The Purpose of Business: Its Stakeholders and their ClaimsThe Purpose of Business: Its

Stakeholders and their Claims

The Purpose of Business: Its Stakeholders and their ClaimsThe Purpose of Business: Its

Stakeholders and their Claims

What is the appropriate role for business to play in a free market democracy?

Who decides?

The answer provides a “normative foundation for business”.

What is the appropriate role for business to play in a free market democracy?

Who decides?

The answer provides a “normative foundation for business”.

Examples of “socially responsible” companies:

Examples of “socially responsible” companies:

Examples of “socially responsible” companies:

Examples of “socially responsible” companies:

Who are the primary stakeholders in a business and what claims do

they have on it?

Who are the primary stakeholders in a business and what claims do

they have on it?

StakeholdersClaims StakeholdersClaims

What does “the social responsibility of business” or “corporate social

responsibility” (CSR) mean in our society?

What does “the social responsibility of business” or “corporate social

responsibility” (CSR) mean in our society?

What does the contemporary concept “the social responsibility of business” mean?

What does the contemporary concept “the social responsibility of business” mean?

1. “Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of

society.”

1. From the perspective of a business, this means that managers must take active steps to insure that society

is better off as a result of the business’ existence.(From Dess, G.G. et al. (2008) Strategic Management. New York:

McGraw-Hill Irwin)

1. “Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of

society.”

1. From the perspective of a business, this means that managers must take active steps to insure that society

is better off as a result of the business’ existence.(From Dess, G.G. et al. (2008) Strategic Management. New York:

McGraw-Hill Irwin)

“Values-led business is based on the idea that business has a responsibility to the people and the

society that makes its existence possible.”

“Values-led business is based on the idea that business has a responsibility to the people and the

society that makes its existence possible.”

Timberland's program of social responsibility

Timberland's program of social responsibility

What types of activities does Timberland’s program of Social

Enterprise include? http://responsibility.timberland.com/ What are the costs of this program

to Timberland? What are the benefits?

What types of activities does Timberland’s program of Social

Enterprise include? http://responsibility.timberland.com/ What are the costs of this program

to Timberland? What are the benefits?

Milton Friedman’s thesis on the social responsibility of business

Milton Friedman’s thesis on the social responsibility of business

“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.”

from The Social Responsibility of Business is to Make a Profit, 1970

“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.”

from The Social Responsibility of Business is to Make a Profit, 1970

“Companies that focus on making money become more competitive, and that in turn means more economic growth, and more jobs, and all the other results that ‘stakeholders’ care about.”

Robert Eaton, Chairman & CEO of Chrysler

How does Friedman support his thesis that the social responsibility of business is

to increase its profits?

How does Friedman support his thesis that the social responsibility of business is

to increase its profits?

Supporting arguments for Friedman’s thesis on the social responsibility of business

Supporting arguments for Friedman’s thesis on the social responsibility of business

The responsibility of the corporate executive is to maximize profit because this is what shareholders want. (p.2)

The underlying political principle of the market mechanism: “In an ideal market resting on private property, no individual can coerce any other”. (p.5)

The vagueness of the term “social responsibility” as it applies to business.

The responsibility of the corporate executive is to maximize profit because this is what shareholders want. (p.2)

The underlying political principle of the market mechanism: “In an ideal market resting on private property, no individual can coerce any other”. (p.5)

The vagueness of the term “social responsibility” as it applies to business.

The appeal to social welfare: When profit-seeking occurs in competitive markets, firms direct society’s resources to their highest use as measured by the willingness of people to pay. (Adam Smith)

The realities of competition. (p.3)

Is social responsibility really anything other than profit maximization? (p.4)

The appeal to social welfare: When profit-seeking occurs in competitive markets, firms direct society’s resources to their highest use as measured by the willingness of people to pay. (Adam Smith)

The realities of competition. (p.3)

Is social responsibility really anything other than profit maximization? (p.4)

According to Charles Handy, what is the purpose of business?

According to Charles Handy, what is the purpose of business?

According to Charles Handy, what is the purpose of business?

According to Charles Handy, what is the purpose of business?

The purpose of business is not to make a profit. It is to make a profit so that the business can do something else. That “something” becomes the real purpose of the business. (p.5)

“To many this will sound like quibbling with words. Not so. It is a moral issue. To mistake the means for the end is to be turned in on oneself . . . “ (p.5)

“ . . . The suspicions about capitalism are rooted in a feeling that its instruments, the corporations, are immoral in that they have no purpose other than themselves.” (p.5)

The purpose of business is not to make a profit. It is to make a profit so that the business can do something else. That “something” becomes the real purpose of the business. (p.5)

“To many this will sound like quibbling with words. Not so. It is a moral issue. To mistake the means for the end is to be turned in on oneself . . . “ (p.5)

“ . . . The suspicions about capitalism are rooted in a feeling that its instruments, the corporations, are immoral in that they have no purpose other than themselves.” (p.5)

David Packard’s philosophy of businessDavid Packard’s philosophy of business

“I think many people assume, wrongly, that a company exists simply to make money. While this is an

important result of a company’s existence, we have to go deeper and find the real reason for our being. As we investigate this, we inevitably come to the

conclusion that a group of people get together and exist as an institution that we call a company so

that they are able to accomplish something collectively that they would not accomplish

separately–they make a contribution to society . . . ”

from What’s a Business For?, Charles Handy, 2002

“I think many people assume, wrongly, that a company exists simply to make money. While this is an

important result of a company’s existence, we have to go deeper and find the real reason for our being. As we investigate this, we inevitably come to the

conclusion that a group of people get together and exist as an institution that we call a company so

that they are able to accomplish something collectively that they would not accomplish

separately–they make a contribution to society . . . ”

from What’s a Business For?, Charles Handy, 2002

Summarizing: Can we find some agreement between the arguments of Friedman and Handy, some common ground that would point toward the

purpose of business?

Summarizing: Can we find some agreement between the arguments of Friedman and Handy, some common ground that would point toward the

purpose of business?

What is the primary objective of this business? How do you think Blake Mycoskie would respond to Friedman’s view of the social responsibility of business?

What is the primary objective of this business? How do you think Blake Mycoskie would respond to Friedman’s view of the social responsibility of business?

For most of the 20th century, professional managers of public corporations did not view themselves as "agents" whose only purpose was to maximize shareholder wealth. Rather, they viewed themselves as stewards or trustees responsible for steering great social institutions — public corporations — for the benefit not only of shareholders but also employees, customers and the nation. This system of "managerial capitalism" was hardly perfect. But, ironically, it produced better results for investors than the "shareholder primacy" philosophy that dominates public corporations today.

from 'Maximizing shareholder value' is ill-conceived concept byLynn Stout, professor of corporate and business law at the

Clarke Business Law Institute at Cornell Law School (Los Angeles Times, 9/212)

For most of the 20th century, professional managers of public corporations did not view themselves as "agents" whose only purpose was to maximize shareholder wealth. Rather, they viewed themselves as stewards or trustees responsible for steering great social institutions — public corporations — for the benefit not only of shareholders but also employees, customers and the nation. This system of "managerial capitalism" was hardly perfect. But, ironically, it produced better results for investors than the "shareholder primacy" philosophy that dominates public corporations today.

from 'Maximizing shareholder value' is ill-conceived concept byLynn Stout, professor of corporate and business law at the

Clarke Business Law Institute at Cornell Law School (Los Angeles Times, 9/212)

“The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey in a 1951 address that was typical of the era, “is to maintain an equitable and working balance among the claims of the various directly interested groups . . . stockholders, employees, customers, and the public at large.” The top executives of America’s major corporations had emerged from World War Two as ‘corporate statesmen,’ who had overseen defense production for the nation as a whole. Many continued to view themselves more as professionals with public responsibilities than solely as agents of private interests.

Reich, R.R. (1998). The new meaning of corporate social responsibility.

California Management Review 40:2, 8-17

“The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey in a 1951 address that was typical of the era, “is to maintain an equitable and working balance among the claims of the various directly interested groups . . . stockholders, employees, customers, and the public at large.” The top executives of America’s major corporations had emerged from World War Two as ‘corporate statesmen,’ who had overseen defense production for the nation as a whole. Many continued to view themselves more as professionals with public responsibilities than solely as agents of private interests.

Reich, R.R. (1998). The new meaning of corporate social responsibility.

California Management Review 40:2, 8-17

Quantifying the impact of corporate social responsibility

Quantifying the impact of corporate social responsibility

A Middle Way: “The Biggest Contract”(Ian Davis, Worldwide Managing Director of McKinsey & Co.)

A Middle Way: “The Biggest Contract”(Ian Davis, Worldwide Managing Director of McKinsey & Co.)

A. CSR is often a defensive, piecemeal, non-strategic reaction to social pressure

B. Companies need to build social issues into strategy in a way that reflects their actual business importance rather than taking a reductionist approach of “the business of business is business” which can lead to a focus on short-term performance

C. How IBM uses its expertise

A. CSR is often a defensive, piecemeal, non-strategic reaction to social pressure

B. Companies need to build social issues into strategy in a way that reflects their actual business importance rather than taking a reductionist approach of “the business of business is business” which can lead to a focus on short-term performance

C. How IBM uses its expertise

The business enterprise must be founded on a sense of The business enterprise must be founded on a sense of responsibility to the public and to its employees. responsibility to the public and to its employees.

Service to its customers, the wellbeing of its Service to its customers, the wellbeing of its employees, good citizenship in the communities in employees, good citizenship in the communities in

which it operates–these are cardinal principles which it operates–these are cardinal principles fundamental to any business. They provide the fundamental to any business. They provide the platform on which a profitable company is built.platform on which a profitable company is built.

We shall build good ships here at a profit if we can–at a We shall build good ships here at a profit if we can–at a loss if we must–but always good ships. (Newport News loss if we must–but always good ships. (Newport News

Shipyard, 1917)Shipyard, 1917)

From From Hopper and Hopper, Hopper and Hopper, The Puritan GiftThe Puritan Gift, 2007 (p.116), 2007 (p.116)

The business enterprise must be founded on a sense of The business enterprise must be founded on a sense of responsibility to the public and to its employees. responsibility to the public and to its employees.

Service to its customers, the wellbeing of its Service to its customers, the wellbeing of its employees, good citizenship in the communities in employees, good citizenship in the communities in

which it operates–these are cardinal principles which it operates–these are cardinal principles fundamental to any business. They provide the fundamental to any business. They provide the platform on which a profitable company is built.platform on which a profitable company is built.

We shall build good ships here at a profit if we can–at a We shall build good ships here at a profit if we can–at a loss if we must–but always good ships. (Newport News loss if we must–but always good ships. (Newport News

Shipyard, 1917)Shipyard, 1917)

From From Hopper and Hopper, Hopper and Hopper, The Puritan GiftThe Puritan Gift, 2007 (p.116), 2007 (p.116)