The Profitability of Trust

GENEVA – The effects of the most devastating financial crisis in decades have begun to fade. But debate about the fundamentals of the global economy is far from over. Indeed, there has been a new wave of heated discussion about whether companies should put profits or the common good first.

Milton Friedman, a leading proponent of the profit-oriented approach to corporate management, famously declared that “the business of business is business.” Indeed, from this standpoint, there is no contradiction between profit maximization and the common good. The pursuit of profit itself is a socially beneficial goal.

A conceptual basis for the opposing perspective, to which I adhere, lies in the Harvard economist Michael Porter’s theory of shared value creation. In fact, my own publications promote the stakeholder concept as the framework for a modern understanding of socially responsible corporate management.

The theoretical debate could continue indefinitely. But, in terms of practical company management, such ideological polarization is not particularly useful. If managers had to choose between fulfilling the expectations of shareholders and meeting their social and ethical responsibilities, their companies would probably collapse.