The business of business is responsible business

In an era of political correctness and sophisticated communication, it would be unusual to find any corporation today that would openly support the views expressed by Milton Friedman.  In his famous article that was originally published in the New York Times magazine in 1970, Friedman argues that the only social responsibility of business is to increase its profits (often paraphrased as “the business of business is business”), and accuses those businessmen who argue that business has responsibilities to provide employment, eliminate discrimination and avoid pollution of “preaching pure and unadulterated socialism,” writes Daniel Malan.

Friedman’s view was that corporations could engage in some of the activities mentioned above, as long as they do it because they believe that it will increase their profits and not because of a moral obligation.  For example, he approves of a company that would spend money to provide amenities to a local community, but his approval is based on the belief that this will result in the attraction of more desirable employees, reduce the likelihood of sabotage and possibly provide tax benefits.

This type of argument resonates quite strongly with current risk-based approaches to corporate responsibility in South Africa. In terms of this approach corporations should take their social responsibilities seriously because it will assist them to manage risks and exploit opportunities.  It is therefore highly likely that Friedman would applaud many of the current corporate social responsibility (CSR) programmes that emphasise the business case above everything else.

Those who support the concept of CSR from a moral point of view increasingly support the “just good business” approach from an operational point of view.  In other words, by integrating corporate responsibility into the strategic elements of the corporation instead of having a marginalised CSR department with a separate budget, the moral obligation can be fulfilled most effectively.  The unintended consequence of this approach is that an outsider will not easily be able to distinguish between a deeply committed moral approach and a deeply cynical business approach, or anything in between.

The “enlightened self-interest” approach is a problematic one because it only works up to a point.  There is always the realisation that from time to time a corporation has to make a decision that will conflict with either its own self-interest or those of its stakeholders.

It works well to justify why bribery is wrong (even if you win the contract, you might go to jail) or why it is good to invest huge amounts of money in environmental technology not required by law (it will improveyour  reputation and ultimately you will save money).  It does not work so well if you have to decide whether to retrench employees, close plants or pay wages that do not conform to trade union demands.

The global context

The global context does not look very rosy at the moment.  There is a slow, but growing, realisation that we are crossing into uncharted territory where fundamental changes in the global landscape (physical, commercial and conceptual) make it impossible to carry on with business as usual.

There are still those who try to apply old-style criteria (e.g. quarterly growth) to determine whether we are getting ourselves out of the mess we are in, but they don’t understand that these measures contributed to getting us into the crisis in the first place.

To assist a better understanding of the changing conceptual landscape, it is useful to briefly reconsider four relevant and well-known concepts: responsibility, values, sustainability and governance.

Responsibility is often associated with either apportioning blame, asserting that something has to be done, or by indicating a level of trust that can be expected.  For example, it has been stated that BP was responsible for the oil spill in the Mexican Gulf (blame), that the company should be responsible for the clean-up (something has to be done), and that they did not act like a responsible (trustworthy) company in the whole matter. Values and (economic) value have the same origins in the concepts of “to be strong” or “to be worth something”, and the origin of sustainability lies in the concepts of holding, keeping and enduring without failing.

Governance comes from the Greek “kubernetes”, the idea of a helmsman or steersman, resulting in modern English versions of governance, government and – interestingly – cybernetics.  The idea of a helmsman neatly reflects the dual functions of sound governance: driving the enterprise forward (direction) while keeping it under prudent control.

It is interesting to note how – over time – the above-mentioned concepts have not only changed in meaning, but also how some of the associations with them have been merged – or integrated – into business concepts with a specific meaning in today’s environment.

Corporate responsibility reflects both trustworthiness and a hint of blame, sustainability integrates commercial, environmental and social aspects, value and values represent the perceived tension between the business case and the moral case, and governance emphasises the intersection between performance and conformance.

The common denominators here are “risk and opportunity” as well as  “integration”, and perhaps it is not by coincidence that in the measurement and reporting environment we have also now reached the early stages of integrated reporting.

Finally, it is important to note that the origin of both integration and integrity is the Latin “integritas” (wholeness).  In a world where technology, mobility and connectivity have resulted in information overload it is important to acknowledge the importance and complexity of wholeness.  By doing this in a way that includes a commitment to good governance and values such as integrity and sustainability the loop is closed in terms of integration, and can be summarised as follows: the business of business is responsible business.

(Daniel Malan is Director: Centre for Corporate Governance in Africa, University of Stellenbosch Business School, South Africa)