A brief history of business in society

Arlo Brady

CEO of freuds and fellow at Judge Business School, Cambridge University

Since the earliest days of commerce, there has been an active and healthy debate about the role and responsibility of business in society. At its most basic level, this has derived from the fact that commerce has enabled some individuals to become either extremely wealthy or inordinately powerful in contrast to their wider communities. And as a result, strategies and templates for those made wealthy through commerce have also existed for thousands of years.

Back in classical Athens of 500 BC, such individuals were expected to give back to society through what were called liturgies. These involved both money (an early form of taxation) and time, and were something that people were very proud of – to the extent that often individuals voluntarily did more than was societally expected of them.

For at least the last 400 years, the transformative power of business has been undisputed – certainly since 1600, when Queen Elizabeth I granted the East India Company a monopoly to trade to the east of the Cape of Good Hope. This public-private partnership laid the foundations of the British Empire, the cultural basis for efficient enterprise (even at its height, its head office only ever employed between 150 and 250 staff) and made vast sums of money for its investors. This methodology, and variations thereof certainly transformed the world, but questions remained about whether or not this transformative power could be harnessed for the good of society and the planet, as well as for small groups of individuals.

Unsurprisingly, the debate really took off 200 years ago, as the Industrial Revolution began to remake the world. Incomprehensibly vast fortunes were being made and the advent of mass media meant that more people than ever before were aware of the resulting disparities in wealth.

In the UK, religion and enlightened self-interest drove pioneers like Lord Lever, the Cad- bury brothers, John Stuart Mill and Lord Shaftesbury, to name just a few, to fund and deliver an extraordinary range of public health and educational activities. This self-interest arose primarily from an increased awareness of the link between wellbeing of employees, health and productivity. Some businesses went to great lengths to ensure that employees were treated well; examples include the planning and development of model company towns such as Port Sunlight (1888) and Bournville (1895). So strong were the recognised links between wellbeing and economic prowess, they even led to the first iterations of welfare states across Europe. How- ever, self-interest also led to exploitation and this forced the birth of several more mutually- beneficial types of economic enterprise. Of particular note was the growth across Europe of a set of businesses – cooperatives – run solely for the benefit of their customer members.

In the US, the rapid growth of big business following the Civil War led to a consolidation of wealth within a relatively small group of entrepreneurs. The general public believed that these individuals, referred to as the ‘Robber Barons’, had used exploitative practices to amass their wealth, and as such the ‘anti-trust’ movement grew in strength. In the end it was the US Government in the form of the Supreme Court that forced a change, determining that a business is ‘incorporated for the benefit of the public’ and holds its privileges and franchises ‘subject to proper government supervision’.

That the government took such an interest is predictable: the formal role that business played in society was felt keenly in government, where coffers were topped up by taxation, the most basic form of corporate responsibility. Informally, particularly in the US, entrepreneurs such as John D. Rockefeller and Andrew Carnegie triggered a culture of philanthropy and private support for public works that still persists in American thinking today.

The Great Depression of the 1930s shook capitalism to its ideological foundations. High levels of debt eventually toppled banks, businesses folded like cards, and even entire countries were bought to their knees. In the aftermath of the Depression, governments took active control of their economies. They stimulated demand and triggered a consumer goods boom that – interrupted by another World War – lasted through to the 1970s.

Corporations grew faster than the total world economy and consolidation led to the growth of a small group of mega-businesses including Exxon or General Motors, whose incomes eclipsed the GDP of many countries and whose influence stretched well beyond national borders.

Yet in parallel to this economic boom, there was a growing and vocal awareness of its negative impact on the environment. It is often said that this awareness was triggered by the famous ‘Blue Marble’ photograph of the Earth, taken on December 7, 1972, by the crew of the Apollo 17 space mission. This represented the first time humankind truly witnessed the isolation of our one and only home, galvanising the environmental movement and driving a revival of legislation.

The oil crisis of the 1970s triggered another major market scare and was significant enough to force governments to change the rules again. A decade later, Margaret Thatcher and Ronald Reagan set about removing the restrictions on capitalism. Heavily influenced by the Nobel-Prize winning economist Milton Friedman, they extolled the virtues of a free market economic system with minimal government intervention. Friedman’s perspective on social responsibility – which still pervades today – was that a corporation’s overriding purpose is to maximise returns to its shareholders, and its only social responsibility is to increase its profits. Greed, as Wall Street’s Gordon Gekko infamously argued, was good.

Globalisation, easy access to capital and seemingly unlimited human and environmental resources was a recipe for a ‘kind of’ success. In the short term, it appeared that Thatcher and Reagan’s approach had worked. The global economy boomed, but in a different way: at the start of the 90s, the 50 biggest global economies included 13 major global corporations with greater assets than several Western countries. The age of the multinational corporation and the global brand was well and truly born.

But just as the 1970s saw a rejuvenation of environmental concerns, the late 80s and 90s also saw increasing awareness of the disparities that exist in our society. Events like LiveAid helped mainstream audiences witness the grinding poverty that exists in contrast to the gilded life in the developed world. It inspired an entire movement to get off their backsides and do something about poverty.

Over the course of the next few decades, thanks to an explosion of media, corporate influence over society – good and bad – was given a proper airing in the court of public opinion. High profile scandals such as those impacting Arthur Andersen and Enron served to emphasise the growing perspective that the economic liberalism of the 70s and 80s had gone too far. Big business, conspicuous in its wealth, found itself in the dock and having to justify itself.

It was here, in the 1990s that the concept of Corporate Social Responsibility (CSR) first entered the common lexicon. The phrase CSR itself seriously challenges Friedman’s doctrine that business has a responsibility purely to its own shareholders. However, it was and still is frequently used in a way that does not challenge this perspective. It is often adopted as a catch-all phrase to describe ongoing philanthropic efforts, or the positive impact a business has on local communities, while ignoring the negative impacts.

It’s worth noting at this point that outside of the Western world, some of the basic tenants of CSR have been practiced for some time, primarily under religious guidance. Islam, for example, has long championed its own distinctive value-based ethical system for business dealings and individual philanthropy. Eastern philosophies such as Buddhism and Confucianism also recognise the importance of returning wealth into society and are making themselves felt across Asia.

CSR has many critics, neo-classical economists on the right and die-hard activists on the left who suggest that it’s too basic, just window-dressing, cynical ‘greenwash’. Corporate citizenship or conscious capitalism are two examples of the approaches that have been considered in a more positive light.

But putting the jargon and semantics to one side, it was more or less accepted that as we started a new millennium, there were clear links between high standards of responsibility and long-term commercial performance. These links were given their first high profile airing by Collins and Porras in their now-legendary book Built to Last. Their message was not really picked up on at the time of publication, but in the last decade it has reached acceptance in many boardrooms. The idea that businesses need to consider not only their financial performance, but also their environmental and social performance led to John Elkington coining the phrase ‘triple bottom line’, which many firms have since adopted. Most recently, even

Harvard’s Michael Porter, the world’s authority on strategy and competitiveness, has highlighted the importance of what he calls the creation of ‘shared value’. Since 2000, the United Nations has run a programme called the Global Compact, the 10 key principles of which are designed to encourage businesses worldwide to adopt sustainable and socially-responsible policies, and to report on their implementation. In its first 10 years of operation, the initiative managed to sign up more than 6,000 businesses from all over the world.

On paper at least, it seemed that things were going in the right direction. But the global financial crisis of 2008 demonstrated that they were not. Thousands of businesses collapsed – big and small – and millions of people all over the world lost their jobs, homes and savings. The media told us we were living in a ‘them and us’ world – where business was separate from society, perhaps even competing with it. Wall Street’s wealthy were branded as criminal by the Occupy movement.

Businesses like Starbucks, once the darlings of the high street, became poster children for the evasion of basic social responsibilities that had been considered the norm even more than 2,500 years ago in ancient Greece. Recent failures of the Co-operative Group in the UK have even shaken faith in tested alternative models of business.

While it is fair to say that most big businesses are currently vilified, there are many exceptions to the rule. Companies that are seen to be on the side of society and trailblazing a different way of doing business are held up as heroes and their innovative approach has won them many plaudits. Examples range from Wholefoods, Unilever, IBM or GE through to Patagonia or PUMA. But they are certainly not a majority.

It is here that we find ourselves in 2014. On the one hand, the economic approach we broadly refer to as capitalism has been awe-inspiringly transformative. We have never been more effective at bringing people out of poverty or coming up with innovative ways to solve structural challenges. But our societies are becoming more unequal, not less, and our environment continues to suffer.

This is the backdrop that contextualises today’s challenges. We need to consider how we can breed more ‘hero businesses’ that have a more mutual relationship with their full range of stakeholders – businesses that recognise and act upon the implied social contract as much as any formal commercial arrangements and which accept environmental and civic issues as part of their basic model of trade. These are the businesses that would have thrived in ancient Greece, and will succeed today.