Business vs environment:my email

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Thursday, January 26, 2006

my email on: business vs environment:

Sometime back someone wanted to know if she ought to support a bunch of guys/NGO blocking the development of a business....the factory would 'harm the environment'. I dug this out as I delete all my old emails..rather than trash it I thought I'd put it up here..Atleast it will keep the momentum of maintaining a Blog going:)
My thoughts reproduced below (cut and paste from the email i sent her)
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Hi Since you wanted to hear a multiplicity of perspective on the issue of Business/vs Environment I thought I would take some time and put the issue in a larger context.Nowadays, NGOs have gained more power and legitimacy, and business increasingly has to answer to them as stakeholders.These groups have gained varying legitimacy status. Despite varying legitimacy, many of them wield enormous power. Power without legitimacy can constitute a dangerous situation.I will NOT be protesting against Sterlite to save the biodiversity hotspot in Orissa based on the information that I have and I have my reasons. Lemme explain where I am coming from and why I behave the way I do:1. The traditional stockholder-oriented approach holds that the firm exists principally to maximize returns to owners.The role of business is economic. It is to create as much wealth as possible operating within the rules laid down by society. The unbridled exercise of power is constrained by Labor laws, commercial laws, comml.code, . When business tries to do MORE than that, when the accede to the demands of the crowd or the environmentalists in Orissa, they give legitimacy ot what amount of unlegislated 'taxes' are to be imposed on their shareholders and thus undermine their own legitimacy. This is often the path to poverty for a society2. On the other hand, the stakeholder approach asserts that the firm is responsible to, and should be run for the benefit of, a number of constituencies, i.e. employees, environment, customers blah blah....At the heart of the stakeholder model is the principle that all persons must be respected. They are ends in themselves and not a means to an end.Unlike the stockholder model, which dictates that all actions and decisions must be taken with a view to owners' interests, the stakeholder model offers few guidelines as to which stakeholder group gets priority.3. It would help if practising managers like ourselves appraise stakeholders in terms of their power, their legitimacy, and their urgency. Placing a stakeholder in the right category offers a pointer on how that stakeholder should be treated. I'll build on it:Power: What is usually meant by power is that one party has the means to get its way, even in the face of resistance by others. power of all kinds can be temporary and easily lost- we have seen arrogant companies like Nike and others bow to stakeholder pressure. Its happeneing in India too in the case of cocal cola etc. Power may be latent. That is, it is not exercised. We managers should be aware of stakeholders who are quiescent until their interests are awakened,as in the case of environmentalists in OrissaLegitimacy: A second way of classifying stakeholders is by their legitimacy. An obvious basis of legitimacy is that some relationship exists between the firm and the stakeholder, such as a contract, or the company may be significantly responsible for a stakeholder's well being. The presence ofrisk also may invoke legitimacy claims.A moral claim also constitutes legitimacy. This means that the stakeholder ( the environmentalist here) can benefit or be harmed, or have rights upheld or violated by corporate actions.Urgency: The third dimension in which to classify stakeholders is that of urgency.For example,setting up this plant will screw up the environment so badly that people wont be able to live there...4. While each of these three dimensions can grab the attention of managers, in combinations, they are likely to be even more salient.Of course, there may be disagreement about the extent of the attributes possessed by various stakeholders.Managers over- or underestimate the extent of stakeholderattributes at their peril.A mishandled stakeholder problem situation can deteriorate into a crisis. 5. There are some who advocate that a 'responsible' approach to business or an 'enlightened self interest' requires a shift in the purpose of business from shareholders to all stakeholders. My position on the issue is that the only thing business is good at , is well suited at is that it can maximise the material weel being of a society. The striving of each company to maximise the present net present value takes Adam Smiths 'invisible hand' out of its pocket and puts it to work by best allocating a company's resources. Now here is where the problem lies- maximising wealth for shareholders ( a very noble objective in itself) often conflicts with other stakeholders and in this case the environment.6. Much of the time, the business case coincides with the stakeholder case when powerful, legitimate urgent stakeholders are involved. But there are many stakeholders with no power, and even if much of the business world admits the legitimacy of these stakeholders, it is unwilling to grant them attention and see their plight as an urgent matter. And that's whats happening with these environmentalists in Orissa and they want to use us to enhance their power. I wont allow myself, as a rational guy, to be a pawn in their agenda.The ultimate purpose is advancing the human condition. I might agree that shareholder returns may be a means to that end, not the other way around. But I do not believe that blocking shareholder returns for the environment is a cause more 'worthy'.Thats why I wont be protesting :)