Why Businesses Don't Need Social Responsibility

Business leaders, pundits, and professors have all suggested that we need more 'social responsibility' as an antidote to the rapacious capitalism that brought the world to the brink of financial ruin.

This is a very bad idea. It illustrates what is wrong with our understanding of business. Focusing on 'social responsibility' is likely to distract us from the real work we need to do. We need a new story, one that's about business. And, it doesn't need to contain 'social responsibility'.

British Airways doesn't need more social responsibility. It needs to figure out how to manage its business so that it creates value with its employees in a co-operative manner.
Lehman Brothers didn't need more social responsibility. It did need to determine how to serve its customers and its employees in a responsible way. Financial services firms in the City and on Wall Street need to figure out how to be responsible to its clients and employees, rather than social responsibility.

One banker put it this way. "We weren't hurt too much by the sub-prime mortgage meltdown. We just didn't see how lending money to customers who couldn't afford to pay it back did anyone any good."

Or in the words of one CEO, "The only assets that I manage go up and down the elevator every day". He went on to say that the employees were a big part of the value-creation process in the company.

Successful businesses create value for customers, employees, suppliers, communities, and financiers (the people with the money).

When are we going to understand that this is just what a business is? When are we going to understand the real magic of capitalism is that it is the greatest system of social co-operation we have ever invented?

It is how we human beings create value and trade with each other. Business just is creating value for stakeholders.

What about "shareholder value" and "profits"? Isn't there a conflict here? Absolutely not.

Shareholder value and profits are important ideas, but they are best understood as outcomes of a set of decisions that create value for customers, employees, suppliers, and communities.

Saying that "maximizing profits" is the purpose of a business is like saying "making red blood cells" is the purpose of life. We've got to have them, but purpose is something else. Even Jack Welch, former CEO of GE, says that profits are a result.

But, let's suppose for a minute that you really believe that the only purpose of a business is to maximize value for shareholders.

How are you going to do it? You need to have great products and services that make customers lives better, a compelling work environment so that employees will give their best.

You need to attract the very best suppliers so your products and services can be better, faster, cheaper... and you need to be a good citizen in the community if for no other reason than to ensure the community doesn't pressure governments to pass rules to hamper you. And, if you do all these things, you're going to make money as an outcome.

Now no-one has said that this is easy.

Many executives nod their heads about stakeholders then go on to ask me which ones are most important. The answer is that you have to get all five of them going in the same direction.

The temptation is to make tradeoffs so that employees or communities or suppliers lose. That is the biggest mistake of our current management thinking.

We need products and services that create value for customers and for communities. That is the force behind "green" business. We need workplaces that inspire employees to work with suppliers to create better and better products for customers. No stakeholder stands alone in the value creation process. The intersection of stakeholder interests is where the action is, and it is where great organisations focus their attention.

Creating value for stakeholders is just business common sense. Andthat seems to be in short supply in much of the world.

(Photo: Infrogmation, CC2.0)