Strona główna
CV
Abecadło zarządzania
Tematyka badawcza
Publikacje
Konferencje
Dydaktyka
Kontakt
Wydarzenia
Ciekawe strony

© Provider 2005

Publikacje / Referaty


Dr Jerzy Supernat
Institute of Administrative Studies
University of Wrocław



Justice as a purpose of business:
A stakeholder theory of a modern business corporation*


There would be no life without justice;
and even if they were, it would not be worth living.
G. del Vecchio



This paper will consider the question of the purpose of business or a business corporation, thus a philosophical issue, what may arouse a lively discussion among the persons interested. It might also be observed that . mutatis mutandis . this question corresponds with the disputes about the sense of existence of an individual that have a religious or ethical nature, and go beyond scientific considerations. The author's intention will be to prove the need and possibility to accept that a common purpose of business is not profit, but justice.


Nine out of ten persons when asked in Poland what the purpose of business is, are likely to answer: 'Profit' or even 'Maximization of profits'. Moreover, this understanding of the purpose of business is not only characteristic of an ordinary man or average manager, but also of the representatives of economics or organizational theory. This understanding developed in Poland together with the transformation of the social and economic system, and as a result of blind acceptance of the notions of the new capitalist system. E.g. in the popular dictionary of Business English available in Poland at the beginning of the 90., J.H. Adam defined business in the following way: 'a person, firm, company or other organization which makes or produces a product, buys and sells goods or provides some kind of service, usu. for the purpose of making a profit' [Adam 1989, p. 82]. The main followers of the idea that profit is the purpose of business are, certainly, A. Smith and M. Friedman. The latter has for instance written: 'there is one and only one social responsibility of business . to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception of fraud (.). Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine' [Friedman 1962, p. 133, cf. Hayek 1981, p. 65 and next].  Meanwhile, in the West, a lot of authors [esp. Drucker 1993] have been already for a long time stating that business cannot be defined and explained in terms of profit and profitability because this approach is false, and even irrelevant. Of course, this approach does not mean that profit is questioned in a business activity. P.F. Drucker writes as follows: "If archangels, instead of business men, sat in directors' chairs, they would still have to be concerned with profitability despite their total lack of personal interest in making profits" [Drucker 1993, p. 33]. However, he thinks that profit is not the purpose of business, but a limiting factor on it: making a minimum profit is indispensable to cover risk of a business activity and to avoid a loss. That a person is in business to make a profit (with or without the profit motive) concerns only them (and their guardian angel). It does not tell us what this person does and what their business is about.


In P.F. Drucker's opinion, the purpose of business should lie outside of the business itself; it should lie in society for the reason that business is an organ of society. Therefore, in his opinion, there is only one valid definition of business purpose: to create a customer. T. Levitt adds that this purpose is not only to create a customer, but also to keep a customer [Levitt 1983, passim]. The statement that the purpose of business is to create and keep a customer can be today confirmed by emphasis put on relationship marketing and by intention to change business corporations into Customer Centric Organizations (CCO). It is the customer who determines what a business is. And only these goods or services the customer considers a value and is willing to pay for determine the sense of business and secure its existence. Because it is the purpose of business to create a customer, any business has two . and only these two . basic functions: marketing and innovation. In P.F. Drucker's opinion, especially marketing is the distinguishing and the unique function of business and . according to him . it may be stated that business is set apart from all other organizations by the fact that it makes use of marketing. In other words, in his opinion, any organization that uses marketing is a business. However, it might well be noticed that not only business can fulfill itself through marketing whose objective is a mutually beneficial exchange (thus it is not about this marketing whose objective is a sale of products of a business conducted by convincing us that a purchase of these products shall guarantee the quality of our life; in practice marketing is often associated in our minds with this materialistic ideal and this is the reason for its poor reputation), but any organization in fact; in other words, non-profit organizations can also use marketing. Therefore P. Guptara defines marketing as "those activities performed by individuals or organizations, whether profit or non-profit, that enable, facilitate and encourage exchange to take place to the satisfaction of both parties" [Guptara 1988]. 


Coming back to the issue of profit in business, two its functions can now be discussed. First of all, profit is a result of the functioning of business, and is a measure of how good a business is in the field of marketing, innovation and also productivity. T.J. Peters and R.H. Waterman characterize the perfectly managed American corporations and write: "The idea that profit is a natural by-product of doing something well, not an end in itself, is almost universal" [Peters, Waterman 1982]. Secondly, as mentioned before, a (minimum) profit is indispensable for business to survive (it is loss avoidance that is the most important principle of business economics, and not profit maximization). In other words, a business has to yield enough profit to cover risk that always arises out of a business activity. In fact, a business has to cover not only its own risk, but also has to cover losses incurred by such businesses that fail to realize a profit. This results from the fact that a society has a factual interest in the existence of an active economic metabolism in which some businesses always incur a loss, and eventually wind up. This is the basic guarantee of a free, flexible and open economy. A business also has to finance essential costs connected with the functioning of society (education, defense etc.), which means that a business has to earn enough to be able to pay taxes. Finally, a business has to raise capital to bear a cost necessary to conduct research on its own development in the future.


Yet, it might and should be observed that the success and survival of any business depend not only on meeting expectations of its customers. The expectations of other groups of persons who have a natural interest in the business should also be met, especially of owners / investors, managers, employees, suppliers, creditors, local and central government, local community and the public at large. In brief, the expectations of different stakeholders should be met. In R.E. Freeman's opinion [Freeman 1984] the term 'stakeholders' appeared for the first time in 1963 in the papers of members of the Stanford Research Institute, and meant only those groups without whose support the organization would cease to exist. This understanding allows us to distinguish two meanings of this term: sensu stricto, and sensu largo accepted in this paper [cf. Evan, Freeman, 1997, p. 185 and next]. Therefore, we may say that these purposes whose fulfilling serves to meet the natural expectations of its stakeholders are the purposes of business. And the statement that any business should render to its stakeholders their due allows us to say that it is justice that is a common purpose of business. Nota bene that justice is a fundamental and underlying purpose of every society. According to art. 2 of the Constitution of the Republic of Poland of April 2, 1997 (Journal of Laws, No. 78, item 483): 'The Republic of Poland shall be a democratic state ruled by law and implementing the principles of social justice'.    


However, justice as a common purpose of business may be considered a utopia. Therefore, we shall bring into focus the fact that the problem of business purposes refers in fact to the basic principles of the functioning of an individual, a society, and a country. These principles include the following rule binding already in ancient Rome: Iuris praecepta sunt haec: honeste vivere, alterum non laedere, suum cuique tribuere (These are the legal principles: live nobly, be good to others, and give to each person their due).  Nevertheless, justice as the purpose of business requires that certain objectives should be achieved. The objectives are expressed in a more specific way, and in accordance with the expectations of the groups of persons who have an interest in the functioning of business. W.F. Gast has identified six natural and true objectives of a business corporation [Gast 1954, p. 14 and next, cf.  Junckerstorff 1960, p. 18 and next, and Ryan 1997, p. 413 and next]:


1.      The production of a want satisfying product or service.

The tendency might well be noticed to confuse the purposes of business with the motives for engaging in business. Whereas it is profit that is a dominant motive for a person to enter in business, it shall be brought into focus that profit is realized only after some products have been sold or some services have been performed. For this reason, the true purpose of a corporation is to produce goods that customers want to buy or to provide services for which there is a demand.


2.      The economically productive employment of persons.

It might be easily observed how much importance is placed by society on the proper employment of persons, and how much attention is devoted to the problem of full employment. Business accepts this importance and attention. W.F. Gast has written: 'A large number of alert businessmen have freely expressed a deep conviction that employment must be given the status of a business objective, coordinate with profit, and have disclosed a profound concern over the social consequences of a failure to so regard employment. To put the matter into very plain words, a business must be considered to exist partly to make and to maintain jobs for employable persons' [Gast 1954, p. 15]. The concept of 'economically productive employment' puts emphasis on the capacity of the individual to contribute to the production of goods or services for which there is a demand. To be productively employed every person must bring some ability and skills that the corporation needs, and can later utilize. 


3.      The satisfaction of normal occupational desires.

Persons expect that their jobs shall give them certain personal and professional satisfactions. All employees have wage expectations, but it might be now more and more noticed that financial return is not their sole expectation. They also focus on such issues as satisfactory working conditions, future opportunities, personal and professional development and recognition for their achievements. Therefore, all those factors shall come into being in a business corporation in order to meet the expectations of the employees [cf. Cox 2000 and Gratton 2000].       


4.      The economically productive utilization of capital and land.

Not only persons must be properly and economically employed. The same applies to capital and land that must be properly and effectively utilized in order to fulfill the first objective of production of a want satisfying product or service. W.F. Gast concludes that 'it is a social, as well as a private obligation of managers to cause the land and the capital which they employ to be as efficient as possible' [Gast 1954, p. 15]. 


5.      A just wage to labor.

One element in the social doctrine of the Roman Catholic Church achieved general acceptance in the 20th century, and this element consists in the introduction of the concept of the living wage as a moral imperative. Pope Leo XIII in Rerum Novarum (15 May 1891), Pope Pius XI in Quadragesimo Anno (15 May 1931), Pope John XXIII in Mater et Magistra (15 May 1961) and Pope John Paul II in Laborem Exercens (14 September 1981) and in Centesimus Annus (1 May 1991) all stressed the right of the worker to a just wage [see also Neuhaus 1994 and Bednarski 1999]. Of course, there is no worldwide living wage and its determination varies depending on the circumstances. Nevertheless, the norms for a living wage are well recognized, and . in H.R. Light's opinion . 'the manager must ensure that wage policies are determined in accordance with the principle of equity and justice' [Light 1950, p. 14].


6.      A just return to investors of capital.

According to W.F. Gast persons who invest capital in a business corporation not only expect, but even deserve financial return. First of all, investors offer a strong incentive to a corporation necessary to provide employment to persons, and to ensure the production of goods and services. Secondly, they take a decision to invest their savings, which involves risk. Finally, their investments are made with the expectation of yield. For these reasons, the question is not whether there should be a return, but 'how much' and 'in what form' should investors receive their compensation for the financing of the business corporation. W.F. Gast thinks investors shall receive their return in proportion to the degree of risk they assume.


The concept of business based on the idea of stakeholders, and the idea of justice as business purpose leads to such capitalism that respects human dignity. In I. Kant's understanding, to respect human dignity means to observe a rule to treat a man as purpose per se: 'Any human being cannot be ever and by anyone . even by God . treated as means to even the most lofty purpose' [Kant 1994; see Rawls 1972 to find a contemporary interpretation of this rule]. The belief that a man has a right to be treated as purpose per se, and not only as means questions managerial capitalism whose basic concept expresses the idea that the basic obligation of business managers is to realize the interest of the owners: the shareholder is king. The stakeholder theory of a business corporation proves that a business shall be managed for the good of all groups of persons interested, and should not single out any of the groups (although it may happen that one group can benefit at the expense of other groups). According to this theory, the basic obligation of managers . who are special stakeholders . shall be to coordinate and balance the expectations of all the groups who have a natural interest in the business. Nb. this understanding of the managers' function constitutes in Japan an element of the traditional style of managing business: 'The Management Board (.) shall be considered to be a representation of all participants of the business corporation, and not of the shareholders only' [see Gregory 1985]. Justice, being the purpose of business, questions and diminishes validity of the egoistic interests of different stakeholders, and facilitates consolidation of the organization and fulfilling the basic obligation of business managers.


Abstract


According to many authors and to general public opinion, the purpose of business is profit, or even its maximization. Not questioning the importance of profit in the economic activity, the statement shall be considered that a common purpose of business is not profit, but justice. The success (and survival) of any business depends on meeting expectations of not only its owners / investors, but also many other groups of persons who have a natural interest in the functioning of business (managers, employees, suppliers, creditors, local and central government, local community and the public at large). The statement that any business should render to its stakeholders their due brings to a conclusion that it is justice that is a common purpose of business.


Bibliography


Adam J.H., Dictionary of Business English, Longman, York Press 1989.


Bednarski A., Jan Paweł II o przedsiębiorczości, Toruńska Szkoła Zarządzania, Toruń 1999.


Cox Ch., Organizacja a kontrakt psychologiczny. Zarządzanie ludźmi w pracy, Wydawnictwo Naukowe PWN, Warszawa 2000.


Drucker P.F., The Practice of Management, Butterworth-Heinemann, Oxford 1993, first published in 1955.


Evan W.M., Freeman R.E., Spółka i osoby żywotnie zainteresowane. Kapitalizm kantowski, [in:] Etyka biznesu. Z klasyki współczesnej myśli amerykańskiej, Wybór i redakcja L.V. Ryan, J. Sójka, W drodze, Poznań 1997.


Freeman R.E., Strategic Management. A Stakeholder Approach, Pitman, Boston 1984.


Friedman M., Capitalism and Freedom, The University of Chicago Press, Chicago 1962.


Gast W.F., Principles of Management, St. Louis, Missouri 1954.


Gratton L., Living Strategy. Putting people at the heart of corporate purpose, Prentice Hall, London 2000.


Gregory G., Istota przedsiębiorstwa japońskiego, Warszawa 1985.


Guptara P., The Basic Arts of Marketing, Hutchinson 1988.


Hayek F.A., Law, Legislation and Liberty, Volume 3: The Political Order of a Free People, The University of Chicago Press, Chicago 1981.


Junckerstorff H.K., Modern Management of Enterprise, the Hague 1960.


Kant I., The Critique of Practical Reason and other Ethical Treatises, Chicago 1994.


Levitt T., The Marketing Imaginations, The Free Press, New York 1983.


Light H.R., The Nature of Management, New York 1950.


Neuhaus R.J., Biznes i Ewangelia. Wyzwanie dla chrześcijanina-kapitalisty, W drodze, Poznań 1994.


Peters T.J., Waterman R.H., In Search of Excellence: Lessons from America's Best Run Companies, Harper & Row, New York 1982.


Rawls J., A Theory of Justice, Harvard-Cambridge 1972.


Ryan L.V., The Natural Objectives of a Business Enterprise, [in:] Gospodarka, Administracja, Samorząd, ed. by H. Olszewski and B. Popowska, Printer, Poznań 1997.


 



* Opublikowany w: Gospodarka narodowa i przedsiębiorstwa na początku XXI wieku, pod redakcją Leona Olszewskiego, Kolonia Limited 2003, s. 165-171.