What is the dominant story that we tell about business today?
We all know what to say: Shareholder Value Maximization.
You may know this quote...
“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 deception or fraud.”In this quote, Milton Friedman is communicating that there is no social story to business, the business of business is business, it’s about making money. This excludes any conversation about the impact that business can have for the good or for the harm of their stakeholders.
These stakeholders are outside of business, and to the extent that we try to bring them into our story about business, we are only going to mess things up and distract from the real goals of business.
So what are the outcomes that we see today under the banner of shareholder value maximization? We do see wonder in business...
But we also see tragedy in business....If any business that makes a profit is a good business, then it doesn’t matter what they do or how they do it. Under the banner of profit as the purpose of business, some businesses have felt totally ok with developing products and services that prey on human weakness or exploit natural resources, and ultimately cause much harm. There is huge disillusionment with business today, and a resulting in a loss of faith and trust in corporations.
I think that what people really believe about business is something more like this statement: “Business is not as it was intended. A vast devastation has struck it. Nevertheless, it is great in its ruins. Like a glorious cathedral after a bombing, business still displays the grandeur for which it was designed.”
If you picture a bombed-out cathedral as you think about business, we can still see the beauty of business, while there is much that needs restoration. We need a return to this higher purpose of business. Jeff Van Duzer, who is Provost of Seattle Pacific University and formerly the Dean of their Business School fully rejects this idea that business is about profit-only. He says that business has always existed “to provide goods and services to enable a community to flourish and to provide people with opportunities for meaningful work.”
Charles Handy addresses this even more directly. He says “...To turn shareholders needs into a purpose is to be guilty of a logical confusion — to mistake a necessary condition for a sufficient one. We need to eat to live; food is a necessary condition of life. But if we lived mainly to eat — making food a sole or sufficient purpose of life — we would become gross. The purpose of a business, in other words, is not to make a profit, full stop. It is to make a profit so that the business can do something more or better.”
At Eventide, we believe the true story of business is to serve the common good.
This video expresses the views of Eventide Asset Management, LLC ("Eventide"), an investment adviser, and there is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses. Viewers should be aware that Eventide's approach may not produce the desired results, and Eventide's ethical values screening criteria could cause it to underperform other firms that do not have such screening criteria. All investments involve risk, including the possible loss of principal.
Eventide is providing this information for informational purposes only.