Social Responsibility is a Fiduciary Duty For Businesses Large and Small

The common excuse for bad business behavior – such as laying off employees despite record profits –  is that the sacrosanct and sole fiduciary responsibility of management is to increase current shareholder profits.

Nothing else matters, the mantra goes, except profit and dividends. (Odd, how this concept doesn't seem to be violated by excessive executive compensation or political contributions but that's another story.)

business values, fiduciary responsibility, social responsibilityIt's a wrong-headed view of shareholder value. Such thinking is itself a violation of fiduciary duties: The overall long-term survival of the tangible and intangible assets of a business requires concern for suppliers, customers, employees, the community, the environment, and sustainability. Don't take my word for it. In answering questions after a presentation for The Economist, Matt Bishop pointed out that fiduciary duty required attention to social responsibility. By the way, he is the author of Philanthrocapitalism.

Fiduciary responsibility is about the long-term viability of a company and its long-term stability as an investment for shareholders. To provide the best return to shareholders, management must honor business values that will shield the company from lawsuits, fines, toxic clean-up costs, bad publicity about underpaid employees relying on food pantries to get through the month, and customers whose questions or complaints go unheeded.  

Management thought-leaders since Peter Drucker of the '50s have emphasized that business is about multiple values, not just money. It is the fiduciary responsibility of management to maintain all those business values.

What are the "business values" that management must consider besides profit?

Simply put, business values, like personal values, describe how you relate to the world around you. Describing them is not enough: You must live them.

Integrity, trustworthiness, and honesty top every list of business values. It doesn't take too many people with an integrity-deficit to take down a company or a sector. Look at the mortgage brokers who knowingly hawked loans to people who couldn't understand the terms or make the payments.

But the definition of integrity is elusive. On its website, Philip Morris International notes that one of its principle goals is to be a "socially responsible company, at both a local and global level. Because of this, we are passionate about our social performance ... " going on to list its efforts to educate people about the health effects of smoking.

Yet this the same company that is suing Uruguay to prevent larger health warnings on cigarette packages, the same company that is suing Brazil and Ireland for similar efforts to depict the health effects of smoking.

H-m-m. Actions don't match words, an integrity gap if ever I saw one.

Wouldn't shareholder value – and company "social responsibility" – be better served by diversifying so shareholders can have an investment that is sustainable in the long-term without the costs of lawsuits and settlements to dying people? Or a slowly eroding market as people die from using the product as intended?

To my mind, business values should include:

  • Don't knowingly sell something tainted, flawed or dangerous (unless danger is part of its usefulness, e.g. TNT)
  • Don't doctor reports or pay doctors to inflate the benefits of your products (which is very bad for shareholder value when the truth comes out).
  • You must deliver what you said you would when you said you would, unless unforeseen circumstances – fire, flood – intervene.
  • Don't take away in the fine print what you offer at point of sale; insurance coverage comes to mind. Keep it simple, open, and honest.
  • You must pay your employees on time and fairly, and provide safe, clean working conditions. Employees add value to the business and can add more, if given the chance
  • You must pay your bills on time and negotiate a fair price, one that allows both you and your supplier a fair return on effort and investment. Otherwise, you're a bully.

Business values also include the way you treat the environment.  Even if you ignore the moral and ethical considerations of environmental damage, dumping toxins into waterways or spewing them into the air is bad for business. Such disregard for the community will generate bad publicity, costly fines, and loss of customers.  

It may also use up your production resources. Think clear-cut forests.

Note that the reasons I've given for upholding business values are all profit-based, that is, they clearly fall into the realm of exercising fiduciary responsibility. 

There's no excuse for bad behavior.

What are your business values? What values do you think important for businesses?

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