On every corporate website and in every annual report businesses like to share how they are ‘doing good’ beyond their core business activities. With the current Olympic Games in Beijing we will see again for sure see how businesses wish to show their good faces. And as such nothing wrong in it. Businesses are part of society, cannot be separated or cannot isolate themselves from society. They fulfill societal needs by providing products and services. For this they need human resources, infrastructure, a good educational systems.
Time were not always like this. Since especially the 1970’s the dominant view, especially in the Anglo-American world, was that the best way of businesses to serve society was to make profit and serving the shareholders of business. In short: the purpose of business is to make profits and financial performance is the best measure how efficient a business operates and uses resources. However, this focus on financial performance and shareholder value maximization caused perverse business behaviors. Corporate misconduct such as ‘cooking the books’ to make financial performance look better, perverse bonus systems in for example the financial sector, dumping costs on society while paying high dividends to shareholders. The financial crisis of 2007/2008 was partly a result of the financial performance focus.
Already during the late 1980’s and especially the 1990’s an alternative view on the purpose of business started to emerge, the stakeholder view of business. This view put forward that the purpose of business is to serve all those who have a stake, an interest, in the activities of business: besides shareholders also employees, society, trade unions, and the government. The core focus of business shifted from shareholders only to a broader set of stakeholders. This resulted in the emergence of Corporate Social Responsibility (CSR). Businesses started to unfold activities and projects to show that they are ‘doing good’ such as helping to reduce poverty, protect the natural environment and help waste reduction. Some businesses clearly became activists, supporting minority rights in a way that one can doubt how genuine they are. And that is where the problem with CSR lies.
The question is namely: Does it serve the purpose? Does CSR help businesses to become that societal contributors? Are societies served by the CSR activities of business? The answer is no! Indeed, many businesses are doing very good things for society, supporting sports events or such as during the pandemic donating to hospitals. But in too many cases CSR is still a cover up, masking the downsides of business activities. Examples of this are plenty. And while businesses on the one hand aim to do good,they spend tremendous amounts of money on lobbying politicians to prevent measures and legislation that may harm their business activities.
Shell, a former British-Dutch and now only British energy company, moved its headquarters to London most likely due to a higher dividend tax in the Netherlands than in the UK. Earlier Unilever, another former British-Dutch multinational did the same.
Last year, Danone, a French agrifood multinational, was hunted by activist shareholders, hedge funds. They wanted Danone’s financial performance to improve compared to peers such as Nestle. Danone just before that received the official status of an ‘entreprise á mission’, a business with a purpose, an official status granted by the French government. Its strategy was aiming to be fully stakeholder- focused. However, these activist shareholders managed to pressure the CEO out of office in order to be replaced by someone who would take better care of the Danone’s financial performance. A small group of short-term oriented shareholders dared to believe that they know best for a company with about a 100-year old history! The shareholder view clearly won over a CSR-driven stakeholder view.
What is the solution? The solution is to implement a type of capitalism that truly puts stakeholder interests first. A milder variant of capitalism, much more small and medium sized business focused. CSR is not enough for this, since it is still based on the liberal idea of a business as individuals connected via contracts, businesses as a transactional setting. Labor in exchange for a wage. But a business is much more not just a place of exchange between labor and wages. If this were true, than what about passion for a job, commitment, dedication, belongingness, personal growth? Businesses are a community of persons that aim to serve the common good. And by the common good is meant the flourishing of human beings, their communities and the society at large. Catholic Social Teaching (CST) has put this view of business forward already for decades, with Popes John Paul II and Benedictus XVI as driving forces.
And this is not just utopia. There is for example the UNIAPAC, the international board of international Christian union of business executives, an international network of business leaders that aim to work along Christian values in their companies. Or Conscious Capitalism, a US-based network of businesses that truly put societal interest above profits. Or the Economy of Communion, a network of businesses that work in line with Christian social teaching. Communities first, then profit.
There is nothing wrong with making profit, Catholic Social Teaching even says that indeed making profit may show how efficient a business uses societal resources. However, profit should not be put first, serving the common good should be put first. Product innovations, such as yet another new Apple or Samsung phone just for the sake of shareholder value maximization, should be reconsidered. The question should be: how do product innnovations truly serve the common good. Common-good driven product innovations instead. This would at the same time also reduce the tremendous amount of (e-) waste that is being produced and dumped now. Businesses as communities of persons that put serving the common good first is the way forward in a post-pandemic era, for all stakeholders involved.