My dean Tom Cooley is a firm believer in the role of business as an agent of social change and progress. In case you are wondering why this is related to digital strategy, check out the wonderful story of ITC's eChoupal that we discussed in my MBA class today.
I'm torn about two issues on this subject:
(1) Where should a business draw the line between maximizing familiar "shareholder value" metrics and facilitating broader social transformation and progress? I respect the writings of both Milton Friedman and Ed Freeman, but their views diverge pretty radically on this front. Or do they?
(2) Is it sensible to allow a corporation to own physical and technological infrastructure essential to a nation's commerce? This is clearly a more important question for developing countries. However, before you conclude that its only relevant to them: the Internet took off after it was freed from the shackles of DoD ownership. As a consequence, an essential and integral piece of today's U.S. commercial infrastructure is entirely owned by a handful of telecom companies. Leading to, for instance, debates about net neutrality.
Anyway, food for thought. Look forward to your feedback.
6 comments:
As I noted in class, the key is reinforcing that the company may choose to pursue socially responsible objectives but should not sacrifice the need to maintain profitability and provide value to shareholders. Unless the market begins to reward firms solely on their ability to be socially responsible, they must do what is best for their value first and their society second. These need not be mutually exclusive, but one does triumph the other.
I agree with Mike. If there was a way for that market to factor in the ‘social progress’ in a firm’s valuation, a public firm could maintain its competitiveness while promoting social transformation. It may seem that drawing the line has to be a collective decision between shareholders and managers. Ironically, managers’ interests are aligned to their shareholders through performance based rewards in order to reduce agency problems. Also, I remember in our Professional Responsibility class it was taught that a manager must first have fiduciary duty towards the firm's shareholders. The line clearly moves towards “shareholder value”. May be a private equity firm can take the firm private and facilitate this transformation. I googled and surprisingly came across a couple of socially conscious private equity firms!
Shareholder value and social responsibility are not necessarily mutually exclusive. One part of social irresponsibility is the current green focus. All the presidential candidates have comprehensive environment policies. Once one is elected, we are going to see rather dramatic U.S. policy change regarding the environment which will greatly effect business. Those companies, which are already green aware, will be ahead of the curve, and therefore bring higher returns than their less green counterparts.
On some level, social progress should be a shareholder value. To say that one’s ultimate responsibility is to a company’s shareholders renders the general public an invisible and ignored stakeholder. The choice between social responsibility and increasing shareholder value is not (or at least should not be) mutually exclusive.
Businesses have the most power in the developing world, especially since many of their governments are poor, ineffective, fragmented, and/or corrupt. The environmental impact of industrialization tends to leave developing countries with lasting side-effects like pollution and the depletion of natural resources. Ignoring the public as a stakeholder leaves them to bear the brunt of these problems, while businesses profit at their expense. As we’ve seen with companies like Coca-Cola, Mattel, and others, the backlash is bad for business.
Promoting progress as part of their bottom line, rather than having it occur as a positive externality, is vital to the development of emerging economies. This aids the company’s long-term sustainability and effectiveness as it develops an educated localized workforce, creates new economies, and differentiates the company via the use of ethical practices.
I work on projects at IBM where we characterize the benefits on 5 fronts (Q C D T and V) - where all are of equal weight. Quality, Costs, Delivery are characterized by customer needs - essentially the 'what' you are providing. Team and Value are characterized as metrics on 'how' you provide your product or service - including community involvement, environmental impacts, etc. You need to have all 5 to be successful. I believe successful organizations DO take these into consideration - P&G, IBM, GE, etc. If you provide a great service, but cause distress or decay cultural norms you most certainly will not be competitive against someone who does care about those things. You have to win in the marketplace by more than forcing a product or service on someone - they need to PULL it from you and the easier you make it fit their environment, the more readily that will happen.
As you said, I think there is a very fine line between what should be public infrastructure owned and operated by the government and what can/should be owned by private entities. We are seeing this now with states considering privatization of toll roads, which can put a major piece of infrastructure into private hands. In many ways, I think private companies are better equiped to efficiently run certain industries (including the Internet backbone), but there are certainly security concerns.
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