--By Narottam Aryal
Discussions on the actual purpose of business organizations have been going on for long in Nepal. Some argue that businesses are created simply to serve the interest of the investors while others claim that the purpose is to go beyond serving the sole interest of the investors and provide ample of consideration to collective welfare.
In this article, I will attempt to demonstrate that the ultimate objective of a business organization is to enhance the interest of the broader society and this is not anti-thesis to profit especially. In the long run it rather gains sustained and maximum profit for such businesses.
Being a firm believer of free-market and capitalism, I do fundamentally testify that organizations should enhance their profit making capacity. This is the reason why I claim that organizations assuming proportions larger than the individuals and the society and focusing on their own needs and priorities, might not help sustain for long though they might enjoy their business heyday very soon.
Fundamentally, my proposition is that all organizations, profit or non-profits, are created to serve the society, not the other way round. The very concept of an organization involves a group of people working together for a common goal. It implies that people live in a society and they work together to maximize the welfare of humanity. However, in practice today, the goal of an organization, especially those in business, has been limited to maximizing profit, often at the cost of welfare of the broader society, to serve the interest of a small community of investors. The goal of an organization must be redefined to serve the broader interests of the society because defining company’s goal as to maximizing profitability means others will have to bear the cost of its profitability.
For instance, some companies are setting up production facilities in locations where the cost of labour is low. Such locations usually have lower socio-economic conditions. A growing global trend among corporate houses today shows outsourcing production facilities into poverty stricken societies where they can pay their employees lower salary. The objective, though unfair to the workers, is to reduce the cost of production so that they can increase the margin of profitability. If this idea of increasing profit by minimizing employee salaries is taken to its logical end, many organizations will apparently be serving the purpose of a particular segment ultimately, and this will be an affront on their workers’ hunger, their children’s education, and more often on their health. The case in point is the plight of the garment factory workers in South Asian countries whose products sell at premium prices in the first world economies.
Profit maximization, the idea of minimizing costs and elevating income, serves only a narrow segment of society. We cannot deny that this is an incentive for investors. But the issue here is whether or not to make money and if so, how much money and at whose cost? There is no limit of how much money can be gained or spent and a fixed number cannot be the goal either. The goal is not to maximize the shareholders’ wealth, as believed traditionally; but to maximize the broader benefits—the sum of the benefits of the community, who one way or the other have stake in a particular organization. Doing this is the only sustainable approach to measure organizational performance. The narrow parameter of profitability cannot measure the actual organizational performance.
Basic human rights principles are also used to counter the objective of maximizing profitability only. Some people argue that business should be based on rational decisions and should not be based by following emotional instincts alone. But counter to the sheer profit-maximizing objective of the organization is the fact that humans are emotional by nature and one can hardly go beyond emotional aspects of humanity. After all, human beings are full of emotions.
However, the argument is not to negate the value of rationalism, as being rational is equally important while running a business. The point I am making is that a heavily-skewed importance is generally given to rational side of the organizations.
Could this be because of greed and desire for amassing huge wealth in a short span of time? Maybe, ‘yes.’ It may also sound purely normative. The rotational argument of business says that individual welfare can be maximized and along with the gain and equity of its shareholders through profit maximization. But to have such situation, a balanced view of both, rational and emotional, sides is necessary. If organizations maintain balance between rational and emotional aspects of a business, society and the organization will flourish together. Hence, organizations should actively engage communities and offer sustainable opportunities to further empower and help them in facilitating change for generations to come.
An organization is like a cruise wherein every passenger enjoys the voyage together. But, an organization does not have any fixed one-point destination. In this continuous journey, the organizations needs to incorporate the welfare of all those involved in order to secure maximum welfare. That is to say that when passengers are healthy and alive on the cruise, the ship has fuel and capable crew, the cruise can continue as long as it desires and to any destination. This idea is to satisfy the crews and passengers. That is, not only fulfilling emotional needs, but also the rational needs of individuals and communities. Thus, an organization needs to satisfy emotional and rational needs of its stakeholders to become successful.
Sum of individual welfare is the total of organizational performance and contribution to the society. This is how we can maximize the total impact on the target society. Maximization of total welfare will increase opportunities for each individual and their communities. Organizational structures should continue to find diverse ways to empower and improve their audiences and their focus should remain broad so as to further the welfare of the individual as well as the society. If organizations focus on driving innovation and placing opportunities directly in the hands of the people through diverse mechanisms then society will become more self sufficient and less reliant on outsourced goods. The organizations that offer broad-spectrum programming further benefit society by adjusting to the needs of individuals, their communities and society. Such organizations gain community credibility and offer even stronger and diverse opportunities to reach the masses and drive innovation for future generations.
If organizations want long term growth and development, they should look at young social entrepreneurship for inspiration, as these innovators are not only changing the face of society, they are also driving the “wheel” of economic success and social welfare too. No doubt, we human beings are selfish by virtue of our nature. It means that individuals intend to maximize their individual welfare. The ideas of modern democracy and free markets are primarily based on this fact.
Here also the idea is not against maximizing individual welfare, but for the same. Let’s not forget that we as individual live in a society and therefore our individual welfare largely depends on the collective wellbeing of the society. For example, our quality of life is determined by quality of the air we breathe, the security we have, the environment we live in and so on. Knowingly or unknowingly, we are focusing on narrowly perceived interests and overlooking the above facts. As a result, the individual welfare has been compromised ultimately.
To conclude, organizations should focus on broader interests of various stakeholders in the society to ensure their sustainability. The sooner we understand this fact, the better our society will be.
Aryal is Executive Director at King’s College.