Thursday, June 7, 2007

The Nature of Business

Business is told that it must be many things to many people. It must be a good corporate citizen and support the arts and the non-profit community. It must support environmental causes like global warming and recycling. It must increase diversity by its hiring and promotion policies. It must be a partner of governments -- local, state, and federal -- for all manner of projects, from job creation to smart growth. It must not make mistakes. It must be a strategic partner of public education.

Somewhere in this list, the most important thing business must do has been lost: business must maximize owner value over the long term by selling goods or services. That is what makes an organization a business and not something else.

This definition comes from Elaine Sternberg, formerly Research Fellow in Philosophy at the Centre for Business and Professional Ethics, University of Leeds.

If an organization tries to be all things to all people, it cannot be much of anything at all, and least of all a business. Strictly defining a business makes the organizational task more manageable and therefore more likely to succeed.

But business success attracts attention -- and envy. In a world with many needs and a limited ability to pay for them, it is very tempting to tack on additional obligations to the organizations that are most effective at creating wealth.

The great danger we face is that by overloading business with new and often contradictory obligations, even with the best intentions, we risk destroying both wealth and the social arrangement that creates it.

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