Integrating Business-Society Dichotomy through Spiritual Lens.
| Author | Marathe, Gaurav |
Introduction
The guiding principle for taking a commercial decision in the interest of the firm is the maximization of economic benefit (Friedman, 1970). But not all the decisions that business take have indispensable and implied social benefit or positive environmental impact (Freeman, 2010). We still struggle to clearly align the interest of business with broader objective of the society (Frederick, 2008). The firm engages in delivery of goods and services for creation of wealth through profitably managed business operations. But the society also demands a share of responsibility towards the community and the people with which the firm engages for doing the business and also sustainable use of its natural ecosystem with proper care and concern (Fitzgerald & Cormack, 2006). Different concepts like corporate philanthropy, corporate social responsibility (henceforth CSR), business ethics, stakeholder management, corporate social responsiveness, corporate citizenship behavior, corporate social performance, social audit, code of conduct and many other concepts (for details see Schwartz & Carroll, 2008) have emerged to make businesses more socially responsible. But their emergence has not resolved the fundamental dichotomy between the business interests and societal expectations (Carroll & Buchholtz, 2014). In this paper we examine this dichotomy through spiritual lens and suggest normative guidelines that could be applied while taking business decisions. First, we explore the link between business and society and understand how the corporate have defined their responsibility for the society and its evolution over time. Then we explore the basic contrast between societal expectations and business interests which present the dilemma for any commercial decision that the firm makes. Further we discuss how perspectives through economic, political and ethical lens are unable to completely resolve this conflict. Finally we present the spiritual perspective. Specifically we discuss two principles of leading business through spiritual lens which would integrate business and societal interests through continuous process of transcendence.
Business-Society Link--Exploring the Role of Business in Society
Since profit orientation of business may not always be aligned with the broader societal interest, the business and society interface has been a domain of lengthy debate and social inquiry (Carroll & Buchholtz, 2014). For instance, on the one hand, scholars argue that society and business are two distinct entities and that business does not hold any responsibility for society. Scholars such as Coase (2013) and Williamson (1979) have argued that firms exist only to reduce transaction costs because markets suffer from inefficiencies. Many others have taken the view that firms need to maximize their financial outcomes, specifically shareholder wealth (Friedman, 1970; Jensen & Meckling, 1976). Friedman went on to question the moral responsibility of business towards society arguing that the shareholders owned their profits if the profits were legally and morally earned, albeit he is silent on what constitutes morality of business. Thus, in this view, the responsibility of business is limited solely in terms of creating employment and paying the taxes.
On the other hand, some scholars have taken a diametrically opposite view notable among them being, Freeman (2010) who argued that a firm has multiple stakeholders and each of these stakeholders has a right to receive a return on their "investment". Although the central idea of any business is about creating value for the society by increasing its profit (Friedman, 1970), the business dealing with the 'value creation' needs to be bothered about a social responsibility to offset the likely harm caused as a consequence of that value creation (Frederick, 2008). Commercial success of a firm is bound to have social consequences and hence clearly articulated policies and practices in the form of CSR reflect the business responsibility for the societal benefits.
Unfortunately, while CSR has evolved over time as CSR1, CSR2, CSR3 (Frederick, 2008), the exact dichotomy between business interests and societal expectations remains largely unaddressed. We elaborate two core issues from extant literature which seems to be creating fundamental dichotomy between business and society.
Stakeholder Identification & Salience
In the last decade or so the stakeholder approach (Freeman, 2010) has evolved into a powerful perspective for broadening management's vision by expanding roles and responsibilities of business beyond maximization of profit towards consideration for interests and claims of non-stockholding groups (Jamali, 2008). While stakeholder management has become the buzz word in organizations, the exact scope of non-stockholding groups is still debatable (Freeman, 2010). Individuals, groups, communities, firms, institutions, society and even ecosystem are potential contenders to be considered as relevant stakeholders. Stakeholder theory works around the question of inclusion or exclusion of relevant stakeholders (Mitchell, Agle & Wood, 1997). The society would like to consider broader version of stakeholders; that is all the entities that can affect the business or can be affected by the business actions (Freeman, 2010). But the narrow version of stakeholder identification defines relevant stakeholders as someone who pose risk for the business (Clarkson, 1995) or those entities that are inevitable for the survival of business (Bowie, 1988). Obviously, firm interest lies in defining stakeholders based on their relevance for the firm's core economic activity. In contrast, society expects that the firms become socially responsible even for the entities not directly related to their core business operations (Matten & Crane, 2005). Issue lies not only with stakeholder identification but also with stakeholder salience. Scholars have tried to understand the linkage between society and business through the perspective of stakeholder salience defined as "the degree to which managers give priority to competing stakeholder claims" (Mitchell et ah, 1997:854) among identified stakeholders. In any business decision, the managers constantly work towards balancing the claims of different stakeholders against their primary identified stakeholders (Parent & Deephouse, 2007). By and large, businesses would prioritize primary stakeholders such as investors and customers along with employees and may be suppliers. They would also take care of stakeholders like government or market who has power over them. But secondary stakeholders defined as "those who influence or affect, or are influenced or affected by the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival" (Clarkson, 1995:106) would mostly be out of their immediate concern. Stakeholder salience theory proposes that (Mitchell et ah, 1997) power, legitimacy, and urgency together determine the salience of stakeholders for a firm. When conflicting demands arise from various identified stakeholders, whose demand should be prioritized? While societal perspective would like business to take responsibility for all the entities which can have legal, moral or presumed claim on firm, the business perspective would like to prioritize the stakeholders who have ability to influence firm's outputs, processes, and future directions. A specific decision might positively impact certain stakeholders but might have adverse effect on other stakeholders. To summarize:
Proposition 1: While the firms adopt a myopic approach for stakeholder identification to prioritize primary stakeholders, the society expects them to broaden the vision to include secondary stakeholders.
Externalities vis-a-vis Compliance & Contribution
One of the assumptions by critics supporting the argument for the tunnel vision of businesses in identifying stakeholders or not giving importance to secondary stakeholders is about the role of government and administration. They expect the state to be able to predict and control externalities by formulating appropriate rules and regulations (Sundaram & Inkpen, 2004). Dominant role of business is to maximize wealth adhering to the necessary legal compliances (for a detailed discussion, see Coase, 2013). However, because of the variability and complexity of contemporary societal context, the state apparatus (legal and administrative arms) is not a sufficient means for the integration of societal issues with core business operations (Parker & Braithwaite, 2003). There might be multiple cases of environment pollution which are deliberately overlooked, gross violation of human rights, and other complex ethical issues for which the state administration might not have formulated comprehensive laws. Business impact on the society is basically seen in three ways: through firm's own operation, through value chain interaction of firm with its business partners and through philanthropic contribution that the firm is making through CSR or any other domain (Fitzgerald & Cormack, 2006). Firms would likely argue for the impact they are making through wealth creation, employment generation, and delivery of goods and services achieved through business operations ignoring any hazard that the production process might be creating on society and environment. As against positive economic cost...
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