Business: Profit vs. Society?
Milton Friedman suggests that businesses should only be responsible for making profits. If a business stays within the law, it is encouraged to do anything and go to any means necessary to maximize the bottom line. Other aspects such as customer happiness, impacts on society should not be its main concern. Porter and Kramer on the other hand suggest that we can create shared values in other words we can create economic value simultaneously by creating societal benefit and vice versa.
Theoretically, Friedman’s analysis makes a great deal of sense because doing what is best for society means sacrificing profits. But practically, in today’s world it may not work in all scenarios. Businesses today must take account of a wider range of stakeholders other than just the equity holders. Businesses have to earn reasonable return on their investment but they also need to have lasting relationships with other stakeholders such as employees, customers and the communities they operate in.
Targeting profit alone creates a relentless focus on short term profit with the hope and belief that constantly maximizing profit right now will lead to maximizing profits down the road. This is where the flaw is with Friedman’s analysis. Time and time again we have witnessed businesses making decisions to earn short term profit which led to an eventual long-term disaster. Profit today does not necessarily mean profit tomorrow.
Personally, I agree with Porter and Kramer’s argument. Instead of making it Profit Vs Society, why can’t we embed them together and create an environment where both can be achieved? The paper includes a number of examples where a company has succeeded in maximizing profit and at the same time creating societal benefit. Wal-Mart for example, was able to address environmental and economical issues by reducing its packaging and rerouting its trucks to cut 100 million miles from its delivery routes in 2009, saving $200 million. What impresses me with their Shared
Theoretically, Friedman’s analysis makes a great deal of sense because doing what is best for society means sacrificing profits. But practically, in today’s world it may not work in all scenarios. Businesses today must take account of a wider range of stakeholders other than just the equity holders. Businesses have to earn reasonable return on their investment but they also need to have lasting relationships with other stakeholders such as employees, customers and the communities they operate in.
Targeting profit alone creates a relentless focus on short term profit with the hope and belief that constantly maximizing profit right now will lead to maximizing profits down the road. This is where the flaw is with Friedman’s analysis. Time and time again we have witnessed businesses making decisions to earn short term profit which led to an eventual long-term disaster. Profit today does not necessarily mean profit tomorrow.
Personally, I agree with Porter and Kramer’s argument. Instead of making it Profit Vs Society, why can’t we embed them together and create an environment where both can be achieved? The paper includes a number of examples where a company has succeeded in maximizing profit and at the same time creating societal benefit. Wal-Mart for example, was able to address environmental and economical issues by reducing its packaging and rerouting its trucks to cut 100 million miles from its delivery routes in 2009, saving $200 million. What impresses me with their Shared