Once again, Kevin O’Leary is spewing ideas that put business at odds with the rest of society. Fresh from pronouncing his joy over the world’s widening wealth gap (it encourages more poor people to emulate billionaires, he says) Mr. O’Leary, who seems to relish playing the role on TV of something between Cornelius Vanderbilt and The Simpsons’ Mr. Burns, recently told CNBC’s morning audience that the only mission of modern corporations should be to maximize shareholder wealth. He claims that companies that divert resources to help make society better are a serious threat to capitalism. The only social responsibility of business is to make a profit, he says.
In reality, it is the views of people like Mr. O’Leary that pose the greatest threat to the free enterprise system.
Twice in the span of a century, and most recently beginning in 2007, capitalism has had to turn to society to bail it out and save it from its own excesses. This is further evidence that capitalism requires the support of more than just investors. Indeed, it is fully invested in how society perceives it and entirely dependent upon society’s goodwill on many different levels for its survival.
Gaining public favor and the approval of consumers is an asset that is indispensable to any successful business. Far from detracting from the maximization of wealth for shareholders, boards of directors would be guilty of malpractice if they did not take reasonably appropriate steps to ensure their companies are, and are seen to be, valued contributors to the well-being of society.
Moreover, no business can expect to stay healthy in a society that is hobbled by ills that remain unaddressed and dreams that cannot be fulfilled. Nor can investors, or society for that matter, afford to leave all the solutions to society’s problems to the frequent inefficiencies of big government.
Think of the evolution of GE, one of the most impressive long-term success stories in American business. It is no coincidence that a succession of CEOs from Owen Young to Jeffrey Immelt have felt a strong sense of responsibility to serve the needs of society and an obligation to perform in ways that garnered public approval as well as shareholder wealth.
A final test of how bankrupt Mr. O’Leary’s argument is can be seen in the actions of the leaders of capitalism and its most valued corporate institutions. Not a single one has ever publicly endorsed the idea that the only purpose of business is to maximize shareholder worth. To the contrary, CEOs are constantly hitting the podium to talk about the initiatives their companies are taking, from environmental protection to mental health, which they believe will make the world better and win the approval of the public. Many aspire to be dubbed among the top companies to work for as much as they do to be ranked as the most investor-friendly.
Having been a part of the process that has attempted to illuminate the interaction between business and society for some four decades now, I have participated in hundreds of discussions with business leaders in private meetings and in public forums. What has struck me about that experience is that it has been those who embrace an expansive view of their responsibilities whose companies have excelled and become industry — and often stock market — leaders. This is not to suggest that all companies effectively manage their social interactions; many do not. Nor is it to suggest that most companies could not do a better job of improving value to shareholders. In my experience, there are often too many vested and entrenched interests in a corporation that stand in the way of innovation, effectiveness and even profitability.
But when a genuine culture of responsibility is created within an organization, it infuses every aspect of its actions, including how it interacts with customers, employees and investors. It drives the effort to add value to every phase of those interactions. So if a company thinks it can improve the lot of some in the world, and enhance its own position in the process, such as by raising the minimum wage it pays its employees, as The Gap and other companies recently announced, or by supporting a program to provide opportunities to minority youth of the kind recently announced by U.S. President Barack Obama, few voices of opposition are heard. In a modern recasting of Charlie Wilson’s observation about what is good for General Motors, investors today know that, by and large, what is good for society is most often good for business.
Capitalism would not have survived in the past, nor will it have any chance of flourishing in the future, if left to the folly of the ill-informed thoughts of people like Mr. O’Leary. Capitalism works best, and ensures its longer-term survival, when it is driven by a wider set of values, and not just the creation of greater shareholder value. These values include bringing a spirit of enterprise to the public agenda and acting in a manner that inspires the support and respect of all the stakeholders of modern business, and not just its stockholders. Everyone needs to feel the benefits of capitalism.
No one who truly claims to support this flawed but still truly remarkable economic system could seriously argue otherwise.