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Businesses are embedded in society and societal institutions. Each business and each stakeholder — from customers, suppliers, and employees to communities, regulators, and financiers — has an ethical perspective, a political view, a professional interest. Individuals within each stakeholder group have ideas about how they want their lives to matter in the world.
Those connections to the world outside of business are often strong motivators for decision-making. They influence how and where businesses create opportunity for workers, how partnerships form, how suppliers get treated, how far companies will go to fulfill contractual obligations, and what organizations choose to invest in.
These decisions are often described as primarily financially motivated. But humans — and their businesses — are more complex than that.
There is a deep mismatch with the rather obvious idea about our connections and much of our best thinking about how to lead a successful business. We often talk about the roles of markets, competition, and finance as if they can be separated from society. Media and educators give a lot of credence to economic analysis that only peripherally acknowledges the roles of other societal institutions in business — let alone on people’s preferences or on stakeholders’ ability to see beyond their own goals to something that creates widespread value.
Understanding these bonds is crucial within the current debate about the future viability of capitalism. Specifically, many thinkers argue that democratic and civil society institutions and democratic ideals are under attack both here in the U.S. and in global communities by populist or ethnocentric political movements, totalitarian governments, restrictionist immigration policy, and protectionist trade and diplomatic policy (see, for instance, this Der Spiegel article and an analysis by U.S. academics).
We think this is an urgent problem that businesses need to address. With their affiliations and influence in the outside world, companies have the capacity — and, we argue, the responsibility — to help maintain democratic principles.
‘It Was the Right Thing’
In our work at the Institute for Business in Society at The Darden School of Business, we see leaders who routinely cite basic, fairly ordinary ethical principles for the decisions they make. “It was the right thing to do” is a common refrain. One leader in a media company justified a particular financial decision by saying, “Well, our business is free speech, so it wasn’t difficult.” Others say, “We know what we care about.” Very, very few focus only on profits.
A new documentary film, due out fall 2019 and produced by Darden and the Institute for Business in Society, highlights a handful of inspirational companies and how they act in the interests of a broad array of stakeholders. Fishing With Dynamite highlights company strategies for preserving economic freedom in the face of the decreasing public popularity of business leaders and the now familiar erosion of trust in business and government institutions. The movie’s name refers to the practice of using explosives for fishing — a practice that gets fish out of the water but decimates the habitat in the process.
The companies in the movie have each sustained a long run of financial growth while achieving a host of social aims. None seems to regard the process of maintaining multiple goals as mysterious. Growth is the product of the ways they engage with their stakeholders. One executive, for instance, describes a long-term supplier relationship that originated with a handshake and that continues unbound by legalities. The companies’ long association, community norms, and the personal relationships involved have kept the bond intact.
These companies’ origin stories have become, in some ways, their operating principles: These are businesses founded not only to provide needed products to a market, but to make a difference in their communities and for their employees, too.
Capitalism Depends On All Freedoms
The companies in Fishing With Dynamite and ones like them demonstrate the power of being active in stakeholder environments both to protect their businesses and to protect their values.
Is all this political? We think it is. Some people suggest that economic freedom is positively related to economic growth, and that, for instance, despotic regimes have relatively poor performance. This is an incomplete analysis. The necessity of all kinds of democratic freedom provide the basis for capitalism and sustained economic growth.
By preserving individual rights — to assembly, to belief or religion, to privacy, to labor force participation, to movement in pursuit of economic opportunity, to a free press as both consumers and producers — democratic institutions ensure the basis for the development of capitalism and a healthy system of business.
Democratic institutions enshrine the ideals of communities. Democracy is not just about voting. It’s about creating institutions that let us freely communicate and collaborate, and thereby flourish together. And the most important, productive, and effective metaphor for that free collaboration to date has been business and entrepreneurship.
Businesses need to act to preserve these democratic institutions and systems that guarantee democratic freedom. They should become active in the political process, and not just by lobbying. They are in the position to essentially become community builders around policy issues, views, and ideas, rather than limiting themselves to being community-minded “law-abiding citizens.”
Businesses as Activists
Businesses need to understand that they are fighting to continue to be the dominant metaphor for human productive activity. Corporate responsibility alone won’t change the minds of a generation that is increasingly blasé when asked, for instance, whether government should control the means of production. If a government policy proposal erodes fundamental democratic freedoms of conscience or speech, or if a regulation makes it more difficult for business to function in minority communities, or if legislation tamps down privacy or free expression, businesses should organize opposition to those proposals and suggest alternatives.
Traditionally, businesses act politically only in their own interests and only when they feel they are under attack. They write op-ed pieces, lobby, and cultivate relationships with policy makers and government officials.
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To the generation that we teach, this seems inadequate at best and corrupt at worst.
If a business has an operational model that includes building extensive, stable ties to the communities it works in, and if a business has acted on behalf of stakeholder interests in the past, it might stand a chance with this generation of being perceived as a plausible, legitimate partner in improving individual opportunity and rights.
With access to consumer demographic and purchase data, businesses are uniquely positioned to recognize, interpret, and leverage the interdependencies among their stakeholders, and to leverage and preserve the value that gets created for them by social institutions, including public policy and government.
Take, for instance, U.S. immigration policy and the detention centers at the Mexican border. Many companies’ data resources, and their own employees’ experiences in their communities, may demonstrate that their communities want to see immigration laws reformed and don’t think detention centers are an answer. Organizations need to develop deep-seated processes internally for surfacing both attitudes and solutions, and then organize support for more humane and freedom-affirming policies.
Likewise, when privacy rights are under attack in Arkansas or Georgia, businesses that operate in those areas can do more than boycott or pull production from those states, neither of which affirms anyone else’s democratic freedom. They must have the legitimacy to organize communities to voice opposition.
Most of what we’re talking about isn’t appreciated in current business school teaching. The curriculum in most business schools simply ignores almost all ideas that are not related to markets, competition, and finance, and students are taught that financial considerations are the only legitimate business motivation.
But in our experience, many students are hungry for broader thinking. At Darden, a course on “Ultimate Questions” — what really matters to you and forms the basis for your choices — is regularly oversubscribed. What motivates individuals is often manifested in their political participation, voting behavior, and activism, and as students prepare to become business leaders, they reject having their passions sublimated or treated as peripheral to their business objectives.
Business is embedded in society. It’s time for business people to care as much about democracy and democratic freedom as they do their own organizations. A healthy society depends on it.