Friday, August 31, 2012

INDIA’S 100 MOST PROFITABLE COMPANIES WHO’S THE NEW NO.1?

Is a corporation meant to look at the larger good or just at profit maximisation? the debate continues to catch the imagination of executives and academicians. Virat Bahri wonders whether the debate is relevant at all

“Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it... because it is good for our business”
Niall Fitzerald,
Former CEO, Unilever

A corporation’s primary goal is to make money. Government’s primary role is to take a big chunk of that money and give it to others.
Larry Ellison,
CEO, Oracle

Corporations are known to be in existence since the Roman empire. But as far as defining their role in society is concerned, it remains a work in progress. When the father of modern economics Adam Smith expressed his support for free markets, he wouldn’t have imagined that corporations would evolve to the extent that they have today. However, one does get a brief idea from his writings that he was against untethered power in the hands of companies, and advocated increasing competition. The debate on their role and relevance really took centre stage with Milton Friedman’s treatise on the virtues of free markets, when he proposed that the “social responsibility of a corporation is to increase profits.”

When we talk of present day corporations, we tend to have two extremely strong points of view – we dread their growing power and influence (like Smith) and also tend to wonder whether Friedman was actually justified in his simplistic assessment. As blatant misuse of power and influence, especially by the large MNCs came to light, the alternate view of ‘stakeholder responsibility’ gained ground; championed by academicians like Darden School of Business Professor R. Edward Freeman.

The debate rages on, in classrooms and corporate boardrooms alike. It’s visible in how BP continues to be penalised for the Gulf of Mexico oil spill, for ‘being the big bad corporate that compromised on safety systems (payout has reportedly reached $6.1 billion till date). One part of this debate is obviously the legal perspective – the fact that companies must not “be evil or unethical” in pursuit of profits; which could mean various practices like duping customers, engaging in unfair competition, harming communities or environment or exploiting employees. The second perspective is about companies being epitomes of nobility and contributing to the social causes as a responsibility. Now the question is whether investing time and money in such causes is right; especially in public listed companies, where the money belongs to a large group of shareholders. In other words, should CSR only be strategic in nature?


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