Milton Friedman was of the opinion that the principal objective of a business enterprises is to generate economic returns to its owners. Later the purpose expanded from maximising returns to just shareholders to all the stakeholders — employees, customers, suppliers and communities. Business must deliver value to its customers. It must invest in its employees. It has to deal fairly and ethically with its suppliers. It must support the communities in which it works or operates. As shareholders provide the capital that allows the companies to invest, grow and innovate, it must generate long term value for them. Of late, the business is expected to work in sync with the governments and focus on goals such as hunger, health, gender sustainability and such other public goals. There should be development with a human face.

Investors also should not be obsessed with quarterly results but look long term and beyond numbers. Instead of a shareholder governance committee, we now have a stakeholder engagement committee. This shift from shareholder to stakeholder is easier said than done. CEOs have different opinions. If there is accountability to everyone, it means accountability to none.

Repurposing business has to take into account the social environment in which it operates.

Towards Better Capitalism

The old theory of business is to earn profits, but has been criticised. The new theory of business is to make it sustainable or make it socially responsible. Many new ideas such as Conscious Capitalism or Inclusive Capitalism have been invented. Many organisations have adopted these ideas. It could be called Stakeholder Capitalism.

There are five key ideas which serve as building blocks of the new theory of business. The usual dichotomies of business are given up. Instead the word AND replaces these dichotomies.

The first idea is that a business is based on both profits AND purpose. It is not either-or but both. A business survies on the basis of hard work, an inspiring vision.

The second idea is to serve the interests of both the shareholders AND stakeholders. Apart from shareholders, the business must create value for the suppliers, the employees, the customers, the society as a whole and its communities.

The third idea is to treat business as societal institution AND a market institution. Social trends and issues are important. At the same time market forces are important. We have to consider the physical environment. Business can contribute to many social issues.

The fourth idea is to have human face while pursuing economic interests. Business is both about humanity AND economics. Business has to be sensitive to natural calamities.

The fifth idea is to put Ethics AND Business on par. These are not contradictory terms.

To sum up, business must have purpose, stakeholders, societal impact, humanity and ethics. These are the five ANDs of Stakeholder Capitalism. R. Edward Freeman is the father of the Stakeholder theory. His son Ben Freeman adds the other components — profit and purpose, humanity and economics, business and ethics can go hand-in-hand.