By MURIITHI NDEGWA
People set up businesses to make money and as Milton Friedman once put it “the business of business is business.” Businesses are built to generate profits and make wealth for shareholders. However, a critical look into the environment within which businesses operate brings to the fore interesting revelations: First, businesses do not exist in isolation; because organisations and the society they operate in are intertwined. This is actually one of the salient points that came out during the 2013 Responsible Business Summit held in London – that businesses cannot be successful when the society around them fails. Therefore, corporations like all citizens have to contribute towards a positive social and physical environment.
No giving back
This phenomenon has evolved over time through a period when giving back was unheard of. In the early 20th Century, shareholders of big corporations could not comprehend how giving back to society would serve their interests and its connection to performance. The story of Ford Motor Company best illustrates this. In 1919, Henry Ford, the company’s president and principal stockholder stated that the purpose of his company was to serve society but this idea was shot down by some stakeholders.
The book Legal Environment of Business, A Managerial Approach: Theory to Practice by M. Katz and S. Melvin quotes Ford saying: “My ambition . . . is to employ still more men; to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this, we are putting the greatest share of our profits back into the business.” Two minority shareholders sued to get payment of the dividends. The Supreme Court, in support of the minority stakeholders, rejected Ford’s policy. Eight decades later, Henry Ford’s great grandson, William Clay Ford Jr was successful in convincing the company’s shareholders of the importance of business as a service to society.
Strong reputational capital
Indeed, society is fast embracing the fact that companies have to give back. These developments have been achieved after realization by corporates that certainly, societies that are imbalanced and unhappy create disturbances and disruptions and this leads to losses in businesses. Research shows that consumers consider more than quality goods and services when choosing a brand. In fact, some customers will even turn their back on their favorite companies if they believe they are not taking a stand for societal and environmental issues.
Certainly, a strong reputational capital is what distinguishes winning companies from the rest. By investing in the community, a corporation improves its own support system, enhances the loyalty of its workforce and signals to consumers that it is part of the social fabric.
Cultural and social value
It is commonplace to find individuals, out of their own volition, make a contribution towards the education of a needy child or the medical bill of a stranger. This harambee spirit, shows an ingrained culture of mutually finding solutions to problems. In this same way, business is viewed as part of society and therefore has community and national responsibilities. Just as Winston Churchill put it, “responsibility is the price of greatness.”
Muriithi Ndegwa, OGW, HSC, FKIM – KIM Executive Director/CEO.