What Role Should Business Play in Society?

Company is a talk to talk to create the value of the stakeholders, but most of them don't walk the talk. The private sector is considered to be the heart of wealth creation and innovation, particularly in terms of economic development, in any country. In the late 1990s and early 2000s, the success story of Silicon Valley was a prime example. In this model, shareholder value is the major factor for the success of the organisation.

Since the idea that businesses are more productive actors for the economy is the major base, that is convenient justification for high income and having great wealth. Today most businesses claim to be purpose oriented, but they are not just way to shareholder value; they are dedicated to creating value for the stakeholder. Since the concept has been floating around the business schools and corporate boardrooms as well for decades, where the argument is there for the public sector, philanthropy, labour, local communities, and others, that should be part of it and get the benefit from it in the decision making of the business.

"It has probably opened the door to a world where there are considerations beyond the interests of the investors and corporate leaders who are responsible for the possible and necessary measures." Transformative power in nature that has been watered down and hallowed out by its overuse and underreaction as well. Similarly, it has been the value washed.

If we are to walk the talk of true stakeholder value, then we must move towards the reversion process for two key trends. First is the propensity of the financial sector to invest in itself, and secondly, having prioritisation of the business for stock buybacks. If those trains are reversed, then businesses, organisations, and even government bodies must have the new way of creating and distributing value, and that will eventually transform society.

Why Stakeholder Capitalism Has Stalled

When business organization talk about giving the value to these stakeholders, they usually frame it in the means to an end - there is a stakeholder engagement being a productive and moral way to increase the value of the shareholder in the long term, but these efforts to not go far enough for two major reasons:

First, the financial sector is continuously making the investment in finance, insurance, and real estate FIRE—in other words, in itself instead of in things like infrastructure or innovation.

For example, the glut of lawns in the system that not only increased during the time of the COVID-19 pandemic, but it has also brought the amount of private debt and specifically household debt to record levels.

And because household consumption has outpaced the increase in disposable income in comma since finance has bridged the gap with credit, it further removed towards the expansion of the financial sector. Rents and interest payments have also increased while promoting the concentration of income and wealth in the financial sector and in the hands of the most wealthy. But to build a truly multistakeholder approach, there is a need where the financial sector should be transformed in a way that creates major value for everyone.

Second, companies outside the financial services, including those in manufacturing or production processes, are spending more to share buybacks and dividend payouts than particularly on human capital machinery and research and development. Even the 1% take on share buybacks that was signed recently into law, particularly in the United States, is unlikely to put an end to buyback Mania.

Since the combination of these two factors puts most of the people in the society at a disadvantage. The insufficient redirection of finance in the real economy and labour is continuously increasing the divide between those that hold capital and those who do not have.

For example, it is because of the CEO, whose pay is often heavily dependent on share price performance. Share buybacks are the major factor behind the increase in the ratio of CEO pay to income of the workers.

It is the lack of reinvestment as well because not robots and AI can often be claimed where they threaten the jobs most of the time now. The prioritisation of shareholder value and executive pay accomplished through the share buyback is an active choice that should not be distributed in the value that created to wage earners.

The trends make it challenging to argue for social purpose, which is really at the core of the private sector. However, there has been much talk regarding the social goals and responsibilities of the business organisations, and the value they create has not been distributed to all the human kind. This is because the core element of shareholder oriented business plans is there and investment strategies remain untouched.

Rethinking How Value Is Created

Rethinking how value is created. Companies and government need to radically reconsider their value created in a capitalist economy to truly rethink the role of business that should be played for society: there is one who creates this, one who extracts it, and what happens when extraction is rewarded over the creation. Since a true commitment to stakeholder value needs to have more than just gesture words or speeches of goodwill. It needs to have the purpose to be put at the centre for the value to be defined in the organisation and in government as well.

In this way, society can gain the major advantages from the business organisations. It is because the organisations will not only be based on their strategies that are truly focused on these stakeholders, like the CEO, but will also provide benefits to the people living in the society.