In a famous article, ‘The Social Responsibility of Business is to Increase its Profits’, in The New York Times in September 1970, Noble laureate economist Milton Friedman argued that, “The business of business is business.” He summarised that the only social responsibility of business is “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”
The statement became a mantra for economists and promoters of free markets and capitalist system, as well as business leaders and managers.
Times have changed since, as the rules of the game are changing, and changing fast. Business leaders and managers now operate in a volatile, uncertain, complex and ambiguous (VUCA) world. Business decisions made within companies (the economic system) are inextricably linked to challenges in societal and environmental systems and vice versa. Resource scarcity (raw materials such as clean water, energy), rising global and local inequalities, unpredictable policy changes and interventions by governments, and growing consciousness among a range of primary, secondary and fringe stakeholders of a business, limit the space within which businesses and their managers operate, compete and chase profits.
With a major beginning in this direction through the launch of United Nations Global Compact (UNGC) by the then UN Secretary General Kofi Annan in 1999, to the Guiding Principles for Business and Human Rights (UNGP) in 2011, Children’s Rights and Business Principles in 2012, and in 2015, the UN Sustainable Development Goals (SDGs) and the Paris Agreement on Climate Change, all are testimonies to the new emerging world order. These and other such accords present extraordinary challenges for business leaders in the boardrooms and managers in the frontline.
On the one hand, it is expected that several legal, regulatory and policy changes will be affected over coming years and decades, and on the other, there is huge emphasis and expectation on the role and contribution of businesses. All this increasingly point against short termism, and demand a focus on longterm sustainable strategies to deliver lasting growth and change for business and society.
In this context, only those firms are expected to survive, sustain and have long-term success which engage in responsible stewardship and actively consider external challenges, include sustainability related aspects in their business models and decision making and thus future proof themselves.
Clearly, the business leaders and managers chasing just the profits are left with not many choice but to align with the new realities of the world and enhance their competitiveness, anticipate and mitigate risks, and meet stakeholder demands and expectations. In other words, be socially responsible.
For managers, being socially responsible will be a sine qua non for chasing profits. The B-schools will increasingly need to recognise these unprecedented emerging changes and needs, and gear up to develop new knowledge and modules, matching with the required pace, and prepare the current and future managers to boldly face the new world order and create shared value for self, for their companies and for the society and the natural environment.
Guest Author
The author is chairperson, Centre for Responsible Business
