SBI013 - What is business for
Question. Of what this business for has always been an important, one and milton, friedman's famously argued that, the only social responsibility, of business was to make money then, pay taxes, and let government deal with the rest in, his 1970. New York Times article, he argued that the social, responsibility. Of business is to increase its profits and concluded. That maximizing. Profit, while remaining within the law was, the only thing, that businesses, should do more, recently, Michael. Porter and Mark Kramer wrote in the Harvard Business Review six. Years ago that shared, value is not, social, responsibility. Not philanthropy or even sustainability. But a new way to achieve economic success, businesses. Can create economic value while, addressing social, needs and challenges this, has come again into discussion, a couple of days ago when quanta said that it will continue to campaign on social issues including. Gay marriage indigenous, reconciliation. And gender diversity, they. Believe that these issues are about the fundamental. Australian, value of fairness and that there is a national carrier, and in a statement they said that just as they do on economic, matters they, will continue to speak up on social, issues they think are important. From. The University, of Sydney Business School this is Sydney business insights, the, podcast that explores the, future of business. So. Today we ask what is the role of business in society, we. Have here, associate, professor Angela. I, think, more recently in the last decade. Or so there's, been a huge debate about what, exactly that is and I think there's actually a perfect, storm in the context, of whether, profits. Is an end or our, profits, a means to an end and I, think there's a consensus, building around the fact that business. Have a much broader role to play and in. Fact profits, are not the end but a means to a greater end which is societal. Well-being and, I think there are multiple forces, acting. On that trend towards, societal, well-being, for, example, business, themselves, after the GFC have, realised that they're actually losing some, legitimacy. And they, are situated in, society, so they have to not just make money but be proactively. Doing something good and I, think business, leaders, have, actually realized this too for example if you look at Unilever their major goal is to, do something about children, dying of diarrhea by using soap, to wash their hands and that kind of stuff so I think there are a lot of factors, around business. Itself in the role of business in fact even the government, is suggesting that businesses, should be involved in elevating. Poverty overseas, so for example, if, you look at the Australian, government policy on aid, recently. The last year or so they've changed it to trade for, aid so in other words incorporating. The private sector into, the, aid policies, although I should, mention that we've been told for the last I guess you know 50 years that the, purpose of business to make profits so all, of a sudden for people to change and think that there's a bigger purpose will take some time Rae is business. Around making, profit, or about, having a purpose or about creating value I think, it's all, of those things actually I think we'd be mistaken, to say that business wasn't about growth as rancette says I think we've moved to a situation where, we're trying to have a broader, conceptualization. Of the role of business and within that I think there's some interesting conversations, about the role of leaders. Within businesses, as well and I think that goes to looking at the fact that. Organizations, are nested within communities. Are nested within an, economy and nested in societies, and that there is a broader value, to business and a capacity, to contribute, in positive ways to that context, in which they're working Ranchettes, sort of touched on that move from the classical.
Kind Of approach to a more rounded approach that's a little more lined, up with where we are in our society at the moment and that is sort of looking, at the stakeholders, in business are not just shareholders, the stakeholders, in business at the moment are very clearly, a broader range of stakeholders. You know clients communities, staff, and I think this is where we're seeing the generation, of some of these issues that might be in the past and by people who are sort of followers of people like Milton Friedman would, have seen them as being inappropriate issues, for business to cover are, becoming more, and more a part of the mainstream of what businesses looking at and that goes to things such as reconciliation. With Aboriginal Torres Strait Islanders it goes to gender equality at, work and it goes to things like marriage equality which, I see as really, important issues for business to lead on business, seems to be about context, and not just the activity, of business, has, this changed, over time has our understanding, of the role of business in society changed, over time yes. I think so I think there's been a realization. For example, that it is not possible, or it's not even ethical to make money, and to. Help other people I think that kind of assumption, is being questioned pretty rigorously, so there is more, of an awareness that it is actually possible for, for-profit. Businesses, to engage in things, like any. Of the 17 you know UN sustainable development. Goals like poverty, alleviation and gender equality not, just as some kind of an activity that you should do because you want to look good but, actually an activity, that you, can actually do whilst. Making profit, so I think that's a fundamental change, slowly. Coming in business where it's. Not necessarily a non economical, to alleviate, poverty and those kind of issues yeah. I agree Rancher, and in my own area of research which looks at workforce and, workplace practices I think, we're very much seeing a change you know it's not seen as leading, practice, to exploit staff and it's also not misaligned, good, practices, around things, such as decent.
Work Diversity. And inclusion. Key, topics, for business leaders at the moment not because they're kind of nice things to do but because there's a real bottom line impact. That we can identify there, so we know that organizations. Which, have good employment practices, which allow their staff to come to workers themselves to. Bring their entire self to work to feel included and to feel valued at work, that's, absolutely, lined up with great financial returns you know as lots of different studies that have shown that there are impacts, on return, on investment, return on equity share, price organizations. That are pursuing, those kinds of diverse inclusive practices, but, also we have really, strong links to things such as innovation. And cultures of innovation in those contexts, and also, looking at staff measures so you know productivity, and engagement. Kind of issues as well and I think further interest, in looking at you know staff really being the key to to, driving productivity and, driving innovation I think this will be more and more foregrounded. In terms of what our business leaders are going to be pursuing yeah. Absolutely, ray I think and, and the other I guess economic, reason, for you, know companies, to engage in social. Issues is that. By. Essentially, by not engaging in social issues you're basically leaving about 4 billion of you, know people are the 7 billion in the world you. Know you're, not actually engaging with them because the. Four billion people around, the world who live on best and Feitosa day they're also a market, it is possible, to ethically. Do business with them and at the same time to elevate issues, such as poverty, and those kind of things one. Thing to add to that is let's think about what social issues, are so for me that sort of framing kind of puts, issues. Like gender, equality or, diversity. Issues, more broadly as being outside of organizations. Or outside of business but, I think that absolutely you know even in the Australian context, issues. Such as marriage equality and, not, divorced, from the organization, there because, organizations are, made up of individuals, who have families and have communities, and have interests, those. People make up organizations. And for many staff those, kinds of issues are absolutely. Internal, to what organizations. Are doing and if you see some of the organizations. Who are taking quite a progressive, approach on these in inverted commas social issues the organisation's whose staff are, demanding. These kinds of changes, and. Say you, know it. Really important for them to work for an organization that that lines up with their own values has. This historical, shift from a focus on shareholders. To focus on stakeholders. Been, about the changing, public expectations. Around businesses. Absolutely. If you want to take a very macro approach, in, 2015. The United Nations ratified the 17, sustainable goals, and what. What is very different, about the new version of the sustainable, development goals as the previous version which is called the million development goals was, the very strong focus these 194. Countries that, ratified the, sustainable, development goals put on for-profit. Businesses, so, there are various estimates, about how, much money, it will cost to actually implement things like going for gender equality or, you know reducing poverty or hunger and they, range from 1.5, trillion dollars, to, four point five, trillion dollars a year to, actually make that happen by 2030. So. I think. In. A big organization such, as the UN and the government have realized that although. They've been at the forefront of trying to do something with social issues it's really important, that they understand that businesses. Have to be part of that solution although, you know previously they've been seen as part of the problem I think without. The business from, a practical, financial perspective, is, quite difficult to engage with the societal issues so therefore I think from a macro approach there is pressure, and change some public expectations, about the role of business yeah.
I Agree with Reggie and I think sustainability is, the key and I think we're much more framing, legitimate, business activity, around sustainability. I think consumers, clients. Communities, are becoming, a lot more savvy, lot, more connected a lot more educated. Around, business activities, as well and I think the very powerful impact that, business, activity, in the social and broader sort of economic arena brand, is very very important and that connected up enlightened, customer. Base can have a real impact and so I think that businesses have a mind to that as well but for me the sustainability, is the key and. Also from a more micro, approach as the Qantas, CEO many. Others years have realized that they, really have to show some leadership in, terms of the way forward for business and I think it also has to do with the economic, narratives are not just, you know moral imperative so, I think there's pressure coming from within organizations. To I think there's been a lot of introspection. About. What. Are we actually doing of course to, have good return on investment and take. Care of shareholders, but what else can we do there. Is always the question of our businesses, equipped, to handle big. Social issues, such, as the ones we've been discussing, yes. I think so but, as my previous comment, I think it, will take some time to, change, certain, assumptions, so there's been our assumptions, for many years that the purpose of business is to make profits and look up the shareholders, which it should still have so. I think as more, people get on board such, as the CEO and especially. I think as, Ray was saying before I think consumers, previously. Just expected, businesses, not to do any harm but, I think that's actually changing, too not just to do no harm but to actually proactively, do good to, so, I think yeah I think slowly, as more people see the economic and the moral imperative I think it is possible well, in terms of where the business is equipped to deal with some of these issues I think we've got to go back and look what, our organization's, what our businesses, and essentially, they are organizations. Made up of humans who have lives which, are very different in some circumstances. Who live in communities contribute. To economies, and to society, so I, think yes they are equipped because they're not machines they're not unmovable, they are organizations. Which reflect the values of the people who are in them and I think very, importantly reflect, the values and the agency, of leaders, who lead them as well so I think they, can be as equipped as you'd, expect human beings to be and to reflect the expectations. That those you know that context, of those people who work for them and lead them. And. Also to follow up Sandra not, just the consumers, but from, anecdotal, evidence of, my own teaching in the unit on poverty elevation profitability. I have, actually seen a slight change in students, motivations, in terms of what, kind of companies, they want to work for so, I think more and more anecdotal. Evidence suggests, that students. Actually really future, business leaders are, looking to work in companies that actually proactively, do good to tackle social issues attractively, while making profits, you, think that's a really important point brand it and there is really. Refer to as the inverted commas the global, war for talent and that's about organizations. Wanting to tap into the best and the brightest, and it does seem to be some evidence that the interests, of the sort of educated, middle, class of this emerging, group of students here in universities, at the moment actually have a focus. On value. They have a focus, on impact they have a focus on contributing. Broadly, for impact for good within society, so I think this is absolutely, going, to play a part the values that organizations, project, outside the, practices, that they have internally.
Are Absolutely, going to be part of that approach of business to try, to recruit. The best and the brightest to come and work for them we've, had a bit of a historical look at this question, but we seem to always come back to large businesses. Is there a difference, between how, large businesses, approach this question and what, small, business is for in society. What is the role of small businesses, and is there a difference small, businesses make up most of the businesses in most economies I guess including. In Australia, at this stage I think larger. Firms are actually in the forefront of changing. This perception primarily. Because you know they see the economic value of it I guess so, I think this, stage small business are picking up on these issues but you take some time before they follow the larger firms, let's. Move a little bit to having, a look at the future, do, we see a repositioning. Of the role of business and society and how will we know this we've, seen quite a few changes in how some companies are approaching. The question of what's their role in society as, recently. As last year we've seen a number of German companies, have refused, to sell razor wire to the Hungarian, government that was aiming to complete the hands to keep refugees, out of the country, and CEOs. Of barbed, wire firms, or razor wire firms have claimed that Hungary's misusing, their products, and have refused to sell millions of dollars worth of product are we seeing a change for. The future yes, we are and I think talking, about profits, still works in this context, Unilever, have, shown actually that the product lines that actually are doing some social good, are actually. Sometimes, doing even better than, the product lines that are not so there, is an increasing, evidence that you. Can actually make at least equal and Murray or Mumbai, from, actually, engaging in social issues so I think it is possible and for me going back again to my own research area and thinking, through what we know about the future of work and how jobs are emerging, and what the changes are in the labor force we know that many more jobs particularly, in economies, like ours are going to be created, in knowledge work and that's where we absolutely, can, see a link in terms of the practices, that organizations. Adopt internally. But also how that pushes out to society it's, going to be a really critical part of both, attracting, retaining and, engaging staff, and that's so well. Established to be connected up with sustainability, with performance, with productivity, with innovation, so I think this is not only quite, a thing but, it's a thing that's only going to amplify in, the future of work and indeed, we've seen companies like emphasis, who over the past few years have used technology to build communities, across their workforce, of over 50,000. People to talk about the future and what the company, can do in its communities, do, we see a different, role for technology in, this context, which is becoming increasingly complex.
And More dynamic but also at the same time a lot more uncertain, absolutely. I think technology is both enabling, and also in some ways speeding up some of these processes. And some of these connections, so absolutely, I guess is the only answer I'll give you there Sandra, one, of the amazing parts about these four billion people who are in less than five hours a day is that they tend to leapfrog, technology, so for example, if you go to Africa India, they don't have landlines but they are experts and using mobile phones and I think a lot of companies have picked up on this for, example there are about 2.5, billion people who don't have bank accounts so there for a company called Empire I just put the mobile phone as a bank you know where they can do transaction, so therefore I think you don't have to go very high-tech just very innovative, use of technology can, make a huge difference on how you tackle these kind of issues the, other change that I see going forward is that I think a lot of companies from developed, countries are, actually going to learn a lot from doing, business with the poor and those kind of areas because there is a very interesting kind of thought process called. Jugaad innovation of frugal innovation where, you do more for less so. For example in a place in India this innovator, entrepreneur, a pouring entrepreneur, came, up with an idea for a refrigerator, made, out of clay which, keeps food, cool for three four days and the private, reason that was because there is no electricity so, therefore what companies are doing is they actually while, doing business in these poorer countries they're earning new, strategies, and they're in fact using it back in developed countries so I think as companies, to learn more about dealing. Social issues they're, going to use the same kind of strategies in developed, countries who. Is responsible. For having, or for driving, the conversation around, the role of business is this a theoretical. Conversation we need to be having is this the responsibility. Of academics. Or is this the responsibility. Of businesses. And indeed we've seen companies like Patagonia. Coming, out and speaking up against things like consumerism. Where even, though the fundamental, role of businesses obviously provide, goods and services that people need or want them to create value, Patagonia, clothing, company, has taken out an ad on Black, Friday in the New York Times a few years ago saying don't buy our jacket, recycle. Your old one give it to charity sell it on eBay and only if you really need it buy a new jacket and they, were CEO has never taken the company public so it can restrict its growth about I think it was three or four percent a year who, is responsible, for having the conversation, around the role of business we often look to business. Leaders I suppose to, be primarily, responsible for, that you know from time to time governments. Should, be primarily responsible for. That from, time to time governments, have something, to say about that sometimes. More or less to say but I think increasingly we're looking at internal, stakeholders, of organizations. Such as staff, and leaders of organizations but, I think you started your question with is there a role for academics, in this and I think absolutely there, is in terms of our research and the framing of these, issues understanding. How business approaches, these really complex questions, in the context, of quite significant, change in terms of our research work but I think there's also really significant. Issues that we need to take on board here in terms of our educational, role so I think about our students, in program at the moment of which they're very many at the University, of Sydney Business School who are currently grappling with issues around the future of business and I think our role really is to expose, them to have experiences, to understand, that this is quite a complex issue and it's a period of changing. Thinking, about the purpose of business its role in society and the way that it drives value so I think at that education, level we've got some real thinking to do about how we engage, with our students, who are our future leaders of businesses, and how they frame their own contribution. Think about what they want to achieve in their own careers and how they seek to lead as they leave us from university and go into the workforce I totally agree with I talked about I'm being a perfect storm various, things happening at the same time which, are then channeling, to changing the future of and the purpose of business it's not a common knowledge that you know we should just change the purpose of business we need to look at it historically and. Historically, any idea has been there for many years it takes many years to change that and questioning, assumptions, is not an easy thing but, I can see evidence to answer your question that actually, almost every part of society is playing, a part in changing the purpose of business as, Ray was saying you know students, and academics, are, doing, a bit so, is the government national government the United, Nations the, consumers.
Who Buy the products as well as business leaders so I think. This is the time to take that opportunity to actually harness. All these forces together to, change the purpose of business and to open up the conversation as we've discussed, today not only is the context, that businesses, are operating in more uncertain. And more complex, also more dynamic, but organizations, themselves, are propelling, with how to best address this, and we've seen banks. That have done, the, most good that's have cured cured. Most blindness, but have also struggled with, greed with short-term profit maximization, with recurring, financial, crisis rising, inequality and, reduce social mobility so, the question of what is the role of business, and society and what our business is for that, a question that remains, very much open I think, absolutely it's, a question that is open and I think the answer will evolve very much over time I guess the one thing that I would say is that going. Back to that point I made earlier organizations. Are made up of human beings who have choices to make about the way that business is operate and because of that I think this will remain an open question and it's, a very exciting question, to try to address yes. I agree with Ryan also I think it's up to some, of us who are proponents of the argument, that business should have a bigger role in society, to make the case much stronger both, from economic, perspective, and a moral imperative I mean from my own perspective I really believe, that the future leaders, and future business. Those, that answer this particular question where. Does my passion meet the world's greatest needs but with the Prophet well very much looking forward to continuing this conversation and. Thank you for talking to us today Thank You Sandra and Rick thanks, Amy thanks, to you to rent it thank you.
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