{"id":115936,"date":"2023-10-23T12:37:00","date_gmt":"2023-10-23T16:37:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=115936"},"modified":"2023-11-02T13:12:16","modified_gmt":"2023-11-02T17:12:16","slug":"business-in-society","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/business-in-society\/","title":{"rendered":"The Role of Businesses in Society: Should They Fulfill Needs?"},"content":{"rendered":"\n

What’s the role of business in society? Can businesses have a negative impact on society?<\/p>\n\n\n\n

As watching the market and customers should make clear, organizations only exist in the context of a larger community. Therefore, in addition to guiding the inner workings of a business, managers must also set objectives relating to the impact their organization has on the wider world.<\/p>\n\n\n\n

Continue reading to find out if businesses have a social responsibility they have to uphold.<\/p>\n\n\n\n\n\n\n\n

Management in Society<\/strong><\/h2>\n\n\n\n

Peter Drucker divides businesses\u2019 social impacts into two classes\u2014what an organization does to<\/em> society, and what it can do for<\/em> society\u2014while arguing that an organization\u2019s primary social responsibility is to carry out the function for which it was designed.<\/p>\n\n\n\n

First of all, Drucker insists that social objectives aren\u2019t just window dressing\u2014they\u2019re vital for an organization\u2019s continued existence. After all, society won\u2019t tolerate a business that it perceives as causing more harm than good. Managers must always be aware of any negative impacts of business in society <\/strong>and find a way to minimize those impacts before they do harm to the business. However, that solution may come at a cost, especially for large industries. Some negative impacts require cooperation between competitors and government agencies to find a cost-efficient path to mitigation. In these cases, Drucker says the responsible course is for a business to actively participate in the solution before one is imposed from the outside.<\/p>\n\n\n\n

(Shortform note: A key way to align a company\u2019s interests with the social responsibilities that Drucker says are vital is to establish a core philosophy that guides a business\u2019s relationship with society. The example Collins and Porras give in Built to Last<\/em><\/a> is that of the pharmaceutical company Johnson & Johnson, whose core philosophy prioritizes the health of their consumers above shareholder profits. Therefore, during the 1982 Tylenol poisoning crisis<\/a>, Johnson & Johnson went out of its way to communicate the danger to the public, rather than trying to silence the problem. Because of its philosophy, Johnson & Johnson took part in framing the response to the crisis<\/a>, rather than having its response dictated to it by a regulatory body.)<\/p>\n\n\n\n

What Does a Business Owe Society?<\/strong><\/h3>\n\n\n\n

There are also problems in society that aren\u2019t a particular business\u2019s fault but may still be worthy of that business\u2019s concern. These may take the form of societal ills that negatively impact customers to the business\u2019s detriment. There may also be problems customers face that a business might be uniquely suited to address, creating an outlet for even more business. Drucker warns against managerial overreach\u2014in which a business steps into a social arena outside its area of competence\u2014but within an organization\u2019s expertise, there may be opportunities to make social contributions that pay dividends in higher revenues and new markets.<\/strong> Managers would be foolish to let chances like that slip by.<\/p>\n\n\n\n

(Shortform note: One pitfall Drucker doesn\u2019t address when discussing businesses\u2019 relationship with society is their danger of confusing appropriate market behavior with social behavior. In Predictably Irrational<\/em><\/a>, Dan Ariely gives examples of businesses that violate social agreements<\/a>\u2014and inadvertently harm themselves\u2014to do what\u2019s right from a market <\/em>perspective, such as an insurance company denying claims for people to whom they market themselves as a \u201cfriend.\u201d However, Ariely goes on to argue that using social norms to guide market decisions<\/a> usually has a positive effect by cultivating relationships with both customers and employees.)<\/p>\n\n\n\n

Nevertheless, Drucker insists that management\u2019s first responsibility to society is to make sure the organization fulfills its primary mission.<\/strong> A successful business<\/a> or nonprofit exists only because it fills a social need. If a business\u2019s job is to provide the world with shoelaces, then it should focus on making the best shoelaces it can before it gets involved in external social problems. The same holds true for nonprofit groups, each of which has its own circle of competence<\/a>. It\u2019s always possible\u2014and even desirable\u2014for that circle of competence to grow, but that growth should be deliberate, well-planned, and consistent with an organization\u2019s fundamental reason to exist.<\/p>\n\n\n\n

(Shortform note: In 2005, Drucker passed away, a year before seeing the largest expression of this principle put in action by the world\u2019s most successful investor, Warren Buffett. In Buffett\u2019s biography The Snowball<\/em><\/a>, Alice Schroeder explains that Buffett saw his responsibility to the world not in terms of lifelong philanthropy but as being a responsible steward of wealth<\/a>. As such, he grew his company Berkshire Hathaway\u2019s financial resources until 2006, when he announced that he would give away $37 billion<\/a>\u2014the largest charitable donation in history. Knowingly or not, he\u2019d acted on Drucker\u2019s thesis that fulfilling his primary mission as a businessman also fulfilled his obligation to society.)<\/p>\n","protected":false},"excerpt":{"rendered":"

What’s the role of business in society? Can businesses have a negative impact on society? As watching the market and customers should make clear, organizations only exist in the context of a larger community. Therefore, in addition to guiding the inner workings of a business, managers must also set objectives relating to the impact their organization has on the wider world. Continue reading to find out if businesses have a social responsibility they have to uphold.<\/p>\n","protected":false},"author":14,"featured_media":64890,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,24],"tags":[1302],"class_list":["post-115936","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-society","tag-the-essential-drucker","","tg-column-two"],"yoast_head":"\nThe Role of Businesses in Society: Should They Fulfill Needs? - Shortform Books<\/title>\n<meta name=\"description\" content=\"Businesses are created to provide a service, mainly to solve a problem for customers. 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