Business needs to serve the greater
public good. Business needs to maximize social benefit.
Ive said these words more times than I can countand
believed them, too. But something the other day, maybe it was too
much pepperoni in the pizza, caused me to sit up and think, Wait
a minute. What do these words mean? What is the greater public
good? What is the maximization of social benefit? And
why does business have to do these things, anyway?
Ive given the matter some thought since then and decided that
the terms do have real meaning. But only conditionally, because
of something new to the worldour global interdependence.
My inquiry started with a quote from the economist Milton Friedman:
Few trends could so thoroughly undermine the very foundations
of our free society as the acceptance by corporate officials of
a social responsibility other than to make as much for their stockholders
as possible. Dont pull your punches, now, professor!
In Friedmans view, if you have a direct financial interest
in a company, youre an owner. If you dont, youre
notand management neednt concern itself with you.
But even Friedman would agree that shareholders are not the only
people with a vested interest in a companys performance. There
are also stakeholders, defined by business professor R. Edward Freeman
as any group or individual who can affect or is affected by
the achievement of the organizations objectives. Freeman
cites a Big Five of stakeholder categories: shareholders,
employees, suppliers, customers and the communities in which the
firm operates. According to Freeman, companies have a duty to all
stakeholders, not just those with a formal ownership interest. His
is a stakeholder theory of corporate responsibility, compared to
Friedmans shareholder theory. By implication, this makes stakeholders
owners with the sanction of law; they are virtual owners.
It is usual to view a companys stakeholders (or stakeholder-owners)
as a limited set of peoplesizable, perhaps, but in the end
limited. If we were to add up all the stakeholders of a behemoth
like General Motors, the number might add up to, say, a billion
people. Thats a huge number, but only a fraction of the total
Even if we believe in stakeholder theory, this leaves us with a
sizable conceptual chasm to cross. How do we get from the stakeholder
theorys implied duty to a minority of people to a responsibility
to maximize social benefit or serve the greater
public good? Dont
terms like this imply a responsibility to everyone?
Its a mighty big gap, but one we can leap over. Lets
take a closer look at Freemans fifth stakeholder categorythe
communities in which a firm operatesand ask just what community
means today. Sure, we know what it used to mean: a community was
a town or a subset of a town, an Oshkosh or East Side. Now, though,
we live in a world where pollution knows no boundaries, and where
our global industrial system is so massively interdependent as to
be, for all intents and purposes, a single massive organism. The
global village has gone beyond cliché and become
a reality. The Asian nomad whose habitat is being transformed by
climate change has a very big vested interest in the Mexican auto-repair
shop that keeps gas guzzlers on the road. The Arctic polar bear
whose PCB load came to him on the wind from Texas lives just up
the road from Houston.
In consequence, everyone has become a stakeholder in every company.
Whether youre a mom-and-pop store or a General Motors, so
long as youre a cog in the global industrial system, youve
got six billion stakeholders, more or less. Six billion owners.
This, Ive come to believe, is what is meant by serving
the greater public good and maximizing social benefitserving
these owner-stakeholders. The greater public good is
six billion two-footeds, each with its own wants and needs. Its
that Asian nomad and that Mexican mechanic. Its everyone and
everything, polar bears included, joined at the global industrial
hip, connected through interdependence.
Carl Frankels next book, Out of the Labyrinth: Who We are,
How We Go Wrong and What We Can Do About It, will be published in
2004. Frankel can be reached at: firstname.lastname@example.org.