In the developed world, business plays a much more important role in society than it does in the less developed parts of the world. There is also a much wider consensus that business is a force for the good of society. However, of late, that assumption has come under closer scrutiny. There is a growing articulation of the need to understand the role of business in society. Various authors have argued for a range of corrections, though there is by no means a consensus. At one extreme, some argue that as long as businesses act ethically and legally, they need not concern themselves with larger social goals. Milton Friedman (Friedman, 1970), in a classic article, says, ‘The whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal. This justification disappears when the corporate executive imposes taxes and spends the proceeds for “social” purposes. He becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise. On grounds of political principle, it is intolerable that such civil servants—insofar as their actions in the name of social responsibility are real and not just window-dressing—should be selected as they are now. If they are to be civil servants, then they must be elected through a political process. If they are to impose taxes and make expenditures to foster “social” objectives, then political machinery must be set up to make the assessment of taxes and to determine through a political process the objectives to be served’. He goes on to contrast the capitalist and socialist systems: ‘This is the basic reason why the doctrine of “social responsibility” involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses’. He concludes that ‘there is one and only one social responsibility of business—to use its 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 It is important to recognise that this view was articulated in 1970 when there was a lot of debate about the virtues or otherwise of the free market system. The argument here is essentially based on the right to private property, right to earn profits on capital, and the free market system. Friedman also characterised ‘the present climate of opinion’ as one having ‘wide spread aversion to “capitalism”, “profits”, and the “soulless corporation”’. Later authors have justified the same point of view, not on the basis of political principle, but on the basis of what is most effective and efficient for a business to do. In this view, businesses will in fact serve society best by focussing on what they know how to do well—namely create products and services that customers value. The economist Barro (2007) argues that Bill Gates contributes more to society through Microsoft than through his foundation. According to such a view, business makes the world a better place to live in by producing products that consumers value. Poverty can be addressed better by improving the economy than by massive amounts of aid. Altman and Berman (2011) argue that ‘With a long enough time horizon, many social benefits created by the operations of for-profit companies can generate private benefits for the companies themselves. As a result, executives planning for the long term create social benefits in the most efficient way when they target a single bottom line – profit. Though calculating the private value of social initiatives under a single bottom line requires the use of estimates and probabilities, this approach offers greater efficiency in decision-making and more sustainable social benefits than schemes such as corporate social responsibility, creating shared value, and double- or triple-bottom lines’. By the time these arguments were made, the West was far more secure about the widespread acceptance of the free market system. Other scholars have a slightly different view on the issue. Some argue for an explicit recognition of the need for a greater involvement of business in society. This seems to be a response to the shortcomings of business in recent times, and an attempt to recapture a position of moral strength. It is often based on environmental and sustainability considerations, and adverse impacts on society and consumers. The Confederation of Swedish Enterprise, in its report on the Role of Business in Society (2004), reiterates that business is the cornerstone of prosperity in society, and that businesses create the resources that lead to development and welfare. The report makes a clear distinction between the ‘civic involvement’ of companies and corporate social responsibility, which is a less broad concept. Aiming to ‘stimulate an attitude among businesses that is thoughtful, ambitious and farsighted as far as norms and values are concerned’, the report recognises the need for a wider involvement in society, particularly the need to ‘increase awareness of the role of business in society and the importance of acting in harmony with social norms’. On the wider role of business, Davis (2005) emphasises that it is ‘time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics’. Outlining an agenda for action in their report on the role of business in society, Fitzgerald & Cormack (2006), say, ‘The role of business in society is on the board room agenda. … business needs to continuously invest in its relationship with society and to account for its use of natural resources’. The International Organization of Employers adopted the following resolution in their General Council in May 2005 (‘CSR: An Employers’ Approach’, 2005) —that CSR is ‘Initiatives by companies voluntarily integrating social and environmental concerns into their business operations and in their interaction with their stakeholders In addition to sustainability and environment, there are increasing concerns about morality and responsibility. The Directorate General for Research & Innovation at the European Commission says in its report (‘Towards a greater understanding…’, 2011): ‘The recent world financial and economic crisis revealed a considerable deficiency of responsible management and accountability of financial institutions which contributed significantly to the chaos on the markets and the depth of the crisis. Due to this, it is time for a much broader definition of the role and responsibility of business in the globalised world, where growing responsibility should go hand in hand with growing influence. Many business leaders are aware of this need and their increasing engagement in dialogue with academics, stakeholders and policy makers demonstrates their readiness to face societal expectations.’ All these are responses to recent crises.
Another set of authors tries to examine whether it is possible to make higher profits by serving society. Fisman (2011) says: ‘Is it really possible to do well by doing good — to save the world and earn more money as a result? This apparent free lunch may be possible if today’s conscientious consumers seek products made by kinder, gentler companies — and are willing to pay a premium for them. By analysing hundreds of thousands of eBay listings, we find that consumers are more likely to purchase products from sellers that bundle their listings with charitable contributions, and are willing to pay higher prices for these charity-linked goods’. In his view, ‘This certainly isn’t to suggest that programs that don’t add to the bottom line should be dropped by corporate America. But it’s best to be honest about whether you’re doing well by doing good, or simply doing good for its own sake’. Porter and Kramer (2011, 10) take this much further. They argue for a more overarching framework where not only do businesses act responsibly, but in the very process of doing good to society, they create more value for themselves. They say that ‘In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community’. They go on to add, ‘the purpose of the corporation must be to create shared value, not just profit per se’. By shared value they mean that societal needs must define markets and not merely economic needs. They argue for an expansion of both social and economic value. For instance, they say that while fair trade can increase farmers’ incomes by about 20%, the concept of shared value can increase it by 300%. This may require initial investments and better procurement and management practices, but these pay for themselves in the long run. More recently, the debates and arguments have been further developed to include the role of corporate philanthropy. In this view, the role of governments was shrinking, and their ability to deliver good management was questionable. Hence there is a need for a greater role of the corporation in addressing the problems of society. In Philanthrocapitalism Bishop and Green (2008), show how strongly motivated, large donors have ‘set out to change the world’. They also argue for a greater role in philanthropy for all citizens to address the problems of the world. In their view, as governments ‘cut back their spending on social causes, giving may be the greatest force for societal change in our world’. Klaus Schwab, Founder and Executive Chairman of World Economic Forum, says ‘More than ever, the new reality underscores the need to create new bonds rather than new boundaries. We need new partnerships and alliances between public, private and civic life to tackle the problems that lie ahead.’
Way forward: At times of crises it is difficult to believe that there is a way forward. We need to reconcile or at least understand the differences between business, civil society and government. Many of the differences can probably be sorted out if all the relevant facts are there in the public domain, and there is a series of dialogues between all stakeholders. It is unlikely that everyone will agree, since the underlying positions reflect deeper personal values or world views. Individual freedom and the ‘pursuit of happiness’ as enshrined in the American Constitution underpins the free market, capitalist system. In the Preamble to the Indian Constitution, ‘liberty of thought, expression, belief, faith and worship’ goes with ‘justice, social, economic and political’, and ‘equality of status and opportunity’. With such contrasting world views, it is worth examining a key question: to whom does the wealth created by business belong? Differences arise from the answer we give to this question. To the capitalist, the residual wealth belongs to the investors. A deeper argument is that without this incentive, no wealth will be created. In many other societies, there may not be any agreement on this. For business to succeed, it needs several conditions – well educated employees, infrastructure, paying customers, law and order, and various other resources. This is provided by society, with the government as its agent. The imposition of tax tries to capture this notion. Presumably, this revenue is used for the collective good. But then, does society have a greater share in the profits of business? For many in the civil society, the answer is ‘yes’, because business often creates wealth at the expense of society and the ordinary citizen. They are also convinced that a billionaire’s wealth is not entirely deserved. To them it seems that s/he takes advantage of an unfair system, has undue influence on the government, and changes the rules of the game to suit her/his interests. The problem of common property and the use of natural resources, and the negative externalities due to over exploitation and the impact on the environment have not yet been sorted out to everyone’s satisfaction. As George Soros says, ‘I think there’s a lot of merit in an international economy and global markets, but they’re not sufficient because markets don’t look after social needs.’ The more ancient texts say that the wealth of the world belongs to everybody. Much of it comes from the scriptures, whether Indian or Western or Islamic. In Islam, all wealth is held in trust by the individual but really belongs to Allah. The Hindu scriptures have exhortations to daanam or charity scattered across various texts. Mahatma Gandhi similarly propounded the concept of trusteeship of wealth. And the Christian teaching to ‘love thy neighbour as thyself” is also an exhortation to philanthropy. In more modern times Kris Gopalakrishnan, co-founder and co-chairman of Infosys Technologies says (‘How India’s New Philanthropists…’ 2011) ‘Each individual has to decide for himself or herself. I believe that if every individual can help at least other individual at their time of need, that’s sufficient.’ But then modern societies and markets are not governed only by the scriptures. While there are unlikely to be universally acceptable answers to the question, the way each society or nation evolves a shared norm or value in response to this question will determine the role of business in society. In the developed world that social consensus is perhaps already there, though there is constant re-examination. In India and the developing world, that consensus is still evolving.
(Author is a freelancer. Views are his own)