Corporations Do Not Exist Solely to Maximize the Bottom Line

Do corporations exist solely to maximize their bottom lines? We don’t think so., Forbes Magazine:

When Bill Gates suggested recently that corporations should sacrifice profits to the public welfare, practicing what he called “creative capitalism,” he wasn’t the first robber baron with the idea. Henry Ford made a similar proposal in 1916, but he was defeated in court by shareholders who preferred he simply issue dividends. The countervailing view, famously expounded by Milton Friedman, is that the only responsibility of business is to increase profits.

Customers are also demanding products that show a commitment to the public welfare. About 10% of new product introductions are environmentally sensitive–green lightbulbs and cars, for example.

Starbucks pays Ethiopian coffee farmers a 75% premium over market prices, believing this is better than passing out the equivalent in welfare. Pfizer is spending $570 million to develop and deliver treatment in the Third World for fungal infections caused by AIDS. This outlay won’t be recovered in product sales.

They don’t mention the importance of other stakeholder (employees, customers, suppliers – other than the Starbucks example) but still it is nice to read some support for the principles Deming supported: the corporation seeking to benefit all stakeholders.

Related: Curious Cat management search engineDeming on ManagementFocus on Customers and Employees

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3 Responses to Corporations Do Not Exist Solely to Maximize the Bottom Line

  1. shaun sayers says:

    I wish I could be as sure of the altruistic intent. Whilst I can’t argue that there is movement in a positive direction in many areas like CSR, fair trade, environmental responsibility and the health & welfare of workers, my firm conclusion, based on my observations of working in Europe, the Middle East and Asia is that it is simple economics and customer pressure that drives it

    There is an economic equation that sits behind health & safety policies of most companies that can be translated crudely as “we kill as many as we can”. Meaning that if it is cheaper to replace than protect, then that is the preferred option. As soon as the price of life becomes more expensive – hey presto – we find ways of reducing fatalities. I have seen it in action, and you see it most obviously as you travel across europe, west to east. In comparable industries fatality rates in, say Romania, will be much much higher than in Germany. Even though the technology to reduce fatalities is widely available, it does come at a cost (currently unacceptably high as life is still relatively cheap in that part of the world). Things will change, but it economics that will dictate the pace of it. I have seen it happen in the UK in my lifetime, reflecting on the way things were in coal mining and the shipyards 40 years ago – if you lost a finger you got a cloth to put over it. It is different now of course

    After a while many companies find a way of dressing up such steps forward as being driven by a social conscience, but that is usually (maybe not always) just cute marketing. At the moment the customer is becoming sensitive to fair trade in comodities like bananas, tea and coffee, so there is a growing clamour among retailers in those areas to be seen as the fairest of them all

    Is this a good thing or a bad thing? Well it is a step forward, so it’s a good thing. It’s good that the market is driving positive changes, so we shouldn’t look this gift horse in the mouth. But I think we need to help ourselves to a healthy portion of scepticism before we start handing out the awards


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  3. April says:

    I would truly love to beleive that companies feel compassion for people and the planet but my worry is that it’s all just propaganda and they couldn’t give a toss whether people could afford to live properly or not. I hope to be proved wrong but when you hear about the likes of Tesco not wanting to improve the conditions of chickens I can’t help but think that companies only care about money.

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