Today more than ever, Milton Friedman’s question on the role of business in society seems more than accurate. Yet, it has now been 50 years since he asked and answered a fundamental question: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” That view has long influenced management thinking, corporate governance, and strategic moves. But more recently, many leaders have sought to expand that definition to consider all the stakeholders who stand to gain—or lose—from organizations’ decisions.
Before Friedman’s, the social responsibility of business was an important matter. There was a growing concern on corporate purpose. The idea of enhancing accomplishment and a belief that healthier corporations meant a healthier society. It was something like what Aristotle said: a healthy mind in a healthy body. The debate of establishments’ role in society started in the 1950s and went on through the intense 1960s. Columbia University offered a lecture series in which the challenges of organizations were discussed. Many of those conversations became books that addressed the issues Friedman would soon take on.
While some management theories were centred on answering the question of what a business is, others were focussing on the way enterprises had to relate with their entourage and how they should interact with the environment. Management attention opened to go global in the 1980s. The world analysed how Japanese companies were revolutionizing manufacturing to compete against Western players. Other important changes were also happening, and the shift toward globalization took hold.
The last part of the XX century came along with an avalanche of changes in many matters: political, economic, technological. I believe that if we could go back thirty years in time, it would be hard for us to understand the world as it was composed; not only the big issues, but the day to day basis. Walls went down, frontiers were diminished, high-tech became a part of our lives. So many adjustments, and there was a refection that was left apart. Which is the responsibility that enterprises have? Which is their role in society?
Businesses play a vital position in the economy. Companies produce goods and services, create jobs, foster innovation and provide essential for the economy to progress. Organizations create and sell consumer products; manufacture apparatus and automobiles; support the national security; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth. And, mainly, businesses pay taxes. While each corporation serves its own corporate purpose, they share with the community a fundamental commitment to all the stakeholders. Yes, it seems less, but we are celebrating fifty years of talking about social responsibility. Yet, it appears that it has not been so long and moreover, that the topic is new, because we are about to start to understand the convenience of talking and reflecting on this matter. Friedman’s words are still echoing today, in the middle of a world crisis. When we are trying to figure out how is the new normal going to work, we still must answer so many questions about being socially responsible. Maybe, this is the best moment to set the starting line.
Reverberations Milton Friedman’s statement continue to vibrate today, even as the world traverse crises and imagine the world beyond Coronavirus. And a path to begin understanding the relevance of social responsibility is getting to see a chain reaction: the value that outcomes from value creation. A possibility to create long-term value can—and should—consider the interests of all stakeholders, every related part must be taken into account. Yes, the Covid-19 pandemic has laid scant the deep disconnection between businesses and the bigger world in which they operate. It is time to set focus in the correct place. Employees, customers, and stakeholders expect a CEO to articulate where the company stands on critical issues. And that place has to be related to how they are going to responsibly interact with their community.
The time has come to reflect upon purpose. The moment to think of which elements define its core reason for being and its impact on the world is here. Here is where we can find an answer to face the new normal in a better way. It is not romantic thinking; it is entrepreneurship thinking. The faster we do it, the better. It is time to light a purpose that benefits the company and its surroundings, because it is convenient and good. Not just because it is good.
If a company is going to create employment which in the long term is going to be translated into consumption, there is a virtuous circle that needs to be enhanced. On the other hand, if a company decides to watch its bellybutton, it will miss opportunities to build a survival net. When a company is not willing to help their community, both —community and company—will turn to be feeble.
Today, enlightened executives will have to seek the sweetened spot between their responsibility to maximize profits on behalf of shareholders and their desire to find a purpose across environment, social, and governance on behalf of a wide-ranging of stakeholders, including customers, employees, and communities. As businesses large and small are not surviving the crisis and are being forced to shut their doors, and millions of persons withdraw to enforced loneliness and isolation, the enormous scale of the coronavirus crisis defies leaders with the managerial challenge of a lifetime.
It also demands of them a moment of existential introspection: What defines their company’s purpose—its core reason for being and its impact on the world? The question remains and the world is still waiting for an answer that we already know. It was stated by Milton Friedman fifty years ago.