Achieving sustainability in business

Economist Milton Friedman once wrote the following in his book Capitalism and Freedom:

“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.” 

This philosophy has always been a topic for debate. However, I do believe that to sustain a business in the long term,one must look at profits only as a short term measure of success and a firm must also work on constantly maintaining stakeholders interests.

Capitalism vs CSR

Firstly, In my opinion ‘doing the right thing is one step towards long term success’.

Microsoft’s ex CEO , Bill Gates for example, formed one of the largest private foundation in the world in order to improve health care and reduce poverty around the world. This foundation has been funded by his Bill Gates’s wealth from Microsoft’s earnings and Warren Buffet’s corporate wealth from his firm Berkshire Hathaway. This example distinctly signifies that investing profits generated from firms is becoming a norm of successful firms. This gesture not only increases the brand reputation of a firm but also aids in the firm’s long term success.

The vision of every firm is to attain a self sustaining model that can be achieved only through recurring profits. To realize this vision especially in projects involving critical social issues requires strategic deployment of capital. Such an investment or assistance towards society or a community could also be labeled as a CSR (Corporate Social Responsibility)  initiative by a firm.

The goal of CSR (Corporate Social Responsibility) is to accept responsibility for the company’s actions and promote a positive impact through its activities on the environment, employees, consumers, communities, stakeholders and all other members of the public sphere.

I believe that a corporation has its duty towards all stakeholders of the firm and not just its shareholders. Further, the corporation’s community of existence, the society around it, the employees, etc are all key stakeholders of a firm. Thus it is essential that a firm that seeks sustainability in the long term must value all its stakeholders and keep them satisfied too.

Thus, things that are not directly related to profits also play a significant role in day to day businesses. In other words, a multinational corporation exploiting an African nation by extracting key resources and not helping in the development of the local society, can gain short term profits but may hamper the firm’s long term growth.

There are many examples in the corporate world that remind one that sheer exploitation in order to generate profits isn’t a successful approach. For instance, when Merck & Co launched the Rofecoxib drug, it was aware that there could be some cardiovascular problems a consumer may face. However, the firm ignored and hid these details and launched the product. Later when many people started dying of heart attacks after consuming the drug, allegations on the firm became true. The firm has faced more than 10,000 cases 190 class actions as of March 2006 (2 years after the drug was withdrawn) and thus lost millions of dollars in law suits (Berenson, 2005, New York Times Article).

A corporation’s success depends on the strategic approach it follows. It can choose to employ a short term approach which works by generating quick profits by exploitation and dumping around its environment.  On the other hand a firm could choose the long term approach where generating profits is important, but not at the cost of ruining the environment and society around it. In other words, a corporation must ensure all round holistic growth while it exists and generates profits. It is the latter approach that is the key to sustainable growth for a corporation.

What is your opinion? Feel free to reply!



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