Week 8 - Responsible business

Question 1

Milton Friedman (1970): “the social responsibility of business is to increase profits”
Do you agree?

LT vs responsible business?

Answer 1

“the social responsibility of business is to increase long-term profits”
» also more nuanced, where businesses have to address externalities that they produce IF governments are NOT already taking action
» if govt.s are already dealing with externalities/issues, companies should focus only on MAKING PROFITS

• A LONG-TERM business will invest in stakeholders, but only as an instrumental way to increase profits
• A RESPONSIBLE business is intrinsically motivated to create value for society; profits are a by-product
  ie. creates profits only through creating value for society - to GROW THE PIE, purpose is not CSR

Question 2

3 “channels” of embedding Responsibility

Answer 2

1. EXCELLENCE
   - importance of growing the pie, not CSR
   - Simply being excellent at what you do has major impact on society
2. PURPOSE
   = why a company exists - who it serves, its reason for being, the role it plays in the world
   - why: principle of comparative advantage {resources & expertise}
   - who: principle of materiality {what is important to your company}
   i) Doing different things, eg. to tackle underrepresentation / new clients
   ii) Doing the same thing in diff. ways, eg. innovation, excellence
   iii) Doing the same thing in the same way (but recognise the purpose of what you’re doing)
3. REPORTING
   - focused on “actively do good” numbers instead of “do no harm”
   - plus narratives reporting & communication…
   - …due to limitations of numbers being incomplete; targets can be met if not stretching; backward-looking ie. purpose may take a long time to show up in numbers

Question 3

3 circumstances where companies should focus ONLY on making profits & not try to tackle ESG issues (aka solve society’s problems)

Answer 3

1. GOVERNMENTS are dealing with the issue well
   eg. Sainsbury’s rejected proposal for workers’ living wage bc the UK govt already had a national minimum wage policy in place
2. When companies don’t have a COMPARATIVE ADVANTAGE (no resources or expertise)
   eg. Yes: Vodafone / M-Pesa, No: Charitable donations
3. When the issue is not MATERIAL to the company