A Moral Goal for Business; G. Freeman, Jr.

A MORAL GOAL FOR BUSINESS IT seems unbelievable today that with our large indus trial corporations, many with thousands of employees and hundreds of millions of dollars of capital, there could be any uncertainty as to the basic purpose of such organiza tions-yet there is. What is the purpose of a business? I was interested when the builder of one of the coun try's greatest corporations declared that the purpose of his company was service to its customers. I was interested but not convinced. I could not imagine that practical minded leader commencing his annual report: "This has been our most successful year; we served an additional million customers. Incidentally, we lost $20 million, but we consider this our finest year." I have listened to some of my more idealistic friends say that the purpose of a business corporation is, or should be, the common good of customers and employees.

I have listened and been disturbed. Mr. Freeman is Vice-president of The First National Bank of Chi cago. This article is an excerpt from his address of October 15, 1958, before an Instalment Lending Conference sponsored by the Illinois Bankers Association at Peoria. 352 A MORAL GOAL FOR BUSINESS 353 I was also impressed by reading in two recent publica tions of a management association the statements of the corporate goals of several of our leading businesses. The most frequently mentioned aims were: 1. Making the company a good place to work 2. Serving the customers well 3. Being good citizens, and, incidentally, 4. Making a profit Although several mentioned profits, it was only as a necessary condition to the continuation of employment and service. Of those which considered profits as one of several goals, most referred to a "reasonable" or "fair' profit, or one "sufficient to finance our normal healthy growth," or provide "a fair return on investment," or "safeguard our investment in order to enable the com pany to attract new capital in order to expand its serv ices." Many failed to make any reference to profits.

Yes, I was impressed by those statements of corporate goals-but still unconvinced. Do investors (the actual owners who risk their capital in organizing or purchas ing the stock of a hazardous business) make such an in vestment in order to provide a nice place to work for some unknown employees, or to provide a good product to unknown customers, or to earn a return only sufficient to obtain additional capital from other investors? I have talked to many business leaders, and to them I have expressed what seems to me to be the very obvious single goal of business. I have been told afterwards by some that I was wrong and by others that I was right but that I should have said it another way.

354 GAYLORD A. FREEMAN" JR. What I said is simply that the only goal of a business corporation is to make a profit. Expressed more fully, this means: the only goal of a business corporation is to make the maximum possible profit. And said completely: the only goal of a business corpo ration is to make the maximum possible profit over a long period. Competition for Profit Our economic and social system, whether referred to as a capitalistic system, or a system of private enterprise, or a system of free enterprise, is based upon the concept of competing units seeking maximum possible profits. We know that! Indeed, we have always known it; but, buf feted over the past twenty or thirty years by the philoso phy of the "new deal" and its many offshoots, we now feel that to acknowledge such a goal is somehow immoral or at least selfish. We have lost confidence in the orginal bases of our economic system and feel that perhaps profits should be subordinated to some other goal that would be socially more acceptable, more moral, or somehow "higher." Some do this with their tongue in their cheek; some do it confusedly but honestly.

Are we so timorous that we will permit ourselves thus to be misled? Do we give up our known goals merely be cause someone criticizes them? The expenditure of effort for profit has done more good for our society than any other effort, except that expended directly for education.

A MORAL GOAL FOR BUSINESS 355 Yet because an articulate few imply that this is a selfish goat are we to give up the compass that has led us so far and follow the will-o'-the-wisp they propose to substitute? If we said that short-range profits or immediate profits were our goal, then the morality of such a purpose might well be challenged. Maximum short-range profits, achieved at the expense of our employees or of our cus tomers or of our community, would not be a proper goal, for it would sacrifice the interest of others. But it would not be a wise policy either, for such a course, by injuring others on whom the company is dependent for future profits, reduces the opportunity for profits in subsequent years. Maximum possible profit over a long period of time is neither moral nor immoral, but the effect is beneficial to the community. To achieve this end of maximum profits over a long period (of 100 years or more, and the life span of a corporation should be measured in no shorter periods) requires that we treat our employees in such a way that they are happy both at work and at home; that their minds are relieved of fear, that their working con ditions are pleasant, and their status and contribution are respected. Without these conditions present, they cannot be as productive as they must be if a business is to achieve maximum long-range profits.

To achieve such a goal requires that we treat our cus tomers well; that we provide the goods or services which they want at a price which they are willing to pay, and that they be delivered under satisfactory conditions.

356 GAYLORD A. FREEMAN, JR. Beyond that, to achieve profits over a long period of time requires that business operate in a society that is just and equitable, for if the majority of the people are dissatisfied with the economic or political system, they will change that system. There is no divine guarantee of private ownership or the permissibility of profits. If busi ness management wants to preserve a system of private property and the right to make profits, it should see to it that the rewards, the living conditions, the status and the dignity of our people-all of our people-are such that the great majority are happier in the "private property, profit system" than they believe they would be in any other system. Thus to achieve maximum long-range profits, a corpo ration must treat its employees right, it must treat its customers right, and it must make a continuing contribu tion to society. It is therefore only in this indirect sense that the· goal of business can be said to be social better ment. Its direct goal is properly maximum long-range profits, and to substitute any other for it is to fail to understand the essential nature of business or the society which it ultimately benefits.