The Company is in Need of Revolution

It is still the dominant model, but we have to do away with it: The company can’t last as an organization whose ultimate goal is financial profit. Dozens of examples demonstrate that the model is wanting, outdate, needs to change. The two economic crises early this century and the emergence of new heights of social awareness further stress, if that’s possible, that the concept of the company as exclusively focused on bringing economic value to its shareholders has expired.

Sao Pualo Stock Exchange, by Rafael Matsunaga
Sao Paulo Stock Exchange, by Rafael Matsunaga

It’s time for a change, but not with the usual recourse to tightening regulations to try to address to causes of the crises. More than a patch, we need a radical change, an innovative rupture: it won’t do to amend the current formula – which is increasingly more complex and ineffective – it requires a entirely new replacement formula.

Why must we continue to think of the company as someone’s property? Why must we assume that shareholders only seek to maximize the economic value of their investment? Why must we continue to identify business success with the generation of profit? We are beginning to see new proposals for interesting alternatives to the current model.

Use and abuse of CSR

Cover of Time Magazine after Enron Bankruptcy
Cover of Time Magazine

Remember Enron? Along with the dotcom crash, the collapse of Enron caused a resurgence in measures of Corporate Social Responsibility, a concept that was coined in the 80s and came into fashion in 2001. With the emergence of CSR, the company formula became even more complex, and it brought costs with it. Ultimately, it was another patch.

One senior manager of a financial institution enthusiastically discussing his discovery of “social responsibility” (or what he understood by CSR) said, “If we are socially responsible, our clients will be happy, our employees will work better, and ultimately we will continue to maximize our value for shareholders.”

Focus on people: the key

This vision of CSR is clearly ineffectual. A few years ago we cautioned of the risk of CSR becoming a shallow trend, and that is precisely what happened. However, the original concept remains valid if we consider that CSR brings an opportunity to revise from top to bottom the role that the company – every company – needs to play in society, what needs it should fulfill and how it can contribute to the common good.

This perspective changes the priorities of the current model: profitability is not seen as the ultimate goal in terms of which all the other variables make sense, but as a requisite, if inadequate, condition for the survival of the company. The central focus is not money but people; economic efficiency is a necessary condition for the development of people and societies, but subordinate to them.

Just by giving this meaning to social responsibility, it ceases to be an add-on, an afterthought, it ceases to be a cost. From this perspective social responsibility becomes a distinctive strength, which leads to innovation, to doing things differently, because what guides us is not to make more but to be better.

Joan Fontrodona, Business EthicsJoan Fontrodona is professor and chairman of business ethics department and academic director of the IESE Center for Business in Society

He holds a Ph.D. in Philosophy (University of Navarra) and an MBA in Management (IESE Business School).