Prof R. Edward Freeman at AIMA’s LeaderSpeak session.
Balancing stakeholder interests, transparency, and authentic CSR is key to building trust, loyalty, and sustainable success in corporate governance, said Prof R. Edward Freeman, Stephen E. Bachand University Prof of Business Administration, Elis and Signe Olsson, Prof of Business Administration, University of Virginia Darden School of Business at AIMA’s LeaderSpeak session.
When we look at sacred texts like the Vedas or the Mahabharata, we see that the core idea is about taking responsibility for the impact of our actions, not just for ourselves, but for all stakeholders— those who are well-off as well as those who are struggling. This is where the concept of stakeholder capitalism comes from. Business ethics shouldn’t be separated from business operations. The traditional narrative that business is solely about making money for owners or shareholders no longer fits the reality. Business is not just about profits or maximising earnings. Instead, it’s about creating value and contributing positively to the world.
Many people start businesses not just for financial gain but because they want to make a meaningful difference. Whether it’s improving a small part of daily life or addressing larger issues like clean energy, businesses are often driven by a sense of purpose. However, there’s a misconception that business is only about greed. That’s not true. Most entrepreneurs aim to create value and help others, and it’s crucial that we teach this to the next generation.
There’s a tendency to view business as either saintly or sinful, but I believe business is about being human, with all our flaws and virtues. Both saints and sinners exist in every field, including business. Business can contribute significantly to society, just like it has with many technologies that make our lives easier. So, when we talk about business ethics, it’s not just about the mistakes companies make; it’s also about the good they do, even if it’s not always acknowledged.
The issue of regulation is a tricky one. While there’s a need for some oversight, too much regulation can be counterproductive. For example, one-size-fits-all rules don’t work for all businesses, especially when small companies face the same regulations as massive corporations. This often leads to crony capitalism, where businesses manipulate regulations for their own gain, harming their stakeholders. Instead, we should have open, honest conversations about what regulations are truly needed, considering the diverse nature of businesses.
Trust between businesses and the public is essential, especially in a world where companies are becoming more powerful. To rebuild this trust, businesses need to act ethically, not just talk about it. Communication is part of it, but actions matter more. We need to encourage businesses to be transparent, not just in their dealings with the public but also in their approach to stakeholders.
One great example is a family foundation in Indonesia that worked to reduce the incidence of dengue fever. They focused on long-term stakeholder engagement and, over ten years, reduced cases by 75% and hospitalisations by 85%. This kind of effort shows that businesses, even with their resources, can make a real difference in society without relying solely on government or philanthropic efforts. It’s about doing the right thing and taking responsibility for the wider impact of business operations.
In practice, companies need to show that they are not just creating value for shareholders but for all stakeholders. By doing so, they build trust and reduce risks, making them more resilient in the long term.
Watch the full session: https://www.youtube.com/watch?v=WwD3WIh5OFk&t=2017s
