Frederick Bird

By Frederick Bird

This chapter challenges the taken-for-granted assumptions regarding the purpose of business expressed in the financial or shareholder model of business enterprises. The chapter points to the adverse consequences of operating in keeping with this model on the natural environment, loss of employment opportunities, and aggravated inequalities in wealth. In addition, the chapter maintains that the financial model misrepresents the character of businesses and the nature of productivity, identifying both in relation to increased financial returns. Enterprises are better described as the nexus of value creating interactions with diverse stakeholders. Productivity is better understood as the effective value-added use of natural and human resources, always taking into account the costs accrued in the process. The chapter makes the case for the stakeholder model of business enterprises. It notes that metrics are being developed to measure the productivity of businesses in relation to the diverse ways businesses add economic value to society through their interaction with their several stakeholders. The chapter then calls for reforms of governance practices that will better enhance the well-being of businesses as a whole rather than prioritizing the interest of one particular stakeholder, namely the shareholders. The chapter ends with a discussion of legal reforms, a few of which have already been instituted in some countries, to incentivize these reforms.

Part of the book: Corporate Social Responsibility