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The Social Responsibility of Business: Alex Edmans (Full Transcript)

Here is the full text and summary of Alex Edmans’ talk: The Social Responsibility of Business at TEDxLondonBusinessSchool conference. Alex is a Professor of Finance at London Business School. In this talk, he explains the long-term impacts of social responsibility and challenges the idea that caring for society is at the expense of profit.

TRANSCRIPT:

Alex Edmans – Professor of Finance

Why do businesses exist?

  • To earn profit? or to serve a purpose?
  • For shareholders? or for society, customers, employees and the environment?

Well the conventional view is exclusively to earn profit. And that’s not as narrow-minded as it sounds.

Because to earn profit, a company is forced to care about society. It has to make high-quality products or customers will stop buying. It has to treat its work as well or they’ll leave. And it can’t pollute the environment or its brand will be hurt.

Indeed leading economist Milton Friedman once famously wrote:

“The social responsibility of business is to increase profit. So just head to the land of profit and you’ll get all of these other decisions rights.” 

But this theory assumes that you can calculate the effect that ethical behavior has on your profits. In practice, you can’t reduce every decision to a mathematical calculation. 

Take Marks and Spencer, the UK high street store now. Former Chairman Simon Marks… he had a policy where all top management had to walk around the shop floors to see first-hand how customers and workers were being treated.

And one day, back in the 1930s, on one of his own visits, Simon sees a shop assistant faint. And he’s concerned. He wants to find out why. And it turns out that her husband’s unemployed and she’s not eating, so that her family can.

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