CAPE TOWN -
Milton Friedman, a renowned economist and Nobel Laureate in 1970 infamously argued that business should primarily concern itself with maximising profits and executive management’s responsibility is to the providers of capital, the shareholders.
Since then, debate has raged on from university classrooms, to shebeens, in the streets and right up to the boardrooms about doing business responsibly.
Is it enough to maximise profits and, hopefully, pay taxes? Is there space for social investment? Is there room for regard for socio-ecological issues? What about shared value? How relevant are Milton Friedman’s words given the complexity of modern society?
The notion that business can concern itself with solely exploiting resources and maximising profits seems like a misguided fallacy that belongs to history.
I argue that the role of business has always been the same, to build and maintain the condition of wellbeing. Yes, business ought to make profit. It is the reward for entrepreneurship.
What is clear, however, is that over time society’s views and perceptions of business’s licence to operate has changed.
There is a demand on business to play an active role in addressing socio-ecological ills. Sustainability and long-term profitability could very well depend on it.
We often talk about business as if it is a living entity in its own right; as if it exists in some type of vacuum. But business is a community of people, a cross section of society, open to normal human frailties and, of course, threatened by poor health and education infrastructure, political instability, food shortages and social unrest.
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I sense that the role of business in society has been challenged at various points in history, particularly as society has developed and business - or more particularly business leaders - has been seen to be out of sync with public expectations around this condition of well-being.
So over time there have been changing views within society and business on whose wellbeing matters, what form does wealth take, and how should wealth be shared and distributed.
Reputational damage
Businesses that ignore the broader social and environmental context in which they operate are likely to pay a price: reputational damage and loss of brand value, falling sales, and difficulties in recruiting talent, lower worker productivity, corruption, tougher government regulation, or an increase in climate change-related costs.
We are also aware of business’s central role in providing financial prosperity, but what we often forget is how diverse these financial benefits are; remuneration for all those employed in the organisation and across its supply chain, taxation paid in numerous forms, which goes to support an array of public services (schools, hospitals, roads) and dividends and interest that fund our pensions and support our savings.
What we also forget is that every man and women in this country is ultimately a direct beneficiary of business as employees, consumers, pensioners, savers, voters.
Another critically important element of the condition of wellbeing created by business is often ignored or taken for granted. We forget that for most adults the place of work is where we spend the majority of our working hours; for many, business provides a sense of community, a place to congregate, and place of safety, familiarity - we also need to keep busy and business is one outlet for this basic human need - one that is critical to the dynamic of African society where our privileged position means we have moved beyond subsistence living and all its challenges.
Companies need customers who can afford their products, which means that businesses benefit from social stability and broad prosperity.
Companies also need educated, hard-working, ethical employees and reliable, efficient suppliers.
And companies need public infrastructure - not only physical infrastructure like highways and airports, but also social infrastructure, like good schools, safe neighbourhoods, and effective legal systems.
This responsibility cannot and should not be shouldered by the government alone. Communities have prospered and benefited from organisations who build schools, hospitals and community centres for the region they are operating in.
Young people have benefited from mentorship opportunities provided by socially conscious business leaders. Narcissistic leaders, please take heed.
But at this time when trust in business is at an all-time low, the picture I paint may lack resonance.
Obscured picture
If this is the case I believe it’s because this picture has been obscured by a predominant mindset which pervades much of society, where wealth and self-esteem are defined by financial gain. Granted, business can do more.
Media should take a lead in profiling business that is playing an active role in challenging inequality and empowering communities. Progressive leaders should champion this conversation. It must be had and be heard.
Central to social impact investment is a flawed business success measurement model, a model that focuses on financial performance to the exclusion of most other aspects of wellbeing.
That is not to say financial performance isn’t important, but we need to know more about the consequences of how it is achieved.
As we now know, today’s model was conceived at a time when people believed that resources were infinite, that many inputs to business, such as water, eco systems services and the environment were free at source.
We now know better, and we should be encouraged that business’s view of wellbeing is being rethought as we speak.
A healthy society, and an effective organisation for that matter, must find ways to balance and reconcile in its bosom the “humanist” and the “economist” who live in every one of us.
The stakeholder model of the corporation did strike a delicate balance between the economic and humanist imperatives. Can it be reinstated as a business model for the future?
Business is about sustaining the wellbeing of all those who interact with it, it is in most cases a force for good and in the long run its success will, in my view, be central to society’s success.
Alforde Charumbira is a co-founder of Isithemba Group, a holding company with investments in construction, logistics, and social impact ventures. He has more than a decade of experience in building thriving businesses with a social focus and working with start-ups.