April 28, 2021
If a business doesn’t focus on profits, what should it focus on?
On April 9, Ed Freeman, university professor and academic director at the University of Virginia, hosted the fifth and last session of the Ethical Leadership Speaker Series hosted by the Canadian Centre for Advanced Leadership in Business. The topic of the discussion was how stakeholder theory can be applied to solve social responsibility problems, drawing on his new coauthored book, The Power of And.
Dr. Freeman was introduced by Dr. David Dick, CCAL Fellow and Associate Professor in the Department of Philosophy at the University of Calgary. Dr. Freeman started by explaining how the old philosophy of business of maximizing profits no longer applies to today’s landscape. He spoke about how the idea that business and ethics do not mix has drastically changed in today’s world and stated that businesses now have new purposes other than profits.
If a business’s purpose is not to maximize profits anymore, what is its purpose? To answer this, Dr. Freeman explained the analogy of humans and red blood cells. Humans need red blood cells to exist, but that is not the purpose of their lives. This also applies to businesses that they need profits to exist, but that is no longer their purpose anymore. In the present business landscape, most successful businesses did not start by focusing on profits, rather they disrupted an industry (for example, Netflix) or enacted a social change such as Tom’s Footwear.
The second topic discussed was how stakeholders play an integral part in businesses. Success can be traced to motivated employees or how well the needs of the community are solved. But how can the needs of the community, employees, and other stakeholders be met while satisfying the need for profits from shareholders? This approach is applied to businesses in that that businesses must learn to satisfy the needs of their stakeholders to be successful. Since large portions of people want businesses to address these issues, they need to do so in order to respect the viewpoint of their stakeholders, the customers.
Dr. Freeman then explained the Warren Haynes test. That when playing the blues, it does not matter how many notes you play, you just have to mean the notes you do play. This applies to the topic in that it does not matter what a business’s purpose is, they just have to do it well to be successful. A student asked how do you decide which notes are the most important to you? Dr. Freeman responded with an analogy about what you would do if you had a foreseeable date of death, and what you would want to spend your time doing. This can help someone find their purpose and could be applied to finding a business’s purpose.
To conclude, Dr. Freeman explained how stakeholder theory can be applied to solve modern business problems. The key takeaway from the event was that with businesses no longer focusing only on profits, they could begin to address the social problems in the world. Addressing these societal issues is now the responsibility of larger companies and only through division of labour and working together can social change happen.
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