What is business for?

What is business for? (February 15, 2005)

Managing For Society, The Manila Times

“No society can surely be flourishing and happy, of which by far the greater part of the numbers are poor and miserable”. Adam Smith, the man many call the father of the free market, said this in 1776. It’s 2005 and poverty remains a vexing problem for millions of Filipinos. This even if the economy, helped by the vaunted free market, has been growing through the years.

How can we improve this situation? How can we make sure that economic growth translates to better income distribution in the country? To fewer starving families? One way is very clear: those who put up and run businesses must see their role in contributing to the common good. They must see the purpose of business as more than delivering profit to equity owners.

In making the social role of business clearer, let me go to the Constitution and the Corporation Code for support. Let's start with the Constitution's declaration that: “the goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially for the underprivileged.”

The fundamental law tells us that the primary aim of economic activity is the broad sharing of the fruits of business activity. In fact, the Constitutional commissioners were deliberate in putting equitable distribution first before growth. Which is why I’m always surprised how often government harps on economic growth with only a passing mention of how the fruits of growth are being shared.

A major engine for economic activity is, of course, the business corporation. In a spirit very much like the Constitution’s, the Corporation Code “seeks to establish a new concept of business corporations so that they are not merely entities established for private gain but effective partners of the National Government in spreading the benefits of capitalism for the social and economic development of the nation.” Government, therefore, allows the existence of business corporations for the specific role of being its partners in nation-building.

The economist John Maynard Keynes once said that “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” Although some economists still argue for letting self-interest and the market take care of lifting everyone up, I don’t believe this can happen. The common good cannot be left to the market; it must be actively pursued. And socially responsive management is just the thing to turn capitalism into a true force for the common good.

Managers are crucial to socially responsive business because they decide what gets done in a business and they have the formal power to require subordinates to comply. The buck stops on a manager's desk, at least for the level of responsibility assigned to him. A VAT rate increase is useless to society if managers tell their people not to issue receipts. A Labor Code protects no one if managers find more creative ways to deprive workers of their right to unionize.

This column, written mainly by faculty and students of the doctor of business administration program of De La Salle Professional Schools, will be a forum and source of ideas, research findings and case experiences on socially responsive management.

It’s time to set the record straight. Business managers shouldn’t work for equity owners alone – they also have a duty to work for the good of employees, suppliers, customers, lenders, their host communities, and society as a whole. This often-neglected principle is the reason I call on all nation-loving managers to start managing for society.