Addressing a sold-out crowd of over 1,000 at a TEDx talk on 13 November, University of Virginia Darden School of Business Professor Bidhan (“Bobby”) Parmar questioned a number of commonly held assumptions regarding the purpose of business in society.
Parmar began the talk by proposing that “the business world is in the middle of a surprising battle of ideas about its very purpose,” and proceeded to challenge the contention that the main role of business is to generate profits. Parmar and a team at the Darden School are filming a documentary with Academy Award-winning filmmaker Paul Wagner to explore this concept and spotlight purpose-driven, socially responsible businesses that prioritize all stakeholders.
“The purpose of business matters, because we are all affected by what companies around the world choose to do,” said Parmar, who noted the recent cases of BP and the Gulf of Mexico oil spill and Volkswagen and its emission cheating scandal as recent examples of the consequences of corporate malfeasance.
Whenever a company exists seemingly solely to make money, the likelihood of corruption increases, Parmar said.
After reviewing the evolution of how modern companies came to focus primarily on profits, a concept known as shareholder value maximization, Parmar proceeded to debunk another common misconception of business — that shareholders are the “owners” of a corporation. By law, public corporations own themselves, with shareholders being party to a contract with the firm, much like employees, customers and suppliers. However, depending upon the type of contract or share, and the amount of shares a particular shareholder owns, some shareholders may be able to exert influence on managers.
“What this means is that, legally, managers of large public companies don’t have to put shareholders above everyone else — it’s a choice, not a requirement,” said Parmar.
Challenging popular belief that corporations often must choose between people or profits, Parmar gave several examples of purpose-driven companies that also yield healthy financial returns. He added, “Surprisingly, across hundreds of studies, there is no clear evidence that companies that try to maximize shareholder value actually perform any better financially.”
Throughout the 16-minute talk, Parmar used humor, examples, engaging questions and a short clip of the Darden School’s upcoming documentary to propose that socially responsible businesses fare better in the long term.
According to Parmar: “This debate is not about if we should care about profits, but how? How can we run companies so that we’re all better off over time?"
Parmar was recently named by Poets & Quants as one of the “Top 40 Under 40” professors from around the world, and his work has been published in Organization Science, Organization Studies, Business & Society and the Journal of Business Ethics. His research focuses on how managers make decisions and collaborate in uncertain and changing environments to create value for stakeholders.
Parmar is a fellow at the Darden School’s Business Roundtable Institute for Corporate Ethics and the Olsson Center for Applied Ethics.
The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D. and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.
Sophie ZunzDirector of Media RelationsDarden School of BusinessUniversity of VirginiaZunzS@darden.virginia.edu+1-434-924-7502
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