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We Asked "What is The Role of Business in Society?"
Posted May 25, 2017
The Role of Business in Society is part of the core curriculum in our executive leadership programmes.
A clear understanding of this topic enables leadership talent to:
- Identify and make clear decisions relative to their core business
- Critically examine their business model as conditions change
- Remain aware and responsive to evolving expectations of consumers
- Anticipate and adapt to the shifting policy landscape
- Make a meaningful appraisal of their impacts on society, both positive and negative
- Inspire trust when communicating with media and influencers
Following sessions on the Impacts of Globalisation, Reshaping Capitalism and the Role of the Government, we turn our attention to the commercial sector and ask participants their views on the role of business in society. The most common responses include:
- Increase shareholder value
- Innovate
- Pay taxes
- Provide employment
- Be responsible and give back to communities
Most have spent their entire careers working in big companies (MNCs) which can obscure their perception of the realities of business activity in the world. Facts which may be overlooked include:
- Over 97% of companies worldwide are Small & Medium Sized Enterprises (SMEs)
- SME's account for 60% total employment and 49% value added
- 85% of companies in Asia are family-owned
- Globally 1.8bn people work informally versus 1.2bn in formal employment
Increase Shareholder Value
This conventional wisdom has dominated management thinking since 1976 but has lately been called into question. It is still top of mind for many, espeically those who don't read widely or think critically.
"On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy... your main constituencies are your employees, your customers and your products.… Short-term profits should be allied with an increase in the long-term value of a company."
The above quote was from 2009 for the Financial Times, 8 years after he retired from a 20-year stint of growing GE shareholder value to the highest in the world - meeting or beating forecasters’ expectations 46 out of 48 straight quarters.
As this Forbes article points out, the difference between managing expectations and managing business outcomes (via products and services) has big impacts on the company, its employees and society. Stock-based compensation, versus real market metrics, changed the narrative on why business exists, confusing many in the process.
Good idea or a dumb idea, it is not the role of business.
Innovate
Most overused buzzword in today's business lexicon? Officially defined as a new idea, device or method. Almost impossible not to hear it at least once in every session at major conferences. Business can innovate. It can be innovative. It can drive new innovations.
But these activities are not in and of themselves the role of the business. They are how business improves its processes for producing, selling or adding value. A Wired article cites skills and behaviours to become more innovative, which are more useful than trumpeting an empty slogan.
- Conceptual thinking
- Curiosity
- Reflection
- Collaboration, among other
Tech is the new finance
Pay Taxes
Business supports a well-functioning government by paying tax to fund public services. Paying tax is not its primary role. Tax avoidance has been called an abuse of human rights by the International Bar Association because it deprives poorer countries access to resources for healthcare, education and essential infrastructure like water and sanitation.
Apple has been fighting with the European Union over what the EU claims is a $15bn unpaid tax bill, the largest tax claim in history. If the role of business were to pay tax, the most valuable company in the world (Apple) would not be fighting. Nor employing so many very innovative managers to avoid it.
Provide Employment
Business has always employed people. This is becoming less true as algorithms, automation and artificial intelligence penetrate deeper into the mainstream. Count the robots.
Evidenced by the fear of technology eliminating ever more jobs in years to come, it is clear that business does not exist to employ people, although it has historically done so. Work however, is a social activity and many wonder what we will do with our time if machines make us all redundant.
A universal basic income is actively being debated:
- A recent Brookings Institute post offers arguments in favour of UBI
- This piece on Huff Post argues against UBI based on our neeed for meaning in life
- Silicon Valley is experimenting with a basic income, via Y Combinator
Be responsible and give back to communities
Corporate Social Responsibility (CSR) has distorted our understanding of the role of business. In spite of high profile communications on sustainability, community investment and engagement, most of these efforts bear little relevance to core business activities. Public Relations does not address externalities of the business.
Business should abide by the laws of the land, including paying tax, and manage their social contract with the wider society. Without such basis, CSR is irrelevant. Apple is not the only one dodging: 90% of the top 200 largest companies invest in tax havens, according to Oxfam. CSR initiatives like charity and volunteerism undoubtedly help certain segments of society. Yet it should not obscure the need for a more honest appraisal of costs externalised to society.
So then what is the Role of Business?
Business provide goods and services in response to our needs or desires and therein generates profit for the continued viability of the business and the benefit of owners.
In addition to rewarding owners and shareholders, business activity contributes to economic development, creates wealth and provides gainful employment to workers. Severely unequal distribution of wealth is now a major threat to the continued stability of modern societies.
A license to operate is granted by the government on behalf of society, requiring adherence to all applicable laws and regulations. If a business transgresses these laws its license may be revoked (recent exception being "sharing economy" companies who have ignored and technically broken laws they disagree with).
Beyond formal laws, there exists a social contract between business and society, an agreed set of acceptable norms and behaviours which, while not legally binding, offers tacit approval of business activities. When conditions change, business must adapt, and actively uphold this contract and not ignore it. Business leaders thus must have their “finger on the pulse” of society’s evolving expectations.
Mobility is the new Urban Dream
In spite of powerful tendencies to obscure the narrative, the fundamental role of business in society remains consistent - it is something all business leaders, current and future must consider.
Stay tuned for future related posts:
- The Social Contract
- Externalities are a Blind Spot at the Top
- Do you have the "Big Company Mentality?"
Call us to learn how a session on the Role of Business in Society can be designed into your next leadership learning programme.
