Feb. 13, 2020

R. Edward Freeman: Businesses can make the world a better place

Leading business ethics scholar challenges students to resist the ‘old story’ of capitalism and consider all stakeholders

As countries across the planet are increasingly forced to confront problems such as climate change, can anyone seriously think that businesses can actually make the world a better place?

Dr. R. Edward Freeman, PhD, is one of those people. “Let me be clear — I think this is nothing less than your task,” he told more than 100 students from the Haskayne School of Business at the University of Calgary.

“How do we make business better? How do we have a better idea of business so that in a sense we can make money — which I am a big fan of — and we can make the world a better place?”

‘Greedy little bastards’

A professor and academic director of the Institute for Business in Society at the University of Virginia’s Darden School of Business, Freeman has acted as a consultant to everything from companies such as Suncor Energy to the White House under former U.S. President Barack Obama.

Published in 1984, Freeman’s influential book, Strategic Management: A Stakeholder Approach, outlined his stakeholder theory of organizational management and business ethics. It examined the web of relationships connecting everyone from management and employees to customers, investors, suppliers and communities.

  • Photo above: Business ethics researcher Edward Freeman challenged students to work for all stakeholders in a lecture organized by the Canadian Centre for Advanced Leadership at the Haskayne School of Business. Photo by Riley Brandt, University of Calgary

It sparked many researchers to question the idea that the fundamental goal of business is to simply maximize the wealth of people such as shareholders. During his recent lecture at the University of Calgary, Freeman called this idea the “old story” of how capitalism works.

“It goes like this: ‘Business is about money. It’s about greedy little bastards trying to do each other in; it’s about competition,’” he said.

As the old story says: ‘Business works because people are always acting in a short-term economic self-interest, and most people have to be incentivized to do pretty much anything.'

But Freeman told the students there is a word for people who only think about themselves and how well they’ll be rewarded: “Sociopaths.”

If you try to shortcut stakeholder support “by making crummy products, by cheating suppliers, by treating employees not very well, and by – let’s make up an example – ruining the water in a community, what’s going to happen? … You’re not going to make any money at all,” he said.

Professor ‘wildly optimistic’

This inter-connectedness means operating a business doesn’t simply involve making trade-offs between perceived pairs of irreconcilable opposites, such as managers versus employees, or earning profits versus protecting the environment — with one side invariably losing to the other side, said Freeman. “If all you look for is trade-offs, all you will find is trade-offs,” he said.

Such a stunted conception of how business works denies the potential of the creative imagination to break through seemingly insurmountable dilemmas to find exciting new paradigms and solutions that benefit all stakeholders, he said. Businesses must learn to “dig in with the only resource we really have — well, it’s up here,” said Freeman, pointing to his head.

We kick in our imagination and we figure it out. We may not always be able to do that — it can’t always be planned ... but what I am certain of, if you don’t try to use your imagination, you won’t figure it out.

Few people who achieve great things in business simply set out to become rich, said Freeman. “Entrepreneurs start a business because they’re on fire about something,” he said, pointing to people such as the late Apple co-founder and CEO Steve Jobs.

“They see the world differently — they want to make that real,” said Freeman, adding: “Of course, they have to have money to do that, but the fuel of business, the fuel of capitalism … it’s passion, it’s having some sense of commitment to what you’re doing.”

Working to create value for all stakeholders means engaging your full humanity, said Freeman, who told the students that worldwide movements and organizations promoting sustainability and reducing climate change are helping tip the scales away from capitalism’s old story. “I can say I am almost wildly optimistic about your future in business,” he said.

Freeman’s lecture was organized by Haskayne’s Canadian Centre for Advanced Leadership, whose director is Glenda Reynolds, and by Dr. Thomas Holloway, PhD, an instructor at Haskayne.

 

Ed Freeman

Edward Freeman speaks to about 100 students at the Haskayne School of Business.

Riley Brandt, University of Calgary