The main debate about the current business climate is whether companies should be solely accountable to shareholders or whether much broader stakeholder responsibilities should be brought into play. In this article, I discuss “business ethics” and how outmoded shareholder views are being expanded into a broader conception of value creation.
I have avoided Twitter for some time. My reluctance stemmed from the fear that another social networking site would take time out of my day. I gave in though, and despite my early inclination to only follow the likes of Stephen Fry and other celebrities, I found it quite exhilarating. Sure, there are plenty of mundane tweets that don’t light up my day (like trips to the dentist or school runs), but there are others that have made me stop and think about some of the biggest business issues of our day.
A recent tweet said: “Business ethics is an oxymoron”, a phrase widely used but that never fails to convince me. My initial reaction was to respond by saying, “Why do we feel we must accept an outdated view of business as ‘dog eats dog, every bastard for himself’? Can’t we instead embrace the social collaboration of creating of value than What can modern capitalism be if we all try?” – but that was more than 140 characters. So I thought maybe I’d try to explain my point of view in a bit more detail.
A successful company is obviously one that seeks and achieves economic growth. Milton Friedman’s famous statement that “a company’s only responsibility is to its shareholders” is often cited as the ethical foundation of capitalism. By trying to act responsibly towards anyone other than company shareholders, owners and managers are actually behaving unethically. But does this argument really have much validity?
If a successful company is one that seeks and achieves (sustainable) economic growth, how does it do it? You are likely to work with vendors who understand your needs and work innovatively to provide you with the best product or service. You are likely to provide value-rich products or services to your customers. It will be complying with the legislation and working in every way to act with justice. In short, multiple stakeholders will be considered to achieve the best possible performance for each.
This much broader view of responsibilities, stakeholder theory, has been around for quite some time and owes much to the work of R. Edward Freeman. In his words, “For any business to be successful it has to create value for customers, suppliers, employees, communities, and financiers (shareholders, banks, the people with the money).”
The interests of all stakeholders must be considered and integrated in the best way in a broad search for value creation. By finding the common ground of these stakeholders, rather than just seeking to mitigate conflict and seek trade-offs, companies can create value for all.
Businesses cannot be free of values or ethics simply because they are not free of people. Customers, suppliers, financiers, employees, and communities are made up of human beings with names and faces. Co-creation of value for all these stakeholders relies heavily on collaboration.
Is “business ethics” an oxymoron? No, in fact, the phrase itself is more of an irrelevance than an oxymoron. Good ethics in all areas of our lives actually goes back to common sense.
Now I just need to reduce it to 140 characters.