INSIGHTS FROM 

Edward Freeman

 

Bidhan L. Parmar

 

Newswise — From recent startups to long-standing companies, we are witnessing nothing less than a revolution in the way that we understand business. According to Mark Benioff, CEO of the software company Salesforce, more and more business leaders are realizing that business can and indeed should seek to improve the state of the world. 

Salesforce is a remarkable company that embodies and has helped to define a new way to think about business. Benioff describes his view of business this way: “Companies can do more than just make money, they can serve others.” He started Salesforce with the vision to make enterprise software easy to use and available over the internet. It has since built into its basic structure a model of giving back to society. Called “1-1-1,” the model sets aside 1 percent of equity for community grants; donates 1 percent of the product to nonprofits and education organizations; and donates 1 percent of employee time to communities. Salesforce is just one example of the many companies across the business landscape that are making such commitments.

THE FORCES THAT ARE BRINGING ABOUT THE NEW STORY OF BUSINESS

The global financial crisis (GFC) of 2008 has spawned an industry of analysis and calls for reform. While the forces that shaped the GFC had been emerging long before 2008, we see the GFC as a perfect storm that woke us up to the flaws in the way that we think about business.

In addition to the GFC, globalization and the controversy surrounding it have a long history and a large impact on business. Alongside globalization, advances in information technology have increased the awareness of business’ effects on the rest of society, solidifying the idea that business and ethics are, in fact, connected. We have also seen changes in law and public policy in the United States and around the world. Many of these changes legitimize the idea that that there must be limits on the goal of creating value for shareholders.

In their new book, The Power of And: Responsible Business Without Trade-Offs, Darden professors Edward Freeman and Bidhan Parmar and their co-author Kirsten Martin (George Washington University) offer a compelling narrative about the new story of business. 

THE NEW MODELS

There are many proposals for business reform. Models for reform give rise to a better purpose and role for business in human society. 

  • Corporate social responsibility (CSR), the idea that business should contribute to society beyond its commercial operations, has been circulating in the United States and around the world for centuries.
  • Corporate sustainability suggests that a firm’s business strategy should lie in the simultaneous, proactive pursuit of goals along economic sustainability, environmental sustainability, social sustainability and ethical sustainability.
  • Stakeholder theory has challenged the pervasive idea that the primary responsibility of a company is a fiduciary duty to shareholders. It says that businesses should rather operate in the best interests of their stakeholders — any group or individual whose continued support is necessary for a company’s existence and health — so while shareholders are important, they compose only one stakeholder group out of many.

These are just a few of the many new business models being created that are not solely driven by profit maximization.

5 KEY IDEAS BEHIND THE NEW MODELS

(1) PURPOSE, VALUES, AND ETHICS ARE AS IMPORTANT AS MONEY/PROFITS. 

A sense of values and ethics has to go alongside purpose. We can no longer make the mistake that the pursuit of profits is the sole purpose of business. Real purpose inspires both employees and other stakeholders who come to share that purpose.

(2) BUSINESS IS ABOUT VALUE CREATION FOR STAKEHOLDERS.   

Creating value for stakeholders is one of the most important ideas in business. It is something that every successful business has actually done. As business people become more aware of this fact, they can build more nuanced ways of creating value into their business models. 

(3) BUSINESS IS EMBEDDED IN SOCIETY AND IN A PHYSICAL WORLD.  

Business is not an isolated institution that stands alone in some kind of moral-free zone. It is firmly embedded in other social institutions such as governments, families, religious institutions, etc. And it is firmly grounded in the real, physical world. Adopting some kind of green values, and integrating respect for the environment into our purpose and values, can be a powerful elixir for creativity.

(4) PEOPLE ARE COMPLEX.  

Part of the old narrative of business is that most people are self-interested and need incentives to really work in business. However, a much more inspirational view of human beings has emerged. Business is embedded in society and is often run by people who have multiple goals and identities, people who are not just “rent-seekers” looking to manipulate resources or policies purely for economic gain without giving back to society. 

(5) BUSINESS AND ETHICS MUST BE INTEGRATED INTO HOLISTIC BUSINESS MODELS.  

One way to summarize these ideas is to say that business and ethics must go together. Many of the worst outcomes occur because of narratives about business that separate business decisions from ethical decisions. We can no longer afford an idea of business that is narrowly economic, in terms of focusing on profits and money, either leaving the rest of our interests to government or pretending that markets will eventually work things out for the best. In reality, almost any business decision has some ethical content.

MUTUALLY SUPPORTIVE IDEAS TELL A NEW STORY

These five ideas are mutually supportive of each other.  Because purpose matters, those people and groups who are affected by a purpose must be engaged. Stakeholders are themselves engaged with the creation of value for others. And we are all embedded in our societal institutions in a network of complex human relationships. Successful businesses and other organizations figure out how to put these ideas together into a business model that integrates economic, financial, social, political and moral issues in a way that garners stakeholder support and realizes the purpose of the organization. There is a growing conceptual revolution in how we think about business. These ideas should act as our guides in the new story of responsible business.  

Excerpted from The Power of And by Copyright (c) 2020 Columbia University Press. Used by arrangement with the Publisher. All rights reserved.

This article was drawn from The Power of AND: Responsible Business Without Trade-Offs (Columbia University Press) and adapted by Rebecca Little, a research assistant at Darden’s Institute for Business in Society.

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Newswise: Responsible Business Without Trade-Offs: 5 Key Ideas

Credit:

Caption: R. Edward Freeman

Newswise: Responsible Business Without Trade-Offs: 5 Key Ideas

Credit:

Caption: Bidhan L. Parmar