Recent major changes in the global economic and geopolitical landscapes, exacerbated by the COVID-19 pandemic and now, the war in Ukraine, have highlighted corporate social responsibility. Many thought leaders, including elements of the business community itself, advocate that businesses focus less on creating wealth for their owners and take a more active role in meeting the material needs of the community. .
The title of this essay implies that there is an inherent conflict between profit-seeking behavior and social responsibility. Many management specialists and business practitioners believe that businesses cannot be both profitable and benevolent.
I have a somewhat different view.
The doctrine of profit maximization is central to classical and neoclassical economics. Moreover, greed has been the main driver of the entrepreneurial spirit that has made capitalism the world’s dominant economic system.
It has long been a tradition that business enterprises seek to maximize the short-term profits of their owners or, in the case of public corporations, to maximize the wealth of shareholders.
Profits are normally made by extracting economic value from the company’s other stakeholders – their customers, workers, suppliers and the rest of the community. In economics, this is called a zero-sum game: what one person wins, the other loses.
Companies create value for their owners at the expense of their other key stakeholders in several ways:
- customers who change in the short term with poor quality and more expensive goods and services;
- underpaid workers;
- take advantage of business partners;
- contribute to social and economic inequalities; and
- degrading the environment
However, from a long-term strategic perspective, these common practices are doomed to failure. For two reasons :
- They prevent business enterprises from maximizing the production of economic value, which, after all, is their mandated role for society.
- They prevent companies from maximizing profits over the long term, which is the generally accepted goal of business strategy.
Another view, developed in my forthcoming book “Strategy in the new age of capitalism: Collaborative and Inclusive Approaches to Value Creation” (University of the Philippines Press, 2022), argues that corporations can maximize shareholder wealth by creating value for all their stakeholders, especially those that include the poorest members of the community.
This alternative approach to maximizing shareholder wealth, commonly referred to as stakeholder strategy, has a number of implications for corporate strategy:
- create value for consumers by improving product quality, selling products and services at reasonably low prices and providing adequate customer service;
- creating value for workers by providing comfortable wages and other financial benefits and providing a healthy working environment;
- create value for suppliers and distributors by engaging them in a mutually beneficial, trusting and collaborative relationship;
- create value for the rest of the community primarily by developing the untapped productive potential of those at the bottom of the social pyramid, that is, the poorest and least productive members of society; and
- devote resources to maintain a healthy and sustainable ecosystem.
The economic resources allocated for these purposes must be considered not as short-term costs to be minimized, but as long-term investments to make the company more productive and profitable.
In short, by creating value for their stakeholders, companies are at the same time able to maximize their production of goods and services over time, and allow them to generate more profits for themselves.
The lasting impact of the COVID-19 pandemic
We conclude by showing how business and society have benefited from the number of companies responding to the ongoing pandemic.
Despite all the pain and suffering caused by COVID-19, it has also given us reason to be optimistic about the future.
He accelerated the development of life-saving vaccines that took years to develop. Mention is made in particular of the development of mRNA technology in the field of immunology, particularly in the development of anti-COVID-19 vaccines, a feat made possible by the close collaboration between Pfizer and BioNTech.
He accelerated the pace of technological innovation by ushering in the era of open data. With the help of governments, Big Tech has made its data and software more accessible to small tech companies and consumers.
This prompted governments to invest heavily in record economic stimulus packages. These initiatives include the Biden administration’s Infrastructure Investment and Jobs Act of 2021 and President Duterte’s “Build, Build, Build” agenda. Not only do these measures improve society’s ability to produce economic value, but they also tend to reduce poverty and economic inequality.
Finally, the COVID-19 pandemic has sent the powerful message to business leaders around the world that their economic fortunes and those of their other stakeholders are intimately and inextricably linked, and that what benefits or harms one will be also felt by everyone else.
The realization that “we are all in this together” has tended to foster closer ties and greater collaboration between business enterprises and their stakeholders. INQ
The article reflects the personal opinion of the author and does not reflect the official position of the Management Association of the Philippines or MAP. The author is a retired professor of economics and management, and currently a lecturer at the University of the Philippines – Diliman. Comments to [email protected] and [email protected]
To subscribe to MORE APPLICANT to access The Philippine Daily Inquirer and over 70 titles, share up to 5 gadgets, listen to news, download as early as 4am and share articles on social media. Call 896 6000.