Introduction to

International Business
What is the Purpose of
Business?
 Milton Friedman
“The Social Responsibility of Business Is to Increase its Profits”

The New York Times Magazine

13-Sep-1970
From there to here: 50 years of thinking on the Social Responsibility of Business; Borruso et al; McKinsey; Sep 2020
From there to here: 50 years of thinking on the Social Responsibility of Business; Borruso et al; McKinsey; Sep 2020
 Edward Freeman

https://www.youtube.com/watch?v=epxmG3YRgok
Tutorials?
The prevailing societal paradigm

• Democracy + Capitalism

as against

• Communism + Socialism
 Shareholder wealth maximization has . . .

• Created a great amount of dysfunction in society

• Executives have discounted non-shareholder concerns

• The interests of a wider range of participants have been ignored

• It has distracted the organization from its wider purpose of

fulfilling needs of customers
The publicly traded company

• Equity shares issued to larger public to raise capital for growth

• Ownership gets diluted

• Owners and managers become distinct

• Managers act as agents of the owners

Implications?

• Shareholder wealth maximization

+
• Short termism
Declining trust in public
corporations
 The problems . . .
1. Environmental degradation
2. Income inequality
3. Crony capitalism
4. Gaming
5. Pervasive cheating
6. Lack of accountability for corporate misdeeds
7. Inattention to capitalism’s losers
 Important references
• Karl Marx & Joseph Schumpeter – capitalism causing unemployment

• Ross; Jensen & Meckling – Agency Theory

• Coase – A firm is a “nexus of contracts”

• Berle & Means – lack of accountability to society

• Dodd – Corporations have a wider societal role

• Milton Friedman – Maximizing Shareholder wealth

• Larry Fink – Letter to CEO’s in 2018

Purpose beyond profits . . .
Massively Transformative Purpose (MTP)
https://www.youtube.com/watch?v=vQGz1YRqBPw
 Assignment - 1
• Build on our discussions in class to write an essay on “Corporate
Purpose”. Please ensure that your essay is not a repetition of the
readings or our discussions in class.

• Due date (2nd March 2021, 11.59 p.m.)

• All submissions to be through:

https://ums.jgu.edu.in/login/index.php

• Length: 1500 words

• Marks: 30
Thank You