A Balancing Act: How to Weigh Social Responsibility with Short-Term Profit Maximization

As a business owner, you are tasked with many responsibilities. Chief among them, and probably the most important, is the ability to turn a profit for yourself and other investors. However, turning a long-term profit is never a simple and easy task. It is often a balancing act requiring you to weigh your social responsibility with the task of profit maximization. Trying to maximize your profits at any cost can often backfire. In fact, how much importance you give to other considerations can often determine how successful your business will become.

The balancing act of social responsibility and short-term profit maximization has had a very curious history in our country. Because directors and officers of corporations are tasked with the responsibility of making the best decisions for the corporation, courts have taken different perspectives in determining what is in the best interests of the corporation. In Dodge v. Ford Motor Co., a Michigan case from 1919 with far-ranging impact, Henry Ford had offered higher salaries for his employees. His belief was that a company should only incidentally make profits, and rather should benefit society instead. a Court disagreed with Ford’s model as it went against the duties Ford owed his company.

Some years later, in A.P. Smith Mfg. Co. v. Barlow, a New Jersey case in 1953, held the opposite. A fire hydrant company had decided to make a gift to Princeton, which the court agreed was in the best interests of the company. As the court stated, modern conditions had required that corporations acknowledge and discharge social as well as private responsibilities as members of the communities within which they operate. Thus, a line was drawn whereby companies had certain social responsibilities.

The balancing act requires many considerations. For example, emphasizing short-term profit maximization protects the investor, makes it easier for a company to know what its responsibilities are, and eliminates waste. On the other hand, emphasizing a company’s social responsibilities can allow it to focus on long-term goals, and create externalities with kickbacks. There is no clear-cut answer as to what balance works best.

In sum, as a business owner, there are many considerations you must take into account aside from simply maximizing your profits. It may actually be in the best interests of your company in many instances to emphasize considerations other than profit maximization. Sometimes, courts even dictate that it be necessary. If you are concerned that your current company policies may not be in your best interests, consulting with an experience business legal team may be in your best interests. Call the Trembly Law Firm at (305) 431-5678 to schedule your consultation.