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PHIL HARDWICK — What is the purpose of business

PHIL HARDWICK

Last summer, The Business Roundtable, a nonprofit organization of CEO’s of major businesses, redefined its Statement on the Purpose of a Corporation to include stakeholders in addition to shareholders. The action has produced much discussion about the primary role of the corporation. To put it another way: What responsibility does business have to society?

Nobel prize recipient Milton Friedman and others have argued that a corporation’s purpose is to maximize returns to its shareholders, and that since only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole. Others have gone so far as to say that the role of business is to abolish poverty. What did Peter Drucker say?

Management guru Peter Drucker wrote that business management has three tasks to perform, to wit:

Establishing the specific purpose and mission of the institution, whether business enterprise, hospital, or university; Making work productive and the worker effective; and
Managing social impacts and social responsibilities.

He also pointed out that business “… has economic performance as its specific mission.”

These ideas are colliding as we witness and debate the role of government in solving economic conditions and the role of business in influencing government policy. It seems
that if nothing else both big business and government are losing the trust of the people as the roles of business and government are considered.

Many businesses embrace the idea of social responsibility and even have formalized corporate social responsibility statements. State Farm Insurance, for example, states on
the Corporate Responsibility section of its Web site that its mission is “… to help people manage the risks of everyday life, recover from the unexpected, and realize their dreams.” Its Community Involvement section states, “We’re good neighbors who help build stronger, safer, cleaner, and better-educated communities.”

But wait. What would that great profiteer and icon of American business, Henry Ford, say about corporate social responsibility? In a fascinating article entitled “Toward Abolishing Poverty,” in the August 16, 1930 issue of The Saturday Evening Post, Ford and his co-author Samuel Crowther wrote about the role of government and business, especially government’s role in boom and bust cycles. Ford states, “One of these days I hope the politicians will cease making capital out of business conditions. They will not
cease doing so, however, until the leaders of business cease trying to gain what they imagine to be business advantages through the aid of politicians.”

Ford’s hope has obviously not become reality some 90 years later. Indeed, most agree that it is worse than ever. Special interests of business have an undue effect on legislation, while Congress and government agencies use business conditions as the excuse for implementing social policy that could not have been put into effect under normal business conditions. In the article mentioned above, Ford discusses the larger role of American business as follows:

“The abolishing of poverty is, as far as I am concerned, the only end of business which is worth considering. It is from this point of view, and only from this one, that we can see
the futility of selfish competition and the utter fallacy of the profit motive. Once we see the ultimate purpose of business as a factor of life of man, we are through with all the
twiddling fancies that formally passed for business wisdom. The abolishing of poverty is the only legitimate purpose of business, and its accomplishment is not an impossibility
unless we imagine that it can be done all at once by edict.”

In closing, each individual business must determine its own approach to social responsibility and its attempt at influencing government policy. For some businesses, active involvement in social concerns is good for the bottom line. For others, the best thing they can do is market their products and services and leave social concerns to others. Every company is free to pursue its own social agenda. Whether that results in greater profits is not the same for every company. Some consumers intentionally do businesses with companies that support certain social concerns. Some consumers merely want the best product or service at the lowest price without regard to what a company’s social policies might be.

And that is the beauty of America. As the title of one of Milton Friedman’s books says, we are “Free to Choose.”

» PHIL HARDWICK is a regular Mississippi Business Journal columnist. His email address is phil@philhardwick.com.

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