How Singapore businesses can really be responsible

Since the emergence of the modern corporation at the turn of last century, the debate on whether and how business can be responsible has never seem to end. Indeed, there is not even a consensus.

The renowned Chicago economist - Milton Friedman - famously declared that a company’s only responsibility is to make profit. Accordingly, the company has no obligation to the public or society except to increase its profits to shareholders. This so-called Friedman doctrine was argued in a book, Capitalism and Freedom, published way back in 1962.

Some fifty plus years down the road to the present, the political and social environments for businesses have changed considerably. The clarion call for corporations to be responsible beyond making profit for itself is getting louder. But then, many businesses are, often without choice, still stuck in the Friedman syndrome.

Enter the management accountant

I just served as a panelist in a breakfast forum entitled “Managing Responsible Business - Harnessing the Value”. This was organised by the Chartered Institute of Management Accountants (CIMA) and supported by the Singapore Exchange (SGX).

It is interesting to note that a professional body of management accountants sees it important to hold a discussion on this topic. Management accountants, often the forgotten lot or best-kept secret in a company, serve unnoticed in the background to provide much-needed information for corporate decision-making, while the financial accountants are always in the limelight, making news for the right or wrong reasons.

Indeed if management accountants recognise the need for business to be responsible, it is really an excellent way forward, or even a good starting point. These professionals provide the basis for the company’s strategic directions, and if social consciousness is on the weighing scale at the decision level, responsibility is “in business”.

The top spin

But having the internal impetus from within the professional support in corporations is not enough. The tone at the top is extremely critical. The board and the top management must clearly sing the tune of social responsibility.

The challenge is, however, many companies are still forced to make choices based on bottom lines. The link between being responsible and being profitable is often unclear or even contravening. And the reality in business is that if the top does not provide the bottom lines, the top will go!

So companies are stuck in a spiral, and the Friedman doctrine victoriously stays.

Indeed the harshest critic may even say that responsible business is itself a contradiction in two words - an oxymoron. Businesses, by their very nature, by their very charter, are not fundamentally poised to be socially responsible.

To market, to market

So how do we ensure that businesses can be responsible?

An immediate response is always to rely on the government. If you can’t promulgate, regulate. If you can’t regulate, legislate. The oft-cited wisdom is that the state is the natural body to institute or even decree certain corporate actions.

But then, this may not be an effective way to install good practices, and companies will surely find the path of least resistance to keep out of trouble.

Perhaps it is best to rely back on the market mechanisms. The markets, hitherto, seem to be part of the problem rather than the solution.

As articulated by Ms Tanya Barman, Head of Ethics, CIMA in her blog at CIMAsphere (who was also the keynote speaker in the forum mentioned above), how businesses operate can arrest the “increasingly negative effects of the markets”. However, the “growth in recognising the value of the non-financial aspects of business is accelerating”.

I submit that there are two markets that may actually be potentially viable to encourage responsible business behavior. These are the product market (customers) and financial market (investors).

Customers and investors are the most effective incentives for firms to embrace and embed corporate social responsibility. Customers represent revenue, and investors affect cost, hence they are a direct hit on the profit. If both customers and investors are to value good behavior, responsibility will then take care of itself.

Thus it is us, customers and investors, who will ultimately coax and cajole businesses into being responsible. It is us who will turn corporate social responsibility from tokenism into truism.

Dr Lawrence Loh is associate professor at NUS Business School, National University of Singapore. He teaches courses in strategic management, global strategy and corporate governance.