Whenever we think about the concepts of business, finance, markets, competition, and trade, they often seem disconnected from the rest of society. Successful businesses are believed to be purely driven by profit, separating them from societal views and interests.
In reality, however, social institutions can exercise a profound amount of influence on businesses. Different politics and perspectives exist within every industry due to the customers, suppliers, employees, regulators, and financiers that comprise the organization. “Individuals within each stakeholder group have ideas about how they want their lives to matter in the world...[T]hose connections to the world outside of business are often strong motivators for decision-making.”
Understanding the role that businesses play in society is critical. Today, the “decreasing public popularity of business leaders and the now familiar erosion of trust in business and government institutions” has led to the belief that “democratic and civil society institutions and democratic ideals are under attack.” Societal freedoms and business are not irreconcilable; economic freedom is directly related to economic growth, and “democratic freedom provide[s] the basis for capitalism and sustained economic growth.” Historically, most businesses only engage in politics for their own gain, lobbying the government and cultivating relationships with policy-makers in order to protect their own interests. To the younger generation, “this seems inadequate at best and corrupt at worst,” widening the dissonance between business and society. Businesses should preserve democratic institutions not only when it is convenient, but for their own sake as well, as “democratic institutions ensure the basis for the development of capitalism and a healthy system of business.” By preserving the societal rights inherent to democracy, including the right to privacy, labour force participation, and the pursuit of economic opportunity, communities and businesses are allowed to “freely communicate and collaborate, and thereby flourish together.”
Businesses must move beyond shareholder profit and focus on the creation of value for all stakeholders. Solely maximizing profits has had a toxic impact on society, leading to “growing inequality, periodic massive financial crashes, declining corporate life expectancy, slowing productivity, declining rates of return on assets and overall, a widening distrust in business.” As we have discussed in a previous issue of Sagacious, the purpose of business should be “not only to provide needed products to a market, but to make a difference in their communities and for their employees, too.” This has already begun as 181 CEOs of different corporations across several industries signed the “Statement on the Purpose of a Corporation” earlier this month in an effort to refocus on inclusive social and economic prosperity. Included in these 181 are names like Amazon, Apple, BlackRock, Chevron, EY, Pepsi, and Xerox.
By retiring the old model of shareholder profit and moving forward with shareholder value, businesses can begin to repair their reputation in the eyes of the younger generation. “Business is about how customers, suppliers, employees, financiers, communities, and managers interact to create value,” and is an important part of societal institutions. “No business is perfect, and every business can improve, but it is time to end the myth that Wall Street is disconnected from Main Street.”
Author
Stephanie Law, Viewpoint Research Team