If you ask a business man what is the purpose of business, 90% of the chances you will get the answer “maximizing shareholder value.” Something is wrong.
I believe that the primary purpose of the firm is to maximize the overall return to all stakeholders. I am in the camp of stakeholder capitalism with John Mackey, despite the criticisms from economists as Michael Jensen. I tend to think that a firm takes many inputs to generate the output of its products or services. These inputs include the employees’ sweat (often producing more profits than the salary they get), investors’ money, the environment with its resources, the community where the firm sources its raw materials, and its customers who bring in sales and thus profits to be reinvested into the business. Investors’ money is just a type of the inputs necessary for the successful production of the output by the firm. It is only fair to the other stakeholders if a firm takes a holistic view of its required inputs and therefore purposes itself in maximizing the overall return to stakeholders.
Based on the above belief in the purpose of the business, I also believe that businesses do not necessarily prioritize individual well-being, given that they have a responsibility to make sure of the well-being of their other stakeholders. I tend to believe that achieving individual well-being is “a” means to achieving a firm’s purpose, which is in the general direction of maximizing stakeholders’ return and determined by the entrepreneur of the organization, but not necessarily the only means. Profit is like blood in the body without which the body cannot function, but it is not what one lives for. More and more organizations begin to realize that and have started integrating “social responsibility” into the core business, rather than keep it as an attached nice-to-have function outside of the firm’s core business. On the “Sourcing from BOP Markets” panel that I organized for the Social Enterprise Conference last year, we had executives from Mars Chocolate and Green Mountain Coffee talk about how their organizations helped the communities where they sourced Cocoa or coffee. Starbucks is another organization that is actively helping the coffee farmers by investing in loan programs and working onsite with them to improve coffee quality. On the panel we also had an entrepreneur whose flip-flop business (www.commonsoles.com) is explicitly purposed on the well-being of the community. I believe that a business can and should play an active role in the well-being of the community and the above businesses are good examples of both the possibility and the trend of organizations setting their purpose on, in other words prioritize, the well-being of the community.
All that is to say that I believe in the power of businesses. I am reluctant to call it market capitalism since we are here to reimagine it. And that effort perhaps starts from changing the language. Klein’s charge reveals her concerns that markets work in a way that perpetuates injustice. M. Friedman would respond to her that ensuring justice is not the task of the for-profit businesses. Businesses make money, pay taxes to the government and the government spends the tax money on ensuring justice. Hayek would respond similarly that a democratic political system with proper legislative, judicial and executive infrastructure will take care of ensuring justice, not the markets. B. Friedman would say that let’s grow the economy and injustice will be eliminated when we reach prosperity. I personally think that businesses have responsibility to care for the community and therefore should take its share in helping ease the global climate crisis. It may take a long time for the business world to accept this belief, which means that before then coercion is probably necessary.