Training Blog

It is very easy to take a basic view of the relationship between business and society. On one hand, some people argue that the aim of business is to do good in the world. On the other hand, some economists claim that the business of business is simply to make profits and it’s not for business managers to make judgements about the needs of society, that is the concern of others, such as politicians. Like most simplified views, these are probably both wrong, or at least overstated. The reality is that society and business depend on each other – businesses are part of society and vice versa – and, like all forms of interdependence, this provides benefits, but also imposes obligations on both parties.

The role of business is largely economic. Unless a business performs its economic functions it will not have the resources to perform other roles, nor will it survive long enough to be an agent for any form of change. Businesses live to produce goods and provide services that society wants and needs, at a profit, and they can’t take on additional responsibilities unless they perform these tasks successfully. At the same time, business depends for its survival and long-term prosperity on society providing the resources – people, raw materials, services and infrastructure – which it needs to operate profitably. Society provides other, less corporeal, inputs to business. Which include a means of exchange (money); a legal system that is effectively policed and enforced; defence and trade arrangements.

These, in turn, depend on the members of the society supporting the values and norms that the business endorses. There is an unspoken contract between businesses and the communities in which they operate. A business is expected to create wealth, supply markets, generate employment, innovate and contribute to the maintenance of the community in which it is situated. Businesses, including their shareholders and other stakeholders, depend on the communities in which they operate for their existence and prosperity. The fundamental role of business is to provide the means by which the needs of the community are met, in the form of goods and services, jobs and income from taxes paid by the companies and their employees. The infrastructure on which industry depends requires long-term commitments (hospitals, schools and so on), and communities expect that businesses will match this with long-term investments. Business is also required to act legally and responsibly with respect to health and safety at work, employment conditions and environmental issues.

How do businesses in practice reconcile the demand for greater profit, lower costs, or ‘more for less’, with the interests of society to secure employment, protection of the environment and tax income? The degree of conflict between maximising profit and serving the interests of the community will depend on the type of business and its relationship with the community. If it is a major employer in the area, or a major customer of local suppliers, then its actions are going to have a substantial impact on the community. The community is a major stakeholder, and there are correspondingly serious obligations on the business to consider the interests and views of the local community when making decisions. This is likely to be in its interests because it will probably depend on local support for business plans. However, increasing globalisation can weaken a business’s ties with its local community. Its headquarters may be in one country, its plant managers from another, its suppliers from yet another, and its profits accounted for in whichever country it is most tax efficient to do so.

It is important that there is communication between the business and its stakeholders. This can be at both the formal and the informal level. Many businesses, for example, encourage their employees to participate in local activities. Typically, companies are good at communicating when they want something, such as planning permission, but allow communication links to lapse when there are no pressing needs.
Many decisions that may seem quite trivial to a business may be of great importance to the local community. An example would be the routeing of delivery trucks. Unnecessary bad feeling can be avoided if the community’s interests are taken into account.

Environmental issues often create tension. Businesses may seek to operate to the lowest legally permissible standards, and may thereby create distrust and suspicion among local residents. On the other hand, local opposition may be voiced through pressure groups that are overtly anti-industry and whose arguments are therefore instinctively rejected by companies, even when they express valid concerns.