Role Of Business Essay

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THE &NILE CW DUSlNIfSS IN WCUETY T. Kempner, K. H. Hawkins K. MacMillan and This is one of a series of articles dealing with social and political issues relevant to business. It is intended to present some of the dilemmas which face top management in setting objectives and policies for the business. A number of key issues are isolated, matching economic objectives and social responsibilities, defining the tile of the huge multi-national company, reconciling the different aims of owners, managers, and employees. etc.

Finally the authors pose the problem: how should the modern corporation be controlled to ensure that it operates in the interests of the community at large, as well as the shareholders? about the role of Business in Society. In it we describe the general area of the subject and indicate the kinds of problems to which attention must be given. Our particular concern in this article is with wider business objectives. Business Policy is the study of the functions and responsibilities of senior management and the problems which affect the character and success of the total enterprize.

Organizations choose strategies which fit their objectives. These strategies stem from management’s understanding of the changing environment-cultural, social and economic. Objectives are often expressed in economic (or profit) terms, although for non-profit organizations other criteria will apply. In the simplest terms the organization monitors the environment (this may be an Professor Kempner is Director of the Management Centre, and Professor of Management Studies at the University of Bradford. Kevin Hawkins is a University Lecturer in Management Studies.

Keith MacMillan is Lecturer in Economics, Trinity and All Saints College, Leeds. T HIS IS ONE OF A SERlES OF ARTICLES intuitive rather than a conscious process) and formulates or reformulates its objectives. Strategies and planning processes then follow to translate the objectives into desired outcomes. The process described in the last paragraph is subject to constraints which may change over time. For example, they include various aspects of Government policy, some of which may be embodied in law.

Others are determined by pressure groups such as trade unions or consumer councils. A more general area includes the changes induced by new beliefs about tolerable behaviour-for instance on pollution. The nature of the social responsibilities of organizations is a changing and often nebulous concept. Nevertheless, it is a matter of rapidly increasing importance. It is our contention that these issues may replace economic growth as the major area of discussion in the next decade.

For the societies of advanced countries can now afford the luxury of concern over quality rather than quantity-a point to which we shall refer again below. The task of the chief executive in a large modern company has never been more difficult than it is at the moment. It is on the chief executive-the corporate leader-that the ultimate responsibility for the performance of the organization under his control rests. Yet the criteria for evaluating business performance are increasingly open to question just as the character of business organization itself is currently undergoing rapid change.

A priori one can see that the performance of a business firmis a direct function of its organizational structure. Performance Criteria There have been few periods in history in which business, broadly defined, has not been scrutinized by individuals and interest groups fundamentally out of sympathy with the conventional objectives of commercial enter-prize. Hostile criticism of this kind has always sprung from a realization that there is an apparent dichotomy between the objectives and 2 LONG RANGE PLANNING methods of business.

Let us assume that the objectives of business enterprize are primarily economic in the sense that they are concerned with the allocation of resources, In any industrial society the firm is the primary allocative agent, whether it operates through the price system or under central bureaucratic direction. Dissatisfaction has arisen because the practical working of this system inevitably involves certain consequences for social relationships as between, on the one hand, the ownership of a firm and its management and on the other hand, between the firm itself and its employees, suppliers, customers and the community as a whole.

The ancient controversy over the ‘just price’ illustrates this dichotomy between economic decisions and their wider social impact. The phrase itself crystallizes the inconsistency since the word ‘just’ has obvious ethical connotations while ‘price’ clearly relates to the bidding for resources. This traditional conflict of economic ends and social means is now acquiring a new dimension as public concern with the environment reaches explosive proportions.

In advanced industrial societies the growth in real incomes over the past two decades has enabled almost all basic physical and subsistence needs to be met. But by the same token these rising stand- ards of comfort and education have also enabled a growing number of people to observe and contemplate the social costs of their own material enrichment, or what an economist would call the ‘external diseconomies’ involvedl. Similarly the function of the business firm itself is now to create wants as well as to satisfy them*.

But these wants are themselves becoming more and more intangible, as their satisfaction is to an increasing extent psychologically induced. One consequence of this change in economic and social priorities is that people are now coming to express their rising expectations in non-material terms. The prospect of a ‘leisured society’ appears to con&t with the tangible costs, in both real and . human terms, of the present day acquisitive society. To take an obvious example, the spread of motor car ownership is a direct result of rising real incomes.

But now the point appears to have been reached when the benefits of additional car ownership are outweighed by its cost-measured in terms of atmospheric pollution, urban traffic congestion, loss of life and the effect of noise on the human nervous system. The producers of cars, however, continue to evaluate their performance in purely commercial terms i. e. in terms of profit and corporate growth or in H. Igor AnsofT’s words: “ The return to the firm, or profit, is optimised in some sense in relation to the resources employed to produce it. ” This implies that in so far as the objectives of the firm are still primarily economic, then the unrestrained pursuit of growth must inevitably be called into question, which means that the fundamental purpose of business itself is under attack. It follows from this therefore, that the traditional criteria for evaluating business performance are increasingly open to doubt, just as the organization of business is itself becoming more complex. One cannot blame the tim for its emphasis on both total growth and growth in profits. The former has been a major objective of every government in the world for a long time.

Presumably also it was accepted as a proper aim by the electorate. Progress, however defined, was seen as depending on economic growth. Change was accepted, perhaps reluctantly, as the consequence of the striving for greater material wealth. The firms of the past and present responded magnificently to this primary aim. In advanced societies millions of people were able to choose a way of life unlimited by the constraints of bare Whether the choice was subsistence. always exercized wisely is another matter, but it is not a consequence for which firms can be blamed. Society accepted then things about which it now has regrets- JUNE, 1970 3 ollution, noise, the danger and the unpleasantness of many occupations. Growth in profits as a measure of success fitted admirably with the generai objectives of economic growth. Increasing profits attracted resources to the growing and away from static or declining industries. Profitability was linked to the success the firm had in winning customers for new or improved products. Thus a correct assessment of consumer choice by the firm led to greater profits and growth for itself, the economy and general welfare. Yet the very success of this system as a method of allocating resources has made it possible to question some of its assumptions.

So that one can now afford the luxury of asking whether growth is always worth the consequences. The trend is bound to increase. Once basic necessities cease to dominate, concern shifts to semi or non material objectives-to the environment, the background for a satisfactory life or simply greater leisure. Organizational Development-the Multi-national Corporation One of the most remarkable developments in business organization over the past few decades has been the growth of the large corporation ; a process observed first in the U. S. A. nd now to an increasing extent in Great Britain and Europe. Small and medium-size firms still exist in large numbers but it is the absolute size and behaviour of the biggest that has become a major problem both for the managers concerned and for the rest of the community. This growth in the size of the major corporations has been accompanied by a corresponding development in their geographical and commercial areas of activity’. The business policy-maker must now focus his attention on. the multinational corporation which operates in a wide range of diverse product markets.

The multi-national corporation is no longer subject to the same constraints as its purely national or parochial predecessor. These constraints operated largely through the medium of the national government (e. g. taxation. anti-monopoly legislation) and the local social environment (deriving from the historical position of the large firm as the major wealth-creating and socially-unifying agency in a particular locality). Technological Change Current trends in technology, far from alleviating these policy problems are on the contrary tending to aggravate them.

As we have suggested above the social costs of technological change that are extern. zi to the firm are rarely immediately apparent either to the firm’s own policy makers or to anyone else. But in addition we must consider the internal social costs generated by the firm’s technological maturity and, in particular, the effects of the latter on the employees concerned. This is not, of course, a new problem for management, and has indeed been present since the first days of the industrial revolution.

But in recent years the problem has begun to have direct repercussions on managers themselves in the form of increasing managerial redundancy, as automation develops from mechanisation and machines tend to duplicate mental as well as manual processes. Two examples may illustrate the immediate relevance of this problem. First, we have the increasingly familiar case of the middle-aged, ‘experienced’ but innumerate manager who cannot adapt to the computer-based management techniques of today.

Second, mergers arising from the search for technological economies may lead to numerous redundancies at all levels of management, as well as of the labour force. Ownership and Control These problems are made even more complex by the fact that a firm’s policymakers are frequently themselves employees, as the divorce of corporate ownership from control has marched in step with the growth of the firm itself5. Thus the internal legitimacy of the chief-executive is increasingly precarious. Not only must he make decisions on all the above policy problems but he must also justify his own leadership by making the right decisions.

In this situation it is perhaps inevitable that the intelligent policy-maker should consult and seek to draw inspiration from the literature of business policy and corporate strategy. In doing so, he finds himself confronted by a multitude of objectives and performance criteria, many of which are mutually incompatible and represent little more than a platitudinous declaration of intent. Objectives such as maximum long-term profits, or maximum earnings per share, or a specified rate of growth in assets, or simply ‘survival’ to name but a few, are all subject to a wide variety of interpretationsa.

The more enlightened texts tacitly admit this weakness by conceding that corporate objectives are primarily a function of the particular objective firm’. What is an appropriate for one firm may be completely irrelevant for another. It may be of course, that most managers still regard ‘business policy’ as a mere rationalization and formalization of existing business practice. One leading authority has remarked: “ On occasions when more urgent but less important operating problems permit, policy is what the president of a country or a corporation is likely to think about at night. “s The Classical Entrepreneur These problems were, of course. uch simpler when the functions of policymaker, owner and manager were fused together in the person of the entrepreneur. In the so-called classical age of entrepreneurship-the nineteenth century-the objectives of the businessman were in accord with those of society as a whole to an extent that had never been experienced before. In the early stages of industrialization, when the role of the State was one of relative abstention and indirerence, there were strong and obvious incentives for the individual employer to restructure iocal patterns of life and work to suit his own requirements.

It is true that the nineteenth century entrepreneur is popuiarly regarded as the reactionary foe of trade unionism and the ruthless exploiter of child labour. But to adhere to this view is to judge the industrial revolution according to the criteria of modern humanitarianism. Many employers provided community facilities such as housing and education. They also regulated employee behaviour both inside and outside the factory, but for example, stimulating religious fervour and temperanceg.

Although this kind of action was very much in their own interests it still constituted an entrepreneurial pre-occupation with ‘social responsibility’ which has since been much weakened by the growth of the welfare state. A striking analogy is the comparable role of the business leader in more newly industrialized societies, such as Italy, Japan or Nigeria. Business Legitimacy Not surprisingly therefore, the nineteenth century saw much less questioning of the legitimacy of the objectives and methods of business.

The success of commercial enterprize was generally deemed to be an essential prerequisite of social progress. It was not, in fact, until the early part of the present century that the business ethic in Britain came under attack. The credibility of the Victorian rationale of universal improvement through individual enterprize, so avidly propagated by Smiles, was severely shaken by two increasingly apparent failures on the part of the business community. Firstly, British businessmen were criticized for failing to hold their predominant position in the world markets, i. . they were not efficient enough. Secondly, the rising trend of industrial violence and strikes seemed to indicate a failure on the part of some employers to recognize and come to terms with the divergent aspirations of their employees, i. e. they were not socially responsible. These two lines of attack were developed during the interwar period 4 LONG RANGE PLANNING by critics such as the Guild Socialists and the Quaker employers. 10 British industrialists were alleged to be too tough on their employees but not tough enough on their foreign competitors.

Participative Leadership In response to this rising volume of criticism, apologies for the traditional structure of power in industry developed a new theory of reconciliation. This asserted that a democratic participatory style of business leadership could reconcile all the apparent conflict of interest both within the firm and between the firm and society. This restates traditional managerial ideology that the industrial enterprize is a unitary organization, and all groups within it are, or should be, dedicated to the same measured in terms objectives-success, of profits. inimum costs and growth. Thus the function of persuasive leadership backed up by a policy of good human relations, is to convince both employees and the rest of the community that the achievement of these objectives is in the best interests of all. It is assumed that once people are made aware of this ‘selfevident truth’ they will naturally accept it, and industrial conflict will largely disappear-hence the importance which exponents of this view place on good Does this emphasis communication+. n consultative participative leadership mark a genuine change of purpose in the community to a different; not necessarily better, set of obiectives? Or is it nothing more than a pohshed facade behind which power continues to be exercized and ‘participation’ is a weapon of control? A New Professionalism ? If business is changing to different ranges of responsibilities does this not constitute an effective solution to the dichotomy between the commercial objectives and the social responsibilities of business discussed earlier in this paper?

Is there a new professionalization of management deriving out of ‘participative’ leadership on the one hand, and the separation of ownership and control on the other, which will tend to move along an evolutionary path towards an adequate solution? ‘2 A priori, such a development of a professional ‘esprit de corps’ seems unlikely for as Selekman has said: “ In well-developed professions, such as medicine or law, ethical codes are formulated and enforced; the penalty is expulsion.

Moreover, entrance into the profession is by examination. The examination leads to a licensing procedure. Thus violation of the ethical codes means not only expulsion for the wrongdoer, but inability to continue in practice. ” “ Such procedures are not open to business. Anyone can enter into business; anyone can start his own firm. Expulsion from a trade organization is no serious penalty: it is known only to the insiders, and it has little effect on the consumers whom the business serves. 13 There is thus no fixed body of enforceable norms and ethical sanctions governing the practice of management, which implies that management is incapable of selfregulation and that behavioural constraints must be externally applied. Or, again in Selekman’s words: “ If the tensions of conscience were not constantly at play, the forces of competition would tend to degrade standards to the lowest common denominator, it is in the interest of the community that management be checked by the power of unions and government.

For conscience needs an ally in the form of costs-possible losses through strikes or government regulations to serve as a counterweight to the costs based on the self-interest of profitability. Without counter power, the necessity to be practical as a way of ensuring survival in a competitive world would win out in the debate of the ‘ethical ought versus the technical must. “ia Having said all this, therefore. we must now consider the problem of reconciling the policy of the autocratic corporation with that of elected government. Self-Help or Legislation ?

As we see it, there are two fundamental choices facing the makers of public policy. On the one hand they can put their faith in the ability of business leaders to discipline themselves and develop their own code of professional norms, spurred on by exhortation and the power of public opinion. This approach may. however, be found wanting in so far as there is no guarantee that the accumulated legacy of environmental problems associated with economic growth, such as pollution or technological redundancy, will be tackled in a coordinated and systematic way-if indeed they are tackled at all.

Moreover, it may be unreasonable to expect current organizations to take the blame and costs of the actions of their predecessors who acted in a very different social and political climate. On the other hand, they can put the onus of regulating business behaviour in the hands of an external statutory authority, and enforce a pre-determined code of norms by legal sanctions. Though this kind of strategy would probably achieve some tangible results in the short term? there is an obvious danger that an enforceable code of norms on these lines would inflexible and unbecome arbitrary, responsive to changing economic condi- ions. It would also give rise to a degree of uncertainty with regard to the precise objectives to be pursued by the statutory body concerned. The apparent conflict between the aims of the I. R. C. and the Monopolies Commission illustrates the dangers involved in conferring this kind of power on external agencies. And, of course, the activities of all such bodies are usually viewed with suspicion and scepticism by the business community itself. Few people would deny that it would be preferable for business to regulate itself.

The problem centres on the criteria which individual businessmen can use in the day to day running of their company, where conflicts arise between purely commercial priorities and under social values, where the former has an objective measurement of its importance-profit-and the latter has not. We believe that this is a crucial matter for the survival of a private enterprize business system, and yet in all the armoury of scientific management there is no technique that will ensure that the chief executive gets the right balance between the ‘ethical ought’ and the ‘technical must’.

Is it not after all impossible to programme a computer with ethical values? Perhaps it is, but an increased awareness of possible criteria may evolve if an attempt is made to make the full implications of values explicit. If, for example, some of the social costs which we have mentioned can be measured, it may be possible to have prolonged and detailed debate on such issues as the rights of private shareholders in the giant corporations, or the attitude of national governments to multi-national enterprize.

There can also be extensive discussion on whether there should be more legal categories of firms, to take account of differences in size, structure or range of markets. Any such debate must be an informed one however, which takes place against a background of accessible empirical data. At present there are unfortunately very few research studies undertaken at business policy level. Those that there are suffer from serious methodological handicaps.

They are, in the main, based either on published accounts, questionnaires or, more rarely, case studies, and they all suffer from the obvious difficulty that they can report only what management chooses to reveal. There are nevertheless an increasing number of most illuminating empirical studies’s, and of course some managements are more forthcoming than others, but on the whole, businessmen are still very unwilling to expose themselves to the public eye. The reasons for such reluctance are not too difficult to understand. In the first JUNE, 1970 5 place, there is the problem of property rights.

If a business is classed as private enterprize then should it not be allowed to stay ‘private’? Should the owner of a firm be forced to disclose what he is doing with his own property? But as we have noted, the ownership of many firms is so dispersed, the attitude of shareholders so difficult to elicit, and the interests of employees, customers and the community so pressing, that management’s role as trustee is now diffuse. The second argument often used against greater disclosure is that it would affect the long-term security of a company by informing competitors of its activities, or encouraging speculation.

But is it not a desirable precondition for the efficient allocation of resources within competitive markets that as much knowledge as possible is available to the controller of resources ? We do not intend to discuss the validity of such arguments any further in this paper. It is, of course most relevant to any discussion of business policy but has been discussed competently elsewhere. 16 Our purpose is simply to suggest that statutory intervention either to establish criteria or in the hrst instance to elicit data, is in no way as desirable as business taking the initiative itself. In this respect the universities, and articularly those concerned with business education, can probably be of great assistance. They are in the most favourable position to develop closer links with business. They have the expertise to undertake research into the social costs and benefits of business success and their impartiality may be accepted by business and government alike. The new business schools in Britain are often accused of being too techniqueorientated. This may or may not be true, but they are educating a new generation of business leaders, and are therefore an obvious platform for the debate on the future of business.

It is in the interest of business itself that this new generation appreciates all the main issues of business policy. It is only in this way that there is hope for a true professionalisation of top management. m REFERENCES (1) For a straightforward exposition see E. J. Mishan, The Costs of Economic Growth, The Staples Press, 1967. (2) Ibid. Also J. K. Galbraith, The New lndusfrial State, H. Hamilton, 1967. (3) H. lgor Ansoff, Corporate Sfrategy, McGrawHill, 1965, Penguin Books, p. 44, 1968. (4) L. Turner, Politics and the Multi-National Company, Fabian Research, Series 279,1969. (5) See for example: A.

A. Berle and Gardiner C. Means, The Modern Corporation and Private Property; New York: Harcourt Brace and Worfd, 1966. (6) (7) (6) (9) (IO) (11) (12) (13) (14) (15) (16) P. Sargent Florence, Ownership, Control and success of large Companies, Sweet and Maxwell, lQ61. B. Hindley, ‘Capitalism and the Corporation’ in Economica, November 1969. For a discussion of such problems see J. Argenti, ‘Defining Corporate Objectives’ in Long Range Planning, March 1969. John Child, British Management Thought, George Allen and Unwin, 1969. E. P. Learned, C. R. Christensen, K. R. Andrews and W. D.

Guth, Business Policy, Text and Cases, Richard D. Irwin. Revised Edition, p. 3. 1969. For a discussion of factory discipline and labour problems in the early Industrial Revolution, see S. Pollard, The Genesis of Modern Management, Edward Arnold, 1966. J. Child, op. cit. See, e. g. , J. A. C. Brown, Social Psychology of Industry, Penguin, 1954. For a discussion of such possibilities see P. Derrick and J. F. Phipps, Co-ownership Co-operation, and Control: An Industrial Objective, Longmans, 1969. B. M. Selekman, A Moral Philosophy for Management, McGraw-Hill, p. 109, 1959. /bid. pp. 104-5. See for example: T.

Nicholls, Ownership, Control and Ideology, George Allen and Unwin, 1969. A. Singh and G. Whittington, in collaboration with H. T. Burley, Growth, Profitability and Valuation: A Study of Unifed Kingdom Quoted Companies, Cambridge, Dept. of Applied Economics, Occasional Paper 7. 1968. R. J. Mousen. J. S. Chin and D. E. Cooley, ‘The Effect on the Separation of Ownership and Control on the Performance of the Large Firm’, Quarterly Journal of Economics, vol. LXXXII, 1966. See for example H. Rose, Disclosure in Company Accounts, Institute of Economic Affairs. Second edition. 1966. 6 LONG RANGE PLANNING

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