For an increasing number of businesses and their employees, the pursuit of profit is no longer enough. EY Global (view article here)
Nobel Prize winning economist Milton Freidman once wrote that 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." (Capitalism and Freedom, Milton Friedman, 1962)
But in the five and a half decades since that declaration, the global economic center of gravity has shifted. The rules of the game of business, the game itself, and the arena in which it is played no longer bear any resemblance to the heady days of the Cold War and rising economic competition portrayed as being solely between East and West.
In addition, in recent years the concepts of both “open and free competition” and even “without deception or fraud” have been called into question. The collapse of Enron and multiple financial scandals to the 2007-8 financial crisis tainted big business in the eyes of some. And in the wake of the crisis, new regulation and rising protectionist and anti-globalization rhetoric from politicians around the world has increasingly threatened the very concept of encouraging free markets to exist.
Meanwhile, the future of work is uncertain. “New jobs are being created by new technology, but we are clearly moving down a path where many roles will be no longer required,” says Uschi Schrieber, Chair, Global Accounts Committee & Global Vice Chair, Markets at EY. “The challenge is that our economies are constructed in such a way that access to work facilitates access to goods and purchasing power. Many individual businesses may see short-term gains by replacing people with machines. The long-term consequences of this could prove to be damaging not just to a business but to society and the market model as a whole.”
The corporation in crisis
It would be ridiculous to suggest that the free market has not improved the lot of many corporations, nations, their societies and individuals alike. But at time of radical socio-political and economic changes across whole societies, corporations are often hamstrung by approaches that, while successful in the past, no longer seem appropriate today. Those changes – along with the rise of new technologies, increased globalization and shifting generational expectations – have led to the rise of new attitudes towards work among the people on which corporations depend to carry out their missions. The Millennial internet generation has come to expect more flexibility in the workplace, to progress faster in their careers and to be able to switch jobs more regularly. Having come of working age during the Financial Crisis and its aftermath, and grown up in an era in which startups have gone from nothing to valuations in the billions in a matter of months, they see corporations as less permanent and reliable than their predecessors. In a world they see as in flux, the Millennial mindset increasingly sees employment flexibility as not just desirable, but as essential to survive. If they are going to stick with an employer, the job increasingly needs to offer more than just money. Post-crisis, and in the current age of rapid technological change and business model disruption, C-suites have begun to find themselves caught between shareholders wanting them to adapt quickly to maximize profits and head off the competition, employees who no longer see themselves as in a job for life and customers whose expectations have shifted.
But these needs don’t have to be in conflict. “Investments in people may have short-term costs,” says Mark Weinberger, Global Chairman and CEO, EY, “but that kind of long-term thinking is critical in a world of inclusive growth. Indeed, one of business’s most important contributions to society is driving sustainable, long-term growth while investing in solutions for the challenges of tomorrow.” This is why “Friedman’s perspective and the prevailing views of the world today aren’t entirely in conflict,” says Weinberger. “In fact, businesses today are finding that doing good also means doing well. For instance, companies with an established sense of purpose – one that’s measured in terms of social impact, such as community growth, and not a certain bottom-line figure – outperformed the S&P 500 by 10 times between 1996 and 2011.” In the context of the corporation, this mindset essentially reflects a growing desire by stakeholders at all levels in organizations to have a purpose beyond the balance sheet: one that contributes a positive impact in the wider world. Indeed, today 90% of executives recognize the importance of having “an aspirational reason for being which inspires and provides a call to action for an organization…and provides benefit to society,” according to an EY / Harvard Business Review Analytic Services survey.