Making Profits Cannot Be an End in Itself

THE 21st century begins amid much questioning of the corporate excesses of the 1990s. The bursting of the dot.com bubble, accounting scandals in Enron and WorldCom, and the anti-globalisation backlash led by non-governmental organisations have led to soul-searching and questioning of the prevalent model of cut-throat capitalism.

Unions play a role in shaping and defining the ongoing debate about a more ethical or sustainable form of capitalism. Unions have a role in building such a form of 'ethical capitalism'.

Ethical capitalism at its heart is not exploitative or adversarial, but collaborative and consensual, seeking to build wealth that is equitably shared, not amass wealth for the privileged few.

Unlike the dog-eat-dog world of cutthroat capitalism, ethical capitalism is characterised by a sense of common values. Instead of exploitation, trust and values-based regulation lubricate transactions.

The basic framework of ethical capitalism is a perspective based on common values, not adversarial relationships. Corporations serve stakeholders, not only shareholders. Stakeholders include employees, customers, business partners and the community.

Within this framework, unions advocate an equitable sharing of profit with workers, in line with value added, productivity and contributions from them.

Here, an elaboration of the importance of stakeholders will help shed light on the true purpose of business.

We have become so enamoured of the prevalent perspective of the 1980s and 1990s that shareholders' interests must be paramount because of the risks they shoulder, that we forget how aberrant such a view is in history.

For millennia, there has been a strong line of thinking that businesses have responsibilities beyond their shareholders.

Ideas that are precursors of 'stakeholder' theory have been with us since ancient times.

In classical Greece, businesses were expected to be of service to the community. In the mediaeval period, a good businessman must be honest in intention and actions and is expected to use his profits in a socially responsible way.

The ideas of noblesse oblige or responsibility of the rulers to the ruled, and the Confucian concept of benevolent rule, represent an analogous concept of social responsibility among European aristocracy and Confucian leaders.

Several British businesses subscribe to the Quaker ethic, subscribing to the same thinking.

In the 20th century, debate that businesses should adopt broader responsibilities revived in the 1930s, with Chester Barnard's The Functions Of The Executive arguing that the firm serves society, and putting forward the position that corporations are means to larger ends, rather than ends in themselves.

In 1953, Howard Bowen's path-breaking book Social Responsibilities Of The Businessman argued that businesses are 'servants of society' and that 'management merely in the interests (narrowly defined) of stockholders is not the sole end of their duties'. In other words, businesses exist to serve society, not stockholders.

This is not to deny corporations their right to make profit. Just as schools serve society by educating children, parliaments by making laws and politicians by aggregating diverse interests, so corporations serve society by making and selling goods and services for profit.

This profit oils the economy; it is the currency of exchange by which corporations pay workers, and workers pay schools to educate their children, and both workers and corporations pay taxes for the benefit of society. Without businesses, there will be no commerce, and without commerce, no profit, without profit, no wages and without wages, there is only indentured labour, not labour that is mobile and free.

Thus businesses serve society by making profit. But profit is the means, not the end. As Japanese business leader Konosuke Matsushita said: 'Some people think that the purpose of an enterprise is to make a profit.

'Indeed, profit is indispensable for conducting proper enterprise activities. However, profit in itself is not the ultimate goal of an enterprise. More basic is the effort to improve human life through enterprise management. Profit becomes important and necessary only to better pursue this basic mission.'

Once we realign our perspective, many things fall into place. Corporations make profit in order to serve society better. Making a profit is thus a means, not the end.