Type: Research Essays
Sample donated: Glenda Adkins
Last updated: April 12, 2019
Alot of attention has been paid to businesses in terms of their responsibilityto society as the corporations gain the dominant position in society. Sincebusinesses by corporations have a large influence on various stakeholders insociety(Freeman, 2002), it is highly critical to consider the purpose of doingbusinesses in society. In the talks of Edmans, he brought about an importantargument about the profit and purpose of businesses.
Then, he concluded thediscussion by the statement “Businesses exist to serve a purpose, and by doingso, and only by doing so, will they generate profits in the long run. To reachthe land of profits, follow the road of purpose”. In this context, purpose meanssomething businesses can contribute to society such as customer loyalty,employee satisfaction, and so forth.
Profit is what Friedman(1970) described asthe responsibility of the corporation. Edmans reached this concluding remarkabove based on several claims he had made. First of all, he mentioned that it’simpossible to exactly calculate the benefit of ethical behaviors. On thecontrary to the perspective of Friedman that do cost-benefit calculation,Edmans claimed that there’s no way you can numerically calculate the cost andbenefit of the each ethical conducts. Secondly, he emphasized the corporationsthat take responsibility to society with purpose will gain high profitabilityin the end by introducing several corporations with moral purposes such asMarks & Spencer. Simon, a former chairman of Marks & Spensor, had madedecisions of providing nutritious meals to all employees at nominal prices eventhough it was costly because he really cared about workers. This seems to becontradicting to the Friedman’s calculation view but Edmans insists that Marks& Spensor achieved excellent reputation and profitability.
In addition tothis, he introduced his research on employee well-being that explain the higheremployee well-being the better the corporations’ performances are. Through thisdiscussion, he concluded that even if you cannot exactly calculate the benefitsof ethical conducts, socially responsible behaviors by the corporations willlead to profitability in the end since profits will naturally follow later.Moreover, Corporate Social Responsibility which serves purpose of businesses isconsistent with the profit of corporations and investments in CSR is not justan expense in the long term. Based on argumentations, he had reached hisconclusion above.
I generally agree with his view on therelationship between purpose and profit of businesses to an extent that CSR cansupport the profitability of business. This is because CSR and profitability isnot zero-sum since “doing good does not necessarily rule out making areasonable profit” (Handy, 2002). Rather, “behaving more responsibly can make afirm more profitable” (Vogel, 2005). Certainly CSR may not lead to theshort-term profit maximization but CSR activities can be beneficial forcorporations to create positive visibility, reputation, and consumer trust(Crouch, 2011). Those positive corporate image or identity built through CSRactivities will be beneficial because they can produce appealingpictures(Alvesson, 1990).
Hence, it can be said that CSR activities can beconsistent with business profitability from the perspective of image management. Moreover, he perceives that caring socialresponsibility is not something the corporations do when they can afford andrather profits will come later as a result of following purpose. Thisperspective of CSR seems to be in contrast to Friedman’s shareholder theorythat “the only responsibility of managers was to increase shareholder value”(Vogel,2005). Yet, if CSR bring about more profitability, his view isn’t far away fromFriedman’s view that “the only responsibility of a business is to increase itsprofits”(Jones, et al, 2005). The distinction between these views is thatFriedman tends to be short-term perspective on profit-maximization and Edmanstends to have long-term perspective. Since business is continuous, the amountof maximized profits depends on the period. I believe that following purpose ofbusiness will enable the business more profitable when the purpose is somethingsatisfy societal needs as George Merck tried to save life by utilizing science.According to Porter and Kramer(2011), businesses which create both economic andsocietal values will be more successful in the long term than short-termprofits.
Consequently, doing business with good purpose will lead to theprofitability in the long run. However, there is a several points I’mconcerned with regard to the purpose and profitability. Edmans argues that inorder to earn the profits in the long run, it is important to follow the roadof purpose.
Ideally his claim may be valid because socially responsibleconducts will attract and motivate workers. But, in reality the situation maynot that simple. This is because for small to medium sized companies, there isa difficulty with financing the business for a very short-term.
Even if thosecompanies have good purposes, it’s difficult to continue to do business withtheir purposes as long as they can earn enough profits to continue businesses.This does not necessarily deny the significance of having purpose of businessbut it’s questionable if all companies are capable of prioritizing sociallyresponsible conducts over the short-term profitability from the beginning ofoperations. In theory, business with purpose may bring about the profit in thelong-term but this may be challenging in practice for the companies that don’thave enough capital to run operations. Toconclude the arguments, Edmans claimed that doing business with purpose andsocially responsible business conducts are important as opposed to Friedman’sshareholder theory.
Edmons’ belief is based on several assumptions which areimpossibility of calculation of every benefit, cases of Marks & Spencer andhis research on the relationship between employee satisfaction and performance.I agree