The social responsibility of business | Alex Edmans | TEDxLondonBusinessSchool

Summary

The video script challenges the conventional view that businesses exist solely to maximize profits, arguing that companies also serve a broader purpose for society, customers, employees, and the environment. It presents evidence that socially responsible firms, which prioritize employee well-being, outperform their peers in stock returns over the long term. The speaker encourages investors to consider non-financial metrics, such as corporate culture and social responsibility, to gain a competitive advantage and support businesses that align with their values.

Takeaways

• 💡 The traditional view of business is to earn profit, which indirectly contributes to societal well-being through quality products, good employee treatment, and environmental care.
• 📉 Milton Friedman's theory posits that a business's social responsibility is to increase profit, suggesting that ethical behavior will naturally follow for the sake of financial gain.
• 🛍️ The example of Marks and Spencer's former chairman, Simon Marks, illustrates that sometimes business decisions are made out of care for employees rather than direct profit calculation.
• 🌳 Corporate Social Responsibility (CSR) is the idea that businesses exist not just for profit, but to serve a purpose beneficial to customers, employees, and the environment, with profit being a byproduct.
• 🛑 George Merck's story from MK Pharmaceuticals demonstrates that a business philosophy focused on saving lives rather than maximizing profit can still lead to significant social and financial success.
• 📊 The speaker's research indicates that companies listed as the best to work for in America outperform their peers in stock returns by 2-3% annually over a 26-year period, suggesting employee well-being is linked to business performance.
• 💰 The study controlled for various factors to isolate the effect of employee well-being on stock performance, providing evidence that treating employees well can positively impact a company's value.
• 🛒 Costco's business model, which includes paying higher wages and providing better benefits, is cited as an example of a company that prioritizes employee well-being and sees it reflected in its profitability.
• 🤝 The findings suggest that managers can act responsibly without expecting immediate financial returns, as ethical actions often lead to long-term profitability.
• 💼 For investors, the research implies that investing in socially responsible companies does not require a sacrifice in returns and can be a competitive advantage.
• 🔢 The importance of looking beyond traditional financial metrics to qualitative factors like corporate culture, customer loyalty, and innovative capability when evaluating a company's value.

Q & A

What is the conventional view of why businesses exist?

The conventional view is that businesses exist exclusively to earn profit. This perspective suggests that in the pursuit of profit, businesses inherently serve society by producing quality products, treating workers well, and minimizing environmental harm to protect their brand.

What did Milton Friedman famously argue about the social responsibility of business?

Milton Friedman famously argued that the social responsibility of business is to increase its profits. He believed that by focusing on profit, businesses would naturally address societal needs and concerns.

Why did Simon, the former chairman of Marks and Spencer, introduce nutritious meals for all staff at nominal prices?

Simon introduced nutritious meals for all staff after witnessing a shop assistant faint due to poor nutrition stemming from her husband's unemployment. His decision was driven by a genuine concern for his workers' well-being, not just profit.

What is the second view presented in the script regarding the purpose of businesses?

The second view is Corporate Social Responsibility (CSR), which posits that businesses exist to serve a purpose beyond profit. This includes making products that improve customers' lives, providing a healthy and enriching workplace, and preserving the environment for future generations.

How did George MK of MK Pharmaceuticals approach the production of penicillin?

George MK focused on using science to save people's lives rather than maximizing profits. He took a risk to produce penicillin outside the lab, which was successful and led to the first commercial production of penicillin, saving many lives, including Anne Miller's.

What evidence does the speaker present to support the idea that socially responsible firms perform better?

The speaker presents a study that analyzed employee well-being using the '100 Best Companies to Work For in America' list by Fortune Magazine. The study found that companies on this list delivered stock returns that beat their peers by 2 to 3% per year over a 26-year period.

How does the speaker suggest investors should approach investing in ethical stocks?

The speaker suggests that investors should look beyond short-term financial numbers and consider the long-term qualitative aspects of a company, such as corporate culture, customer loyalty, and innovative capability. Investing in socially responsible companies can yield higher returns without sacrificing financial performance.

What is the significance of Costco's decision to pay its workers $20 per hour and provide healthcare to 90% of its employees?

Costco's decision signifies a commitment to employee well-being, which is costly in the short term. However, it is believed to result in a more efficient and dedicated workforce, which can contribute to the company's long-term success and profitability.

Why does the speaker argue that treating employees well can actually increase a company's value?

The speaker argues that treating employees well can lead to increased efficiency, better hiring, and higher employee retention. These factors can enhance the company's performance and, as a result, its value in the long term.

What does the speaker suggest as a new way of thinking in the criteria we use to pick stocks?

The speaker suggests that investors should look beyond traditional financial metrics and consider the long-term qualitative aspects of a company, such as its commitment to social responsibility, employee well-being, and environmental sustainability.

What is the speaker's final conclusion on the purpose of businesses and their relationship with profit?

The speaker concludes that businesses exist to serve a purpose, and by doing so, they will naturally generate profits in the long run. The pursuit of purpose and profit is not a zero-sum game but a mutually beneficial relationship.