Soft Values and Business Responsibility

by Russ Roberts on November 14, 2005

in Social Responsibility

The other day a friend asked me what I thought of "soft values."  Here was her scenario, at least as I remember it.  You have a business that is struggling.  You can lay off some people to make it viable.  There are 100 additional workers you can lay off and by doing so, make even more money.  Should you do it, or should you be content with making enough money as it is?  She wanted to know if I thought the soft values should count, meaning, the virtue of keeping 100 families happy and intact or should you just go for the jugular and maximize profits.

I gave her a few answers.  One of them was one that I give in my book, The Invisible Heart.  It’s OK to be charitable with your own money.  It’s not so virtuous to be generous with other people’s money.  A publicly traded business should maximize profits and let shareholders be charitable with those returns if they so choose.  I also gave the other answer I gave in the book—that there is no such thing as "enough" profit.  The world is highly uncertain and sacrificing profits in the name of "soft values" may end up destroying the company and putting everyone out of work.  Peter Drucker, who died on Friday, said this very eloquently in his first column for the Wall Street Journal (sr, or maybe not-it’s on the editorial page) in 1975:

[B]usinessmen owe it to themselves and owe it to
society to hammer home that there is no such thing as "profit." There
are only "costs": costs of doing business and costs of staying in
business; costs of labor and raw materials, and costs of capital; costs
of today’s jobs and costs of tomorrow’s jobs and tomorrow’s pensions.

There is no conflict between "profit" and "social
responsibility." To earn enough to cover the genuine costs which only
the so-called "profit" can cover, is economic and social responsibility
– indeed, it is the specific social and economic responsibility of
business. It is not the business that earns a profit adequate to its
genuine costs of capital, to the risks of tomorrow and to the needs of
tomorrow’s worker and pensioner that "rips off" society. It is the
business that fails to do so.

I think my friend might reply that the world would be a better place if business widens it’s specific responsibilities a bit.  The easy answer (and one I have used before) to that is, OK, how much is a bit?  But I think there are two better answers.  The first is that running a profitable business requires using soft values.  It’s easy to caricature the greedy profit-maximizing business owner as ruthless.  But the best businesses are led by people who excel at soft values, who treat their customers and employees well.  Business that treat customers and employees badly find it harder to thrive.

The other answer is Hayek’s, from The Fatal Conceit.  Running a family like a business destroys it.  Running business like a family destroys it and leads to tyranny.  (My copy of TFC is in my other office, so if anyone out there has the full quote, I’d love to have it.)  I think my friend and millions of others want businesses to be a little bit like a family.  I just don’t think that’s any more possible than making a family a little like a business.  But there is probably much more to say.

I am opening up the comments section for this post to give you a chance to say it.  Have at it.

Be Sociable, Share!

Comments

comments

38 comments    Share Share    Print    Email

{ 19 comments }

Randy November 14, 2005 at 2:09 pm

A comments section! Awesome!

Re; "Running a family like a business destroys it. Running business like a family destroys it and leads to tyranny."

Absolutely right. I've been having a similar conversation on another blog about the moral perspective of the individual versus the moral perspective of the state. The state perspective being that a certain level of casualties is acceptable – the individual perspective being that no casualties are acceptable. Change the word state to organization and I think we're pretty much on the same track.

P.S. I hope this comments section works. In my opinion this is one of the best blogs going. But I have been frustrated by not being able to comment without sending email.

Paul Pennyfeather November 14, 2005 at 2:27 pm

I remember a 60 Minutes episode about a company in the Northeast that made some sort of plastics (for raincoats and the like). The company was suffering under the "declining economy." The boss refused to lay off any workers, even though he knew that failing to cut costs could mean the demise of the whole business.

Although he was praised as a humane and decent man (and I have no doubt he was) I couldn't help but wonder why the hundred people he would've laid off were more important than the 900 others who would suffer if the business went belly up, or the countless others who depended on that business in various ways.

I don't recall the 60 Minutes interviewer ever asking those uncomfortable questions.

Don November 14, 2005 at 2:54 pm

Drucker is absolutely correct. Today's profits are tomorrow's pension or payroll obligations. We tend to not see corporations as analagous to ourselves when they are and we excoriate corporations for doing what we regard as sensible to do as individuals. Individuals save for future costs such as retirement and this is prudence. Corporations that maximize profits and/or hoard cash are somehow greedy and anti-social. A corporation not maximizing profit is the same as me taking a lower paying job to gain more leisure time at the expense of funding future needs like retirement or my kids' educations.

BTW, the 60 Minutes segment was on Malden Mills and Aaron Feurstein (sp?). I haven't followed it in awhile, but somebody took a bath on Malden Mills to keep its 1200 workers employed. People cheer this as a triumph, but mention of the jobs that might have been created had that bath not been taken. Another case for rereading Bastiat.

Russ Roberts November 14, 2005 at 3:07 pm

It was Aaron Feuerstein and Malden Mills. In my book The Invisible Heart, I used him as a laudable example of someone using their own money to help employees. After a fire destroyed the Malden Mills factory, Feurstein kept the workers on payroll and earned universal respect and lots of employee loyalty. Unfortunately, Malden Mills, facing a downturn in the Polartec market and new competition, went bankrupt and in 2003, the news reports were about whether Feurstein could raise the money necessary to regain control of the company. Ironically (or not, actually), if I remember correctly, the amount of the shortfall was very close to what he sacrificed to keep his employees on payroll while he rebuilt the factory. Does anyone out there have a more recent update? Send me the URL and I'll post the whole story.

Slocum November 14, 2005 at 3:31 pm

"Running a family like a business destroys it. Running business like a family destroys it and leads to tyranny. (My copy is my other office, so if anyone out there has the full quote, I'd love to have it.) I think my friend and millions of others want businesses to be a little bit like a family. I just don't think that's any more possible than making a family a little like a business. But there is probably much more to say."

This is a slightly different take on it, but this even applies when you're talking about a family business. I saw all that happen. I was the only sibling not involved in my family's business after I graduated. It was a retail business that had been quite successful — multiple locations, several million in sales, and no debt. But the market changed, it started shrinking and just didn't stop. Once in a while, by squeezing pennies hard, they'd eek out a small profit for a year, but rarely. Rationally, they should have gotten out at LEASTt five years before they did. In the end, they were 'saved' by a cash flow crunch that forced them to liquidate before all the equity was gone, so they didn't go bankrupt. But it was still a disaster. My siblings spent many years in a declining business, not making all that much money and definitely not making themselves marketable (they ultimately ended up in blue collar jobs). My parents, nearing retirement age, did not end up with enough to retire.

You're really not doing employees a favor by keeping them in a job that they don't do well or by keeping a superfluous or doomed company (or division) running through subsidies. Because eventually the dam will burst, and then people in those situations will be worse off than if they'd gotten an earlier start on a viable future.

Jav November 14, 2005 at 4:55 pm

I think my friend and millions of others want businesses to be a little bit like a family. I just don't think that's any more possible than making a family a little like a business.

But is it bad to even hope for for something like that? And to say that successful businesses have no social responsibility beyond making profits sounds lacking in tenderness (not in truth). Why not explain that profits are the dollar value of the customers' thankyous, and pledge to earn more and more of their thankyous with each succeding years, if that is how they really feel.

I think there are many companies that have the resources to explain the benefits of capitalism (or their companies' product) in a way people understand and appreciate. Wouldn't you agree that that is money well spent?

I feel that it is simply a PR failure on the part of the successful companies or a somewhat misguided belief that everyone realizes the benefits of capitalism naturally without any need for explanations or advertisements.

BTW, I like your blogs very much and I learn a lot from it. Thank you

SteveSC November 14, 2005 at 5:13 pm

I think it is more complex than just a linear equation: profits versus social responsibility.

First of all, there is WHEN the profits acrue? Many companies have destroyed their long term profitability by squeezing every last bit of short term profit, thereby both antagonizing customers and opening the door to competitors. In the example Russ gives, does the layoff of the extra 100 people cause long-term damage for short term profits? If the economy turns around will it cost more to rehire, if you can? Are you creating more competition by putting experienced people out on their own? Will the costs of bad publicity further erode your business. Etc., etc. Back when information was difficult to acquire, and it was not as clear that in many industries the lifetime profitability of a customer depends on a good longterm relationship, short term thinking could prevail. But I think there are few industries like that today.

Second, society demands social responsibility, what is unclear is just where to draw the line. Sometimes it is enforced by laws, e.g., an online business can increase profitability by just not shipping the goods, as some eBay customers have found. The government pursues those who do this. But the fact remains that creative businesses can find ways to make more money by shifting costs to others, or society in general (taxes). If a company can make an extra dollar by an action that costs others $10 is this right? (Think of dumping pollutants, erecting poor quality hi-rise appartment buildings, etc.) I hardly think the government can effectively police all possible ways for a business to rip off others, we must depend on an ethic that demands minimization of harm to others. (Unfortunately, I think it is the recognition of the power to harm, plus the occasional, heavily publicized violations of this ethic, that fuels public distrust of business.)

Finally, I think it is possible for creative businesses to find ways to add to the public welfare with little or no impact on long-term profit. If a company can benefit society by millions of dollars with an investment of a few tens of thousands of dollars that leverage its position/expertise, etc., why shouldn't it? For example, if Wal-Mart could have saved a few million by hunkering down and waiting out Katrina, is that better than prepositioning supplies, paying its employees, etc.? The short term loss is most likely more than compensated by the positive publicity and long term improvement in the Gulf economy, both of which may acrue future profits to Wal-Mart (but are admittedly less certain than the short-term losses).

A society must find ways that encourage long-term thinking and long-term growth or it will be picked apart by short-term profit maximization.

Randy November 14, 2005 at 5:28 pm

SteveSC,

Re; "A society must find ways that encourage long-term thinking and long-term growth…"

We've already found a way – its called profits.

Honestly, I don't see a point in distinguishing between short and long term profits. The business cyle often leaves no opportunity for long term profits – you get profits up front or competition kicks in and you don't get them at all. Long term profits are gotten by a series of innovations resulting in short term profits. Its motivating innovation that matters – and profit is the motivator.

steveSC November 14, 2005 at 5:45 pm

Enron had lots of short term profits. Great stock price appreciation too (for a while). Is this kind of motivation good for society?

Case in point regarding social benefits for minimal cost: Starbucks hiring disabled employees (http://online.wsj.com/article/SB113164515791793774.html?mod=health_home_inside_today_left_column) subscription required.

jfn November 14, 2005 at 5:56 pm

But there's a fine line between earning profits and using accounting tricks to inflate your earnings. Obtaining profits legitmately is good for society because that's what encourages innovation and efficiency.

Slocum November 14, 2005 at 7:27 pm

"But the fact remains that creative businesses can find ways to make more money by shifting costs to others, or society in general (taxes). If a company can make an extra dollar by an action that costs others $10 is this right? (Think of dumping pollutants, erecting poor quality hi-rise appartment buildings, etc.) I hardly think the government can effectively police all possible ways for a business to rip off others, we must depend on an ethic that demands minimization of harm to others."

I think quite the opposite — that if there are legal but ethically questionably ways to make money, there WILL be people who discover and exploit them. So government simply HAS to police the ways businesses can rip people off–that, in fact, is one of the government's main jobs. Counting on not just some businesses, but even the LEAST ETHICAL of businesses, to voluntarily forgo legal but shady ways of making money is a recipe for…disappointment.

SteveSC November 14, 2005 at 8:56 pm

Slocum, I appreciate where you are coming from, but the government can never police everything. For one, it is too vulnerable to corruption and political favoritism (and I am not talking about any particular government, red or blue, just government in general).

Society has to depend on people with ethics, and a culture of rewarding ethical behavior. Enron was brought down by a whistleblower; in other recent cases employees and insiders stepped up and testified. I agree that the ethical balance can be tenuous, but all the more reason to emphasize to everyone what it is. Government may be able to bring the hammer down to make examples of bad behavior, but unless the culture already exists to support ethical behavior, government will never be able to impose it.

Lowcountry Joe November 14, 2005 at 9:04 pm

Maximizing profits should be the desired business policy. However, it’s much too simplistic to say, “Yeah, we’ll just set marginal costs to equal marginal revenue because that’s the way to maximize our profit.” Companies that give the appearance that they’re not conducting business in a socially responsible manner get hammered by well-financed and well-connected activists once they grow big enough to attract attention. The negativity generated from these socially responsible types can wreak havoc on the bottom line of a ‘non-socially responsible’ company in their long run.

This is all something to scratch your head over. Think about it: a company like Wal*Mart has to spend money on advertising showing the good it does for a community while all that while they’re providing tremendous consumer value; yet a company like Starbucks can bilk their consumers out of three bucks for a cup of coffee and still maintain a positive image because they’re more ‘fair’ with their labor and bean growers.

To solve the problem I think more people should read The Invisible Heart. I think I’ll be reading it to my kids tonight and finish it up over the next two weeks before someone like Laura Silver has a chance to fill their heads with Wordsworth mush.

Ron November 14, 2005 at 10:06 pm

Slocum and SteveSC,

I think you guys are leaving out a third factor that is probably more influential than ethics or government policing of business, and that is consumer choice. Sure, fleecing customers may turn a quick profit, but most people get wise pretty quickly, and even if a business spends a great deal of resources covering their tracks, they can't keep it a secret forever. As soon as consumers realize they're getting the shaft, they'll go elsewhere. Additionally, any number of consumer advocacy groups can be counted on to pick up the torch against such shenanigans.

With regard to soft values, this debate (http://www.reason.com/0510/fe.mf.rethinking.shtml) between Milton Friedman, John Mackey (Founder and CEO of Whole Foods), and T.J. Rodgers (Founder and CEO of Cypress Semiconductors) from Reason Magazine, provides an example of how businesses and soft values can coincide and even thrive.

I think the point that is missed in this debate, however, and indeed in Friedman's original editorial, is that a business owner has the right to run a business in whatever way he, she, or they choose. In the end, all businesses are subject to the same market incentives and disincentives to particular types of behavior (or misbehavior).

Abhi November 14, 2005 at 10:27 pm

I think Slocum & the others are talking of 2 different things here.

First of all, long-term profit isn't what happens at a point of time in the future, but rather a profit that keeps happening INTO the future. (I.e. it is an NPV of all future dividends)

Secondly, a company will NEVER sacrifice long-term profits that it KNOWS about. By expecting it to not fire based on a profit that MIGHT happen in the future, you're basically expecting them to buy a lottery.

The so-called ethics and long-term thinking all need numbers to be expressed in. If you can't express the outcomes in $s, then your actions are being irresponsible to the shareholders and society as well.

Jim November 17, 2005 at 11:42 pm

A lot of people are ariving at a good conclusion by a very circuitous route. The situation is much simpler than the manner in which it is being discussed.

Think about what profits are and what they represent; they represent the exchange for the value that is contributed to society.

When a business is unable to extract value from people's time, they are forced to lay those people off. They actually have a moral obligation to lay those people off if they are unable to find a way to extract value from those people's efforts, otherwise they are wasting society's resources.

By laying the uneeded people off, they free them up to take value-added jobs elsewhere where more good can be done with those people. However, lay-offs can be a copout or evidence of poor or lazy management. Every effort should be made to find creative ways to redistribute and redeploy resources within an organization before layoffs begin.

Jack Hobson-Dupont November 25, 2005 at 6:02 pm

"As soon as consumers realize they're getting the shaft, they'll go elsewhere. Additionally, any number of consumer advocacy groups can be counted on to pick up the torch against such shenanigans."

That consumers are savvy and vote with their dollars is the prevailing wisdom, and I used to believe it to be true. To be more nearly correct, I think it once was actually true, in days when goods and services were more scarce. People were necessarily more cautious and with how they spent their money and considered things more carefully.

The idea of the consumer activist who punished bad purveyors by suspending his or her patronage began to erode around the time that franchised big businesses came to dominate. In the time when there were competing small businesses, such consumer activism actually produced results. If, for example, there were two butcher shops in a town, and you felt that one of them was overcharging because the butcher had a "heavy thumb" (distorting the actual weight for which you were being charged) you would not only stop going to that butcher, you'd tell your friends about it and they would participate in the punitive process. The butcher would either cease his larceny or lose all his business to his competitor.

With franchise businesses, however, such protests seem futile. They seem like gargantuan monolithic, autocratic organizations that can do whatever they like, and against which any punitive measures would be ineffectual. The buyer then feels impotent to bring about positive change, and begins to accept with resignation what s/he perceives as poor value. We see this now: complacency mingled with apathy.

Here is an example: a customer calls the customer service line, and ends up in an endless labyrinth of pressing buttons to reach the appropriate party, only to be put on hold. This is a universally infuriating experience–but how many people actually say, "You know, this is disrespectful of me as a consumer. I'm never going to buy anything from this company again. I'll find a company that's actually cares about consumer satisfaction." The fact that such phone systems are so widespread in spite of their annoying traits is economic proof that the marketplace, i.e., the aggregate of consumers, accepts them. They may complain, but they do not "vote with their feet" and leave.

It has been said that, "People get the government that they deserve." The same can be said of a marketplace. If consumers accept poor value, corporations will give them poor value because it's cheaper than giving good value.

Another example: consumer shoes used to be made with leather soles and leather or rubber heels. The shoes were costly because of the labor and materials that went into them, and the price reflected the cost. After investing in such shoes, the consumer would use shoe polish on them to maintain their appearance, and when the soles or heels wore out from usage, every town had one or more shoemaker who would repair the shoe by replacing the worn components.

Then the Nike-type sports shoe entered the marketplace. They used synthetic materials throughout the shoe. They were light, attractive and comfortable to wear. Their price was no longer based upon the labor and materials that went into constructing the shoe, it was based upon the consumer's perceived value of it. I am certain that price points were market-tested to see what price a consumer would feel most comfortable about paying for such a seemingly dynamic product, and the shoes were marketed at that price point.

The shoes didn't last. (No pun intended.) Their appearance began to decline rapidly with wear, and they were not made in a fashion where the appearance could be restored with shoe polish. When the sole and integrated heel wore out, the consumer simply threw them out and bought another pair. The "value" the consumer got for this succession of purchases is presumably the good feeling about each next pair of shoes.

Such sports shoes cost the same as better-crafted products, but were a poorer value because of their lack of longevity. In a marketplace where consumers root out "rip-offs", such products would be shunned–and that very much didn't happen. Ergo, our formerly-held assumptions about the behavior of consumers need to be reassessed.

Jack Hobson-Dupont November 25, 2005 at 6:03 pm

Ooops! I didn't realize I was writing a book-length piece. My apologies to all. –Jack

Jay Draiman, Energy Analyst September 24, 2007 at 12:37 pm

The Greedy Corporations and the Profit Hungry Shareholders

Honesty and integrity went out the window – anything goes

Corporate greed and the insatiable thirst to make a profit, to satiate shareholders share- holders’ profit expectations have changed American values, where anything is justified in order to derive enormous corporate profit and satisfy the expectations of the share-holders; maintain the image of profitable corporate America. It is a vicious cycle that feeds itself to ultimate disaster.

These attitudes have brought corporate executives to exercise the drive and mentality that anything goes, no holes barred.
Inflating earnings, hiding debts and liabilities, outright fraud and deception. Theft by executives, theft of corporate assets, graft, bribery, illegal contributions to politicians, trips, gifts and favors to politicians, crooked lobbying organizations.
Where and when does it all stop? When are Americans going to wake-up and realize they are on the path of disaster of magnitude proportions that will bring our downfall?

We still have honest ethical hard working people in America. Let us all rise and protest these money hungry actions and methods, before it is too late.

Work hard to better America, institute honesty and integrity.
It starts at the top – the politicians, the legal system, corporate America and progresses to the masses.

The media is not exempt. Honest reporting is a must, the public expects no less.
Exercising – Sincerity, honesty and integrity is a good beginning.

If you work hard, perform your duties sincerely and honestly, you will be able to earn a better profit/living. You will not have to worry about covering up for your wrongdoing and you will be able to sleep better at night, look at yourself in the mirror.

We should learn to respect each other.

Bring back family values.

Am I asking too much?

Jay Draiman, Northridge, CA – Sept. 24, 2007

PS
An essay concerning the origins, nature, extent and morality of this destructive force in free market economies. Definitions. Paradoxes and omissions in Adam Smith's original theory permit – encourage – greed without restraint so that in a very large society [USA] over two centuries it has become an undemocratic force creating precipitous inequalities; divisions in this society now approach a kind of wealth apartheid, and our values are quite unlike Smith's: this is an immensely wealthy society but it is not a humane society. Wealth and poverty are connected, in fact recent sociological theory shows our institutions routinely design inequality in, but this connection is largely avoided in texts and in the media, as is the notion that greed is a moral wrong. Problems created by greed cannot be solved by technology. We are also distracted by already-outdated environmental rhetoric, arguments that scarcities and human suffering follow from abuse of our ecology. Rather, these scarcities are the result of what people do to people. This focus opens practical solutions.

"The Social Responsibility of Business Is to Increase Its Profits." The future Nobel laureate in economics had no patience for capitalists who claimed that "business is not concerned 'merely' with profit but also with promoting desirable 'social' ends; that business has a 'social conscience' and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of re formers."
He wrote that such people are "preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting pup pets of the intellectual forces that have been undermining the basis of a free society these past decades."
He argues that corporations add far more to society by maximizing "long-term shareholder value" than they do by donating time and money to charity.
He said "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." That's the orthodox view among free market economists: that the only social responsibility a law-abiding business has is to maximize profits for the shareholders.
I said. But we have not achieved our tremendous increase in shareholder value by making shareholder value the primary purpose of our business. In my marriage, my wife's happiness is an end in itself, not merely a means to my own happiness; love leads me to put my wife's happiness first, but in doing so I also make myself happier. Similarly, the most successful businesses put the customer first, ahead of the investors. In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the customer-centered business, customer happiness is an end in itself, and will be pursued with greater interest, passion, and empathy than the profit-centered business is capable of.
Many thinking people will readily accept my arguments that caring about customers and employees is good business. But they might draw the line at believing a company has any responsibility to its community and environment.
This position sounds reasonable. A company's assets do belong to the investors, and its management does have a duty to manage those assets responsibly. In my view, the argument is not wrong so much as it is too narrow.
First, there can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors.
That said, I believe such programs would be completely justifiable even if they produced no profits and no P.R. This is because I believe the entrepreneurs, not the current investors in a company's stock, have the right and responsibility to define the purpose of the company. It is the entrepreneurs who create a company, who bring all the factors of production together and coordinate it into viable business. It is the entrepreneurs who set the company strategy and who negotiate the terms of trade with all of the voluntarily cooperating stakeholders—including the investors.
The shareholders of a public company own their stock voluntarily. If they don't agree with the philosophy of the business, they can always sell their investment, just as the customers and employees can exit their relationships with the company if they don't like the terms of trade. If that is unacceptable to them, they always have the legal right to submit a resolution at our annual shareholders meeting to change the company's philanthropic philosophy. A number of our company policies have been changed over the years through successful shareholder resolutions.
The Theory of Moral Sentiments. There he explains that human nature isn't just about self-interest. It also includes sympathy, empathy, friendship, love, and the desire for social approval. As motives for human behavior, these are at least as important as self-interest. For many people, they are more important.
When we are small children we are egocentric, concerned only about our own needs and desires. As we mature, most people grow beyond this egocentrism and begin to care about others-their families, friends, communities, and countries. Our capacity to love can expand even further: to loving people from different races, religions, and countries—potentially to unlimited love for all people and even for other sentient creatures. This is our potential as human beings, to take joy in the flourishing of people everywhere. Whole Foods gives money to our communities because we care about them and feel a responsibility to help them flourish as well as possible.
The business model that should be embraced could represent a new form of capitalism, one that more consciously works for the common good instead of depending solely on the "invisible hand" to generate positive results for society. The "brand" of capitalism is in terrible shape throughout the world, and corporations are widely seen as selfish, greedy, and uncaring. This is both unfortunate and unnecessary, and could be changed if businesses and economists widely adopted the business model that I have outlined here.
To extend our love and care beyond our narrow self-interest is antithetical to neither our human nature nor our financial success. Rather, it leads to the further fulfillment of both. Why do we not encourage this in our theories of business and economics? Why do we restrict our theories to such a pessimistic and crabby view of human nature? What are we afraid of?
Businesses such have multiple stakeholders and therefore have multiple responsibilities. But the fact that we have responsibilities to stakeholders besides investors does not give those other stakeholders any "property rights" in the company, contrary to those' fears. The investors still own the business, are entitled to the residual profits, and can fire the management if they wish. A doctor has an ethical responsibility to try to heal his/her patients, but that responsibility doesn't mean his/her patients are entitled to receive a share of the profits from her practice.
Many probably will never agree with my business philosophy, but it doesn't really matter. The ideas I'm articulating result in a more robust business model than the profit-maximization model that it competes against, because they encourage and tap into more powerful motivations than self-interest alone. These ideas will triumph over time, not by persuading intellectuals and economists through argument but by winning the competitive test of the marketplace. Someday businesses like these, which adhere to a stakeholder model of deeper business purpose, will dominate the economic landscape. Wait and see.

Previous post:

Next post: