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Soft Values and Business Responsibility

Posted By Russ Roberts On November 14, 2005 @ 12:05 pm In Social Responsibility | Comments Disabled

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 [1].  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 [2] (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 [3].  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.

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[1] The Invisible Heart: http://www.amazon.com/gp/product/0262681358/102-3805587-8967316?v=glance&n=283155&n=507846&s=books&v=glance/invisiblehear-20

[2] Wall Street Journal: http://online.wsj.com/article/SB113192891878696055.html?mod=opinion_main_commentaries

[3] The Fatal Conceit: http://www.amazon.com/gp/product/0226320669/102-3805587-8967316?v=glance&n=283155&n=507846&s=books&v=glance/invisiblehear-20

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