132 CHAPTER 4 STRATEGIC PURPOSE KEY DEBATE KEY DEBATE Three views on the purpose of a business Since there is no one categoric view of the overarching purpose of a business, stakeholders, including managers, have to decide. Milton Friedman and profit maximisation The 'new capitalists' argument Milton Friedman, the renowned economist, wrote: In their book The New Capitalists, Davis, Lukommik 'In a free enterprise, private property system, a and Pitt-Watson point out that major corporations are corporate executive is an employee of the owners often owned by millions of savers - the new capital of the business. He has direct responsibility to his ists' - through pension and other investment funds employers. That responsibility is to conduct the Each of these funds holds shares in many companies. business in accordance with their desires, which Davis and colleagues then argue: generally will be to make as much money as pos- "Imagine that all your savings were invested in one sible while conforming to the basic rules of soci company. The success of that company alone ety... What does it mean to say that the corporate would be your only interest. You would want it to executive has a "social responsibility"? ... If the survive, prosper and grow, even if that did damage statement is not pure rhetoric, it must mean that to the economic system as a whole. But your he is to act in some way that is not in the inter- perspective would change if you had investments ests of his employers... Insofar as his actions in lots of companies. [Then) it is to your disad- in accord with his "social responsibility" reduce vantage that any business should seek to behave returns to stockholders, he is spending their socially irresponsibly towards other businesses, the money. Insofar as his actions raise the price to customers, employees or society generally. By so customers, he is spending the customers' money. doing they will damage the interests of other firms Insofar as his actions lower the wages of some in which you have an interest. The new capitalist employees he is spending their money." has an interest in all the firms in which he or she is investing behaving responsibly. Charles Handy's stakeholder view Sources: M. Friedman. 'The social responsibility of business is to Increase its profits, New York Times Magazine, 13 September 1970 Charles Handy has a less respectful view of owners: C. Handy. What's a business for?". Harvard Business Review, vol. 80, no. 12 (2002), pp. 49-55; S. Davis, J.Lukorra and D. PRI "There is, first, a clear and important need to meet the Watson, The New Capitalists, Harvard Business School Press, 2006. expectations of a company's theoretical owners: the shareholders. It would, however, be more accur- ate to call them investors, perhaps even gamblers. They have none of the pride or responsibility of ownership and are... only there for the money ... But to turn shareholders' needs into a purpose is Questions to be guilty of a logical confusion. To mistake a necessary condition for a sufficient one. We need 1 Which view would you be more likely to hold: to eat to live; food is a necessary condition of life. a as a manager? But if we lived mainly to eat, making food a sufficient b as a shareholder? or sole purpose of life, we would become gross. The c as a pensioner? purpose of a business, in other words, is not to make 2 What are the implications of the different a profit. It is to make a profit so that the business can views for how managers go about developing do something more or better. That "something." organisational strategy? becomes the real justification for the business