It is hard to imagine that the Global Financial Crisis of 2008 was nearly eight years ago. While the recession threatened the collapse of large financial institutions and instilled distrust in the American people, a new story about the role business plays in society emerged from the chaos.
This narrative put ethics and values at the center of a global conversation about how business and capitalism could be improved. Namely that business should create value for all stakeholders, not just those at the top. However, in order to increase stakeholder value, companies must understand why and how ethical operation will improve their bottom line.
Professor R. Edward Freeman, academic director of the Institute for Business in Society at the University of Virginia, joined the Hoffman Center for Business Ethics (CBE) at Bentley to discuss the importance of implementing “responsible capitalism” in a public lecture sponsored by Verizon Communications. With 30 years of experience teaching business ethics at the University of Virginia’s Darden School, he has had the opportunity to work with many companies and executives around the world to develop the idea of “stakeholder management.”
In his presentation to the Bentley community, Freeman shared the following hallmarks of effective stakeholder management:
Business ethics creates new opportunities
An increasing number of global businesses now have an improved understanding of what ethical corporate behavior means, which has led to debate and struggle of the ethics of capitalism as a whole. College graduates should consider careers in the emerging and evolving fields of corporate social responsibility, philanthropy, sustainability and conscious capitalism.
Capitalism, in its essence, preaches ethics
Freeman considers capitalism to be the greatest example of social cooperation that exists in today’s marketplace. Throughout the free market, the underlying purpose of business is not just to generate profit, but to create value for others that can consequentially bring an additional profit. Freeman explains that value creation relies on smart business practices being paired with responsible ethics. One cannot exist without the other.
Stakeholder interdependence drives value creation
Delving into his groundbreaking work on stakeholder theory, Freeman argues that business should not focus on creating value solely for its shareholders. Instead, businesses must strive to increase value for all customers, suppliers, communities and other stakeholders. Communicating how organizations make the world better and focusing on overall value will lead to successful and profitable business. In his concluding remarks, Friedman left a call to action for all students that attended his lecture. “You are going to be the generation that makes business better,” said Friedman. “That is my task for you.”