A response to The Economist regarding the relationship between business and society
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The debate is overdue. Fudging the intellectual basis for responsibility ensured The Economist did not have to stretch far to score points. A response must begin by slaying a sacred cow that they attacked at length: that there is a business case for corporate responsibility.
Academic studies have indeed gone some distance towards indicating that good companies do better over the long-term by, for example, reducing transaction costs through higher trust, and that meeting stakeholder concerns through, for example, investing in renewable energy, does not necessarily represent a cost to shareholder value, particularly over the longer term.
Recent research published in Business Ethics even claims to have found “absolute, definite proof that responsible companies perform better financially”.
The business case analysis is amoral. True, stakeholder dialogue may drive innovation by revealing alternative courses of action.
Shareholders the greatest net present value of future cash flows. But it also might not.
And where meeting stakeholder concerns comes into conflict with greatest shareholder value, this company is telling us that the shareholder will win every time.
The business case cannot sustain an argument for conscience, but, as will be argued later, this does not mean that responsibility is solely dependant on the innate ethical motivation of individual decision-makers.
The remainder of The Economist’s attack can be interrogated in three steps.
1. Business fulfils its role in society just by pursuing its own self-interest
The primary objective of business, states The Economist – the objective that serves the greatest public good – is maximizing profits. Not so.
The primary purpose of business is the efficient production and distribution of goods and services that society needs. The right to take profit from this social function demands justification.
Self-interest makes capitalism work for the public good, an idea articulated, it is said, in Adam Smith’s metaphor of the invisible hand.
But economics is concerned with efficient resource use, not social behaviour, and Smith knew that self-interest has to be pursued by people of conscience if public good was to be served.
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