A recent NY Times article, The Sunny Side of Greed by Op-Ed columnist Frank Bruni, argues that corporations may well now be among the strongest socially progressive forces in the country. In issue after issue, - e.g., marriage equality, the confederate flag, immigration reform, - the business community has supported what we generally think of as the more socially progressive position.
“Are these companies acting in their own interests?,” asks Bruni. “Absolutely. They’re trying to make sure that laws and local customs don’t prevent them from attracting and retaining the best work force. They’re burnishing their brands in a manner that they hope will endear them to customers. But those efforts, coupled with whatever genuine altruism and civic obligation some corporate leaders feel, have produced compelling recent examples of companies showing greater sensitivity to diversity, social justice and the changing tides of public sentiment than lawmakers often manage to.”
While our politicians are paralyzed by ideological arguments and partisan bickering, corporations seem to have little trouble embracing the more pragmatic positions that seem to better reflect the overall mood of the country on social issues like immigration and same-sex marriage. The reason isn’t all that difficult to understand. Many politicians must respond to the wishes of a few big donors and of small, single-issue interest groups in their districts. But companies, especially those with national and global brands, must be responsive to a much larger, diverse constituency, namely their customers.
This is why BMW and Boeing, two of South Carolina’s biggest employers, supported Governor Nikki Haley as she personally led the effort to retire the Confederate Flag from the state capitol grounds. It’s why Eli Lilly, American Airlines, Intel, Walmart and other corporations were crucial in defeating the religious freedom laws aimed at the LGBT communities in Indiana, Arkansas and Arizona. And it’s why the US Chamber of Commerce has strongly supported comprehensive immigration reform.
But, some might ask, isn’t this all a sideshow for business, diverting its energies from its number one - perhaps sole - objective: making money. After all, Milton Friedman, one of the most influential economists in the second half of the 20th century, argued succinctly in a 1970 article that “the social responsibility of business is to increase its profits.” Others might point out that social actions for the common good are the proper responsibility of elected governments, not of business, and when a company engages in social activities, it’s essentially playing with its shareholders’ money.
To me, viewing the role of business as the single-minded pursuit of profits and shareholder returns feels not only simplistic but contrary to what good capitalism should be all about. Just like democratically elected politicians are often the ones giving democracy its biggest black eyes, there is plenty to criticize with the actions of more than a few individuals and companies that so discredit capitalism. But, if I may borrow Winston Churchill’s famous quote about democracy: “Capitalism is the worst form of economic system except for all those others that have been tried from time to time.”
Adam Smith, the 18th century Scottish philosopher, is generally considered the father of free market, free trade capitalism. His most famous work, The Wealth of Nations, published in 1776, is regarded as the first modern work of economics. He’s also well known for his famous metaphor of the invisible hand - “the free market, while appearing chaotic and unrestrained, is actually guided to produce the right results by this so-called invisible hand.”
He believed that our actions are guided by self-interest. But, in his second major work, The Theory of Moral Sentiments, Smith argued that sympathy, - the human ability to have a strong feeling of concern for another person with no regard for financial return, - is required in an economic system in order to achieve socially beneficial results.
In an excellent 2009 Financial Times opinion piece, Adam Smith’s Market Never Stood Alone, Harvard economics professor and 1998 Nobel Prize winner Amartya Sen observed that in advanced economies, where it’s been most successful, capitalism is pragmatic, not ideologically pure, and that this pragmatism goes back to the days of Adam Smith.
“It is often overlooked that Smith did not take the pure market mechanism to be a free-standing performer of excellence, nor did he take the profit motive to be all that is needed… People seek trade because of self-interest - nothing more is needed, as Smith discussed in a statement that has been quoted again and again explaining why bakers, brewers, butchers and consumers seek trade. However an economy needs other values and commitments such as mutual trust and confidence to work efficiently.”
Clearly, the top priority of a company must be making money - otherwise it will just not survive. However, to therefore think of business as solely a profit-making machine feels very one-dimensional, especially in our increasingly interconnected 21st century economy, where the old boundaries between business and government are becoming a lot more complex and porous.
A company is at heart an organization of people working together for some common objectives. A company exists within an environment that involves the communities and nations where it does business; the various other companies with which it does business; its employees and business partners; and, of course, its customers and potential customers. The company exists not just in an economic environment, but in a social and political one as well – and those are composed not of numbers but of people. Most of those people - employees, business partners, customers and neighbors - want more from a company than a profit-making machine.
Businesses spend considerable time, money and energy attempting to associate positive qualities with their marketplace brands. The relationship between a brand and its customers is a complex one, full of emotional connections, associations and expectations. Well managed companies know this, and work hard to establish a culture that balances the need to make profits with other positive attributes that attract people to want to be associated with the company and its products and services. This is even more important in our times, due to major forces: globalization - as more and more companies are doing business around the world and thus need to establish global brands; and the Internet - which enables a company’s actions, especially its missteps, to be instantly communicated to all.
In 2008, The Economist published a special report on Corporate Social Responsibility (CSR). “Corporate social responsibility, once a do-gooding sideshow, is now seen as mainstream,” the report starts out saying. “Why the boom?… For a number of reasons, companies are having to work harder to protect their reputation - and, by extension, the environment in which they do business… More than ever, companies are being watched. Embarrassing news anywhere in the world - a child working on a piece of clothing with your company’s brand on it, say - can be captured on camera and published everywhere in an instant, thanks to the Internet… As well as these external pressures, firms are also facing strong demand for CSR from their employees, so much so that it has become a serious part of the competition for talent.”
In the end, as The Economist points out, “One way of looking at CSR is that it is part of what businesses need to do to keep up with (or, if possible, stay slightly ahead of) society’s fast-changing expectations. It is an aspect of taking care of a company’s reputation, managing its risks and gaining a competitive edge. This is what good managers ought to do anyway. Doing it well may simply involve a clearer focus and greater effort than in the past, because information now spreads much more quickly and companies feel the heat… It is the interaction between a company’s principles and its commercial competence that shapes the kind of business it will be.”
“And while it doesn’t erase the damage that corporations wreak on the environment or their exploitation of workers paid too little, it does force you to admit that corporations aren’t always the bad guys,” writes Frank Bruni in his OpEd column. “Sometimes the bottom line matches the common good, and they’re the agents of what’s practical, wise and even right.”