responsibility. As the Nobel prize-winning physicist and chemist Marie Currie suggested,

"You cannot hope to build a better world without improving the individuals. To that end each of us must work for his own improvement and at the same time share a general responsibility for all humanity, our particular duty being to aid those to whom we think we can be most useful."

(Marie Curie (1867 - 1934), Nobel winning Polish-born French physicist and chemist)

We are often lectured to on best business practice but I get the feeling that most of the written and spoken words mean little or nothing, are rarely put into practice and are not applied by companies especially when increasing profit margins tends to trump related to social, ethical, moral values and environmental issues.

I suspect many large corporations do not apply one set of values right across their company and their outlets around the world, and that big corporations are happy to allow local laws as well as local business practices and procedures to take precedence in the pursuit of profit and over the notion of global standards in corporate social responsibility, and accountability. There is a need to strike a balance between social protection and creating jobs by addressing the US-style capitalism and Anglo-Saxon "hire and fire" workplace policies that can remove people at the drop of a hat without considering social consequences and corporate responsibility.

That is why it is increasingly paramount for people, individually and in groups, to take note of those companies that practice corporate social responsibility not just nationally but on a global scale, and avoid purchasing products and services from those who do not apply such values in their own countries; and, to spend their hard-earned money in those companies and organizations that clearly treat them fairly and abide by the notion of corporate social responsibility.

There is room for much greater effort and involvement in companies and organizations in developed nations and perhaps it is time for government, politicians and individuals to take a closer look at how other companies and organizations in other countries are managed and led and to change, where necessary, our overall social, moral, ethical and economic model because the present Anglo-American model of capitalism, perhaps even our system of parliamentary democracy, appears somewhat jaded.

(5600 words including quotations)

KENNETH ARMITAGE

2004



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This article is © Ian Davis, McKinsey & Company and contributed by

Albert E. from Ulm, Germany

Albert E. is a specialist Business Speaker with expertise in Train the Trainer, Education and Training and eBusiness, eCommerce

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