How do we make ‘good’ decisions? If these decisions affect many other people apart from us, how do we know whether we are making the right decisions? When top managers of large businesses make decisions, these decisions largely affect the whole organization. These decisions, to an extent, also affect society, the economy, and the environment as well, depending upon the market reach of these organizations. When leaders in government make decisions, these have farther-reaching effects. If we feel the need to take the responsibility for decisions of corporate or public governance as leaders, is there a philosophy that can guide us in making decisions that ultimately result in universal benefits (more ‘good’ than ‘bad’)?
The traditional Indian Hindu concept of ‘Karma’ proposes that only actions are in the control of humans and not their results; and, that only the actions performed taking into consideration all the stakeholders ultimately lead to perfection. Since, results of the actions performed are not in our control, how do we ensure perfection in the results of our decisions?
For example, when we decide and perform actions in order to build a dam, we realize as a result a structure through which we try to control the natural and random flow of the waters of a river to avoid flooding and resulting harm to humans. We also control the flow of the river in order to obtain energy in the form of electricity from it by installing a hydropower plant on the dam. We also plan to obtain surplus value or profit in the process of building this dam. These are the ‘good’ results that we are aiming for.
Science, the analytical study of the material universe, ultimately aims to benefit humankind – to continuously elevate humankind from the present condition. Science proposes that ‘observation through research and experimentation results in insights that lead towards perfection’. The scientific and technical concepts of creating a ‘good’ dam did not “dawn”‘ on humans in one stroke of genius thought. These had to be learnt continuously through scientific experimentation of constructing dams and evaluating the results so obtained both during the process and later. In this learning process, humans initially built crude dams in order to control the flow of water. These initial attempts may have failed to obtain all the ‘good’ results that were aimed for. It is also possible that while constructing the dam we may have caused long-term harm to the environment like submergence of food sources and instability in the earth’s crust at certain locations. The same applies to industrial plants that produce useful products, but create harmful pollution in the process as well.
As can be seen from the above, there are two parts to the decision of setting objectives and meeting them through actions: 1) objectives to complete a dam or industrial plant, for example, that is useful to our customers in business (main stakeholder – value objective), while providing profit to our shareholders (other main stakeholder — profit objective): ‘good’ results; and, 2) objectives to ensure no harm to other stakeholders and the environment (other stakeholders) in the process, while yielding no immediately discernible benefits to our business: ensuring no ‘bad’ results. Generally, there are more contingency plans provided to ensure meeting the former objectives than for meeting the latter. This is because we give more importance to meeting the first set of objectives in view of the profit-motive. The second set of objectives is considered as side effects (since there are no discernible benefits from meeting these objectives). Hence, there are generally few or no contingency plans set for the results of meeting the second set of objectives: no harm to other stakeholders being considered as side effects. The other reason for this is that these are considered as peripheral to the process of achieving the first set of objectives, which are useful to our customers and profitable for our shareholders. This inevitably results in the achievement of more of the first set of objectives (those which satisfy our main stakeholders: customers and shareholders) being met as compared to the second set (those which satisfy other stakeholders).
The basic problem is not that we do not take the second set of objectives into consideration, but that the proactive focus and motivation for setting objectives and meeting these is not present in this case. Hence, while we are performing the actions for meeting our first set of objectives, we are continuously making corrections and compromises, and cutting corners by patching-up or ignoring the results which are turning ‘bad’ for the second set of objectives: to ensure no harm to other stakeholders and the environment. Reactive decisions are primarily patchy in nature and take only a blinkered view of meeting set objectives while compromising on everything else.
As for the government, there are no restrictions being set by the government on our actions in such cases, since more of the ‘good’ objectives are being met — the government being also programmed towards the achievement of the first set of objectives rather than the second. This causes the second set of results to accumulate as ‘bad’ effects right across the economy, and further across the entire world. These effects are continuously being accepted as minor side effects of the development process. This further causes the ‘bad’ results to continue to accumulate, and elicit patchy, reactive and suppressive responses to the same, adding further ‘harm’, until the problems reach unmanageable proportions. Consider any of the crises that human society has faced like pollution, global warming, financial crises, pandemics, and the like, which clearly display the results of this attitude. Even the recent global financial crisis and the Covid pandemic appears to be a result of this attitude. (As of now, the main stakeholder in this crisis, the common human being, is still not into consideration at all in the patchy, reactive responses!)
In our single-minded desire to satisfy our customers and shareholders, we may perform actions disregarding other stakeholders in our decisions. When we perform actions by being equally disposed to all the stakeholders rather than only our customers – who satisfy our profit-motives and shareholders – who desire these profit-motives, we consider corporate social responsibility towards all stakeholders in our decisions, including society, environment, future generations, and relevant others. We need to take into account that only actions are in our control and not the results (stock prices are ‘results’ that can be easily manipulated only in the short-term). Further, we need to set objectives for both: realizing the ‘good’ objectives and specifying set targets for the ‘bad’ results to be within limits. Next, we need to ensure that both sets of the objectives are met. The process of using science and experimentation in learning to meet the first set of objectives — ‘good’ results of satisfying the prime stakeholders i.e., customers as well as the shareholders, can similarly be utilized for learning to meet the second set of objectives — not causing ‘harm’ to other stakeholders during the process of meeting the first set of objectives. This will ensure that we do not keep on compromising on the second set of objectives by just patching-up on the ‘bad’ results. If every organization makes this a part of their corporate social responsibility, they may contribute enough to ensure that such problems do not scale-up in the long run to unmanageable proportions that may require years or decades of efforts to unwind.
Adam Smith began his philosophical pursuits from the Chair of Logic at the University of Glasgow with The Theory of Moral Sentiments (1759). In The Theory of Moral Sentiments, Adam Smith tried to explain how people acquired the ability to distinguish right from wrong by objective observation of an impartial observer. This enabled them to act in a morally right manner by aligning their own selfish interests with the common good. This philosophy ultimately resulted in the practice of capitalism through self-interest and competition. The important aspect of Adam Smith’s philosophy was the alignment of self-interest with the common good in order for the entrepreneur and the capitalist economy to succeed. There is a continuous learning process involved for the entrepreneur in trying to align self-interest with the common good where perfection leads ultimately to success and imperfection to failure. Customers do not buy products and services unless they need them; as also, society will not continue to accept organizations that harm it or the environment. Innumerable examples of firms like Enron, Arthur Anderson and others qualify this. It seems that while performing actions, if self-interest is in perfect alignment with the common good, there will be success; otherwise, ultimately, failure. This failure could be of a few firms or ultimately, capitalism.
The only question that remains now is as to how practical and economical it is to consider all, or many, of the contingencies which harm other stakeholders like society and the environment while making decisions regarding meeting the objectives of a firm. This will ultimately determine the scope of corporate social responsibility of the firm, which is to be decided by organizations of their own volition. Also, if the government plays its role in ensuring this alignment of purposes without interfering in the freedom to practice business by organizations, this in turn will ultimately lead to perfection (benefit to Humankind). In this process, we would be making progress towards growth and prosperity without the need for self-imposed hurdles, ultimately making the journey of life less bumpy for all of humankind!