The Business Of Business

The Business of Business

Abstract

The role of business has been changing over the centuries. Throughout the existence of shareholding organisations there have been different theories regarding the role of business. Organisations too have been changing their role to adapt to resource, capital and societal pressures. From an initial thrust on operational efficiency, organisations had over time started increasing their focus on marketing and sales. Since the late 20th century we see an increasing focus on the CSR initiatives as well as on public relations. Is this only a new found mantra or is it a strategic initiative of organisations. From a brief description on existing theories of role of the organisations the essay tries to answer some of the questions about the role of organisations. The essay also explores possible mechanisms of institutionalizing corporate behaviour and converting responsible behaviour into a strategic intent.

No. of Words - 3921

Table of Contents

Problems with existing theories 6

The stakeholder view 9

Why Stakeholder View is Important? 9

Is there one Solution that fits all? 11

The Social Contract 13

Conclusion 16

Figure 1: The J-Curve 17

Figure 2: Stages of Organisational Learning 18

Figure 3: Balanced Score Card 19

References 21

Table of Figures

Figure 1: The J-Curve 17

Figure 2: Stages of Organisational Learning 18

Figure 3: Balanced Score Card 19

Figure 4: Modified Balanced ScoreCard 20

Theories about the Role of Business

Before describing the various theories the one pertinent question we must raise is regarding the focus on the role of business in the present economic and socio-political setup?

The shareholding pattern of corporations has been in existence for at least 3 centuries. Existing laws confer ownership of modern firms on shareholders - people who have invested their money in financial equity. As a result, they have been given exclusive rights to the profits earned. The "social" focus of organisations is a relatively recent phenomenon of study. The reasons for this are equally important for our analysis. We believe that two reasons stand out immediately. The first is the size global organisations have come to acquire. 51 out of the 100 largest economies were not nation states, but corporations. In 1999, The United Nations reported that the world's then three richest people - Bill Gates of Microsoft, the Sultan of Brunei and the Walton family of the Wall Mart retail chain - were worth more than the combined gross domestic product of the world's 34 poorest nations. Thus, the modern day large corporations are often larger than nation states. Rich individuals own and command resources that are unfathomably large, often larger as compared to smaller/poorer nations. With great power (and size), comes great responsibility.

The second is the gradual shrinking/withdrawal of state from hitherto "social" areas of development. This started initially with the fall of communism as an ideology. The second phase was marked by opening up of the economies of many developing and poor countries and the shrinking of revenues of the state. Hence the big organisations which were seen as owners of huge resources were expected to step into the vacant space.

There are multiple theories competing to define the role of business in the 21st century. We try and look at the gamut of theories explaining the role of business and the arguments for and against each of these. The aim is to apprise the reader with the background so that our point of view on the same is better understood and appreciated.

The dominant views regarding the role of business are those of

a) Milton Friedman - Published in 1970 his dominant work on the subject "The Social Responsibility of Business is to Increase its Profits", argues that in a free society "there is one and only one social responsibility of business-to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." For the 'Puritanical Cult of Capitalism', of which Adam Smith is the high priest and Milton Friedman the most forceful evangelist, profit maximization is the most sacred mantra. Though this cult may have shrunk to minority status in recent years, its surviving zealots still cling passionately to their belief that profit is the noblest objective of all. Those who pursue it with single-minded devotion are regarded as contributing the most to society and, therefore, being the true inheritors of the 'kingdom of heaven'.

b) Andrew Carnegie - In 1889, Carnegie wrote an article for the North American Review, entitled "The Gospel of Wealth." He like Gandhi advanced the idea that the rich are merely trustees of wealth and that they have a duty to use their resources to benefit society. He took his admonishment to others to heart and spent the last two decades of his life giving away the great bulk of his fortune. He advocated benevolent, paternalistic leadership and enunciated

- Principle of Charity and

- Principle of Stewardship

c) Keith Davis - Talking about the "Iron Law of Responsibility", he refers to social responsibility as having risen from the concept of an Enlightened Self Interest where organisations realize that it is in their own best interest to act in ways that community considers socially responsible. In the long run, those who do not use power in a way society considers responsible will tend to loose it.

Problems with existing theories

First we try and understand why Friedman is wrong in claiming that the only responsibility a corporation owes is to its