Profit with Purpose in Modern Business

Welcome to the inaugural edition of A New Playbook for Sustainability: The Integral Role of Steward Leadership, where I’ll be elaborating on the core themes of my book, Sustainable Sustainability.?

Picture a world where businesses actively contribute to addressing societal challenges while still prioritizing financial gain. Such a world is not a utopian vision but an increasingly tangible reality as corporate leaders grapple with the imperative to achieving ethical profit with social responsibility.

Acknowledging the enduring debate between proponents of Milton Friedman's profit-centric view and advocates for a more socially responsible approach, I aim to explore how these seemingly divergent ideologies can coexist harmoniously. This discourse holds profound implications for business operations and their broader societal impact. Drawing insights from recent discussions and my own research, let's explore the transformation in corporate governance toward achieving profit with social responsibility.

The Limitations of Regulation

Regulation, undoubtedly, serves as a crucial mechanism in shaping behavior and establishing the baseline standards of conduct within industries. Yet, its efficacy often falters when it comes to fostering meaningful change beyond mere compliance. While regulations aim to prevent wrongdoing, they cannot inherently inspire proactive, ethical behavior exceeding minimum requirements. As my extensive research has shown, adherence to regulatory mandates, while necessary, does not automatically translate to a genuine commitment to societal well-being. The "doing no wrong" ethos encapsulated within regulatory frameworks does not necessarily encompass the imperative of "doing enough good."?

Furthermore, the reactive nature of regulations exacerbates their limitations, as they primarily spring into action only after calamity has already struck. An example of this phenomenon lies in the aftermath of the 2008 financial crisis, where regulatory measures were devised to respond to systemic failures rather than preemptively curbing them. Thus, while regulations establish guardrails, they often fall short of fostering a proactive culture of ethical conduct and forward-thinking governance within corporations.

The Emergence of Steward Leadership?

Recognizing the limitations of regulatory frameworks, my colleagues and I, at the Stewardship Asia Centre, are encouraging corporate leaders to pivot to steward leadership—an approach centered on proactively finding profitable solutions that address environmental and social concerns. In my perspective, there exists no inherent conflict between Friedman's doctrine and the evolved stance of the 2019 Business Roundtable’s Statement of the Purpose of a Corporation, in which numerous major company CEO’s announced their commitment to deliver value to all stakeholders and not just shareholders. Both endorse free markets, acknowledging that commercial organizations must operate within the constraints of market forces and legal regulations. Significantly, Friedman himself acknowledged that pursuing social good, when aligned with the corporation's interests, can lead to ethical profit.

Consequently, the traditional dichotomy between profit and social responsibility dissipates, with the mantra of "doing well by doing good" transcending moral rhetoric to become a fundamental business imperative. Within this framework, companies increasingly recognize that sustainable success is intricately linked to their ability to positively impact society and the environment. By aligning their strategies with broader societal goals, businesses not only mitigate risks but also unlock new opportunities for innovation, growth, and lasting value creation. Thus, steward leadership emerges as a guiding principle, heralding a new era of responsible leadership and governance in the corporate world.

Aligning Profit with Social Responsibility

Contrary to popular belief, the shift towards steward leadership does not signify a departure from capitalism or free markets. Instead, it acknowledges the interconnectedness of business and society, recognizing that businesses must align their actions with broader societal interests to ensure long-term sustainability and shareholder and stakeholder value. Additionally, while ESG initiatives are important, they alone are not sufficient.

The ongoing debate between profit-centric views and social responsibility underscores the need for a paradigm shift in corporate governance. By embracing steward leadership and aligning business objectives with broader societal goals, companies can thrive in the marketplace and contribute to a more sustainable and equitable future for all. As business leaders, we are faced with a choice: to prioritize short-term gains at the expense of long-term sustainability or to embrace stewardship and drive positive change while securing financial returns. The latter path offers opportunities for innovation and growth and the chance to leave a lasting legacy of responsible leadership in a world facing unprecedented challenges.

To dive deeper into the themes discussed in this newsletter, consider ordering your copy of Sustainable Sustainability today!