Responsible Business Is Good Business
By Tim Hughes, Non-Executive Director, Warwick
There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without fraud. This is the essence of Economics Nobel Laureate Milton Friedman’s doctrine, so influential in corporations and indeed governments of the 1980s. Understandably, Friedman’s views were attacked and continue to be condemned, particularly by those who contend that such unfettered capital accumulation leads to wealth being concentrated in the hands of the few at the expense of the many.
These critiques are substantiated by the fact that today the wealthiest 1% of the world’s population controls some 50% of global wealth. Conversely, 70% of the world’s population own some 3% of global wealth.
Yet, while the inadequacy of the minimalist Friedman doctrine is obvious, its core argument retains currency. Shareholders entrust their wealth in the hands of the management and directors of a company and as such, the primary responsibility of the corporation is to provide a safe, risk-adjusted return to its shareholders. Conversely, when the CEO of an internationally listed South African corporate ‘success story’ spends tens of millions of Rands on race horses, by using the paper wealth created by false accounting, he not only destroys the reputation of his corporation, he materially impoverishes the hundreds of thousands of ordinary people (shareholders) who invested in his paper stable through their pension funds. This is the antithesis of corporate social responsibility.
While difficult to capture crisply, the Financial Times defines the concept corporate social responsibility as “a business approach that contributes to the sustainable development by delivering economic, social and environmental benefits for all stakeholders.”
Notably, CSR is not simply philanthropy. Scottish- American industrialist Andrew Carnegie captured the essence of philanthropy in stating, “The duty of the man of wealth is to consider all surplus revenues which come to him simply as trust funds, which he is called on to administer, in a manner best calculated to produce the most beneficial results for the community.” The Bill and Melinda Gates Foundation is perhaps the closest contemporary approximation.
Rather CSR hinges on good workplace, marketplace community and environmental practices. CSR makes good business sense and can be fully justified in purely business, rather than ethical, terms. CSR can and does enhance the reputation of the company, which, in turn, can have a positive qualitative and material impact. Companies often claim that their reputation is one of their most valued assets, with good reason. Corporate reputation embraces qualitative and quantitative elements. In qualitative terms, a good reputation translates into client trust, quality recruitment, brand loyalty and better stakeholder relations. Materially, CSR should aid sustainable profitability, ceteris paribus.
Corporate South Africa need no longer see CSR as an insurance policy, guilt premium, or as a coercive isomorphism. Rather, it should be embraced as an essential component of any sustainable corporate business model.