Doing good while doing well in the social environment of business

By Lawrence G. Lavengood, Kellogg School Professor Emeritus of Business History

Operating within the environment of market capitalism, as it exists in North America and elsewhere, any legitimate business doing well financially must be advancing social good also. This is true because society demands it, arranging rules and opportunities to make it happen. From society’s perspective, the purpose of a business system is to promote social well-being. Society’s political processes, which sanction how economic resources are allocated, developed, made usable and distributed, ordain the composition and powers of business enterprises. Market capitalism enjoys necessary political support wherever society perceives that free markets efficiently and innovatively supply a satisfying output of good things: desired products and services at affordable prices; employment; invigorating incentives; and public revenue. These elements amount to the essential goodness that must accompany doing well economically.

To ensure a socially satisfying performance from what otherwise could degenerate into a nursery for free-booting greed, society relies on three principal mediators between capitalism and public welfare: competition, public regulation and moral conduct. The first two have universal recognition and acceptance as necessary elements of capitalist systems. Moral conduct, the third mediator, is less well understood, though clearly most successful managers try to express it in their operative values.

But why is moral conduct important for business enterprise? The answer rests on an understanding of what moral conduct is. It is the practice of the ethical virtues that long historic experience has shown as basic for perpetuating humanness. Examples of chief moral virtues are truth-telling, promise-keeping, respect for personhood, fairness, fidelity, tolerance and distinguishing between mine and thine. The purpose of virtue is creating trust among humans as fellow rights-bearers — and the significance of trust for a business is enormous. Economic thriftiness made possible by reliance on trust can amount to a fortune in any sizable organization. Imagine what the routines and major projects of business would cost if truth-telling among participants could not be taken for granted, if every expectation had to be detailed in a formal contract, if employee morale and supplier relations festered because of managers’ perceived inattention to fairness and respect for human dignity. Morality matters, to the point that the practice of virtue and its inculcation throughout the business is both a measure of management excellence and a way of “doing good” for the surrounding civil society, which appreciates models of conscientious moral virtue.

The idea of “doing good while doing well” includes, however, regard for social contributions that have no necessary close relation to the business of business. Providing management assistance to charities is an example, as are nonvocational outreach programs to elementary and secondary schools, and donating money and facilities for nonbusiness civic projects.

Management’s defense of these kinds of activity usually contains a genuflection to public relations and the general assurance that such things are “good for business.” These claims have been disputed by hard-headed profit maximizers and advocates of the view that such generosities should come from individual resources, not from corporations spending their owners’ money on charitable projects of the managers’ choosing, which are no part of the social mandate given to free-market enterprises.

There is force in these rebuttals, but they nevertheless now represent a minority view. Well-run businesses want to be associated with at least some of the responsibilities of citizenship in their communities. In addition they often have conspicuous power and sufficient funds to make a praiseworthy difference in citizenship contributions to their societies. There should be care in its application, but the reigning perception is that good businesses want to live in their communities, and not just be there.