Why Should Companies Be More Responsible?
In this second blog in my series on business and values, I’m going to look at some of the arguments that academics have made for more responsible corporate behaviour. Subsequent blogs will look at these arguments from a more practical business perspective.
Paradise lost?
The role of business is to maximise profits, said Milton Friedman. This neo-classical mantra is unquestionably the dominant occidental view of business’ purpose today. Arguably, it is as a result of this paradigm that sustainability initiatives rarely get implemented unless they can be shown to deliver profits as well; that we consider sustainability from the perspective of ‘will it pay?’ rather than profit from the perspective of ‘is it sustainable?’
But why should companies be responsible? Why should they try to become sustainable? Was Friedman wrong, or is that in fact the wrong question to ask? I explore Friedman’s arguments fully in a separate blog (beyondfriedman.wordpress.com – be warned, it’s extensive!). Certainly, the rules that govern business do not require them to be very responsible at all, which of course leads to market norms that do not support responsible or sustainable business strategies. (image: digitalart)
Why be responsible – why include ethics in business?
So if being responsible often goes against market sense then why do it? Well, for starters, companies aren’t just amoral price makers and price takers that provide goods and services to meet customer demands. In some cases they have made claims to citizenship, whilst in others their activities have direct social or environmental effects (which are increasingly regulated today). Companies are also a huge part of our lives – they are where most people spend the majority of their time, so as well as providing for people’s livelihoods, they are also important communities that create the fabric of many people’s lives. Added to this, companies have the power and ability to help solve societal issues, and society cannot rely on government alone for protection from all harmful impacts caused by corporations. Society constantly adapts its contract with corporations. As law and custom are social constructs, developed in line with societal expectations, changes in perception do ultimately impact the acceptable behaviour of companies.
Secondly, business is no different to every other aspect of life – having to face up to difficult situations is simply part of the routine. Current narratives of capitalism separate business from ethics. Freeman describes this as the ‘Separation Fallacy’[1]: instead of acknowledging the moral dimensions of every decision, a separate sphere of rules and norms has been created, dictated by competition and amoral reasoning. Aristotle would have found this separation extraordinary – and dangerous. Any set of rules and norms that systematically removes ethics from decision-making must ultimately lead to the dilution of ethics within related spheres. Actions become habitual, thus moral stances can be affected by habit. ‘We are what we repeatedly do. Excellence, then, is not an act, but a habit’ he said – the adage need not apply to excellence alone.
It’s been argued that this separation has contributed to many aspects of capitalism that are deeply problematic from the perspectives of equity, responsibility and sustainability – the dominance of investor rights for instance, as well as the diminishment of good, moral decisions at the sight of profit-taking, guiding managers to ignore the ethical implications of their decisions[2]. At the end of the day, the issues associated with measuring national success based on GDP alone are similarly present when measuring business success based on profits alone. Bobby Kennedy said (in 1968) that GDP measures everything, except that which makes life worthwhile. Likewise, ‘profitability measures in isolation, fail to capture the essence of an organisation’s overall performance, both as a profit-seeking entity and as a member of society’.[3]
As long ago as the 50s, Peter Drucker, one of the first management thinkers to speak explicitly of the ‘social responsibilities of business’, was arguing that management had a responsibility to consider whether every business policy or action was ‘likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength, and harmony’[4]. The timing is important. Corporations were becoming increasingly public in nature[5] and business had both interest and responsibility in resolving problems affecting the welfare of the communities that it relied upon. Links were drawn between pure profit focus and lack of organisational direction or purpose. By the 80s these ideas were being developed further – it was clear that pursuing profit alone could lead to the subordination of ethical concern to financial outcome: a strategically directed company would have ‘a strategy for support of its community institutions as explicit as its economic strategy and as its decisions about the kind of organisation it intends to be and the kinds of people it intends to attract to its membership.’[6]
Business benefits from and relies on its position within society. It can choose to reflect society’s values or also influence them, for better as well as for worse. ‘The more powerful business becomes in the world, the more responsibility for the well-being of the world it will be expected to bear’.
The most important thing I took away from the literature was the interconnectedness between behaviour, opinion, values, actions, laws and custom. Change only happens because we allow it to, or we will it to. The more we discuss consciously incorporating ethics into business, ‘the stronger the cultural pull to be ethical’[8]. Even if the connection between values and economic success is unclear in the minds of executives[9], the ‘noise’ being created in the popular and academic press is increasingly challenging the amoral character of business together with its pure focus on profit maximisation, growing the opportunities for discourse[10]. And that’s a good thing.
References
[1] Freeman, R. E. (1994) The Politics of Stakeholder Theory. Business Ethics Quarterly. 4 (4), 409-422. [2] Freeman, R. E., Martin, K. & Parmar, B. (2007) Stakeholder Capitalism. Journal of Business Ethics. 74 (4), 303-314. (p.309) [3] Joyner, B. E. & Payne, D. (2002) Evolution and Implementation: A Study of Values, Business Ethics and Corporate Social Responsibility. Journal of Business Ethics. 41, 297-311. (p.298) [4] Drucker, P. F. (1954) The Practice of Management. New York, NY, Harper & Row Publishers. (p.388) [5] Selznick, P. (1957) Leadership in Administration. New York, NY, Harpe & Row Publishers. [6] Andrews, K. R. (1987) The Concept of Corporate Strategy. New York, NY, Richard D. Irwin, Inc. [7] Solomon, R. C. (1997) It’s Good Business. Lanham, MD, Rownman & Littlefield Publishers, Inc. (p.206) [8] Joyner, B. E. & Payne, D. (2002) Evolution and Implementation: A Study of Values, Business Ethics and Corporate Social Responsibility. Journal of Business Ethics. 41, 297-311. (p.299) [9] Anderson, C. (1997) Values-Based Management. Academy of Management Executive. 11 (4), 25-46. [10] Pirson, M. a. & Lawrence, P. R. (2009) Humanism in Business – Towards a Paradigm Shift? Journal of Business Ethics. 93 (4), 553-565.Recommended Reading
This is a must-read for everyone who has a stake in the future of the world, from business executives to environmental activists, from community leaders to the politicians with their hands on the levers of power. Capitalism as if the World Matters
About the Author Julian Hill-Landolt
Julian Hill-Landolt is an experienced sustainability professional with particular expertise in sustainable business strategies including specialisation in values-based sustainability and an interdisciplinary understanding of environmental law, economics and policy. Julian has recently completed an M.Sc. at Imperial College London in Environmental Technology. he is currently working for Toyota Motor Europe in Brussels. Apart from writing general articles for the Sustainable Business Toolkit, Julian also shares extracts from his masters thesis.