What are the responsibilities of a business?
What are the responsibilities of a business?
It’s an important question because it helps us frame how we think about running our own businesses.
One of the world’s most famous economists, Milton Friedman, claimed that the social obligation of a company is to ever-increase its profits and that resources shouldn’t be diverted to any other purpose.
A lot of businesspeople have taken that idea as gospel.
The problem is, Milton was talking specifically about public companies – with stock holders, boards and investors. He publicly acknowledged that the same reasoning need not apply to private companies—the ones with individual owners or small groups of decision makers. Which is good, because assuming ever-increasing profits is the sole obligation of a business doesn’t line up ideologically with most folks I know that own their own business.
The reason, he asserts, for the difference been public and private companies is intent. If a private company owner does anything that decreases profit—for example, working less hours or donating some profits to charity—they’re spending their own money. And it’s their right to spend their money however they please. If it’s your business, privately owned, you make the decisions because it’s you who own it.
No one person can own public corporations outright, so decisions have to be weighed against the common goal and common good of other parties involved. And the intent of the other parties is to make money. For example, if executives at a public company used the company’s resources to promote a political agenda, they’re taxing the shareholders money without their consent because it’s veering from focusing on profit.
Where I see a problem in terms of perception is that private businesses, smaller businesses, or companies of one tend to view the concept of what a business is and what it’s for based on public companies. Because that’s what’s in the news. That’s what’s talked about. That’s who gets the publicity. For example, the idea that growth is inherently required. Sure, that makes sense for a public company, where there’s a fiduciary duty to increase profits for shareholders. The whole point of investing is to get a higher return. But a private company? No such tenet is in place. A small business can make “enough” and stay level, without hurting or harming anything. Most small companies can not grow and not die.
Public companies are vastly outnumbered by private companies—but most private companies are never in the public eye or talked about outside of their industry. Their responsibility and goals, for the most part, don’t need to line up with how Apple or Tesla do business. Most small companies aren’t beholden to investors or stockholders at all—instead they can be bound to providing stellar customer service (at the expense of higher profits), or making significant contributions to their community, or even making the person that runs them feel good about how they do business. To me, this makes smaller companies tremendously more interesting—their goals and responsibilities are varied and unique to them.
When I think about the responsibility of my own business, profit definitely matters, but it’s not all that matters. The opportunity to gain freedom, for me, matters just as much—because I want to be able to make decisions without duress, or even just have the ability to decide between more than a single option. Public companies have very little freedom because they’re responsible to more than just themselves. They’re servants to exponential growth and ever-increasing profits. Most of the time, executives at public companies are spending someone else’s money, which means that money comes with tight reins.
As Bo Burlingham writes in his fabulous book, Small Giants, when you start a business, it’s a monologue. You’re talking to yourself about what you believe in, what your business stands for, and what it’s responsible for doing in the world. It’s your point of view. Gradually though, that singular dialog becomes a real conversation, first with an audience, then with actual customers. If this conversation becomes fruitful, as in, both parties enjoy the other, then potentially there’s a freedom to choose. If your intent is to get bigger, go public, take on investors, then your option is singular: grow quickly and do anything/everything to achieve that. No public company ever hit a market with one employee. Few investors will give you early seed/angel money if you are a one-person business. If that conversation between you and your customers becomes fruitful and you don’t wish to pursue that route, then the freedom to choose what’s next comes into play. You can skip the “golden opportunities” to expand and grow and instead focus on doing better business—serving better, charging more and building stronger relationships with your audience and customers. Or even figuring out how to scale without scale—for example, using technology to increase your reach without having to hire a ton of staff or open offices in every city. In this scenario, you’re at the helm to decide what your business does or does not take on next.
When I think about the responsibility of my own business, I also think about control. While I believe that control is a falsehood of perception most of the time, I still enjoy that falsehood immensely. By never taking on investors, I get to call the shots. Even if the shot is that I’d rather make less money and pursue something else. Even if the shot is that I want to stop pursuing something, even if it’s profitable, because it doesn’t align with my personal values. Control (even if it’s just a perception of it) weighs huge in my reasoning not to grow.
All of this is just to say, before assuming you want to be like the folks who run massive companies that are on the news, and talked about at dinner parties, consider if you want your own business to have the same responsibilities. Sure, your ego could be egging you on to compete with and achieve what someone else has, but it could just be your ego talking—which doesn’t always have your best interests in mind. It might sound better to reply that you have a huge or quickly growing company at a dinner party, or it might even get you in the news, but is it something you truly want to be responsible for? For me, I happily tell people that my business is just myself, it does well and I’m not interested in growing it, and it’s been that way for nearly 20 years.