What is the concept of Unsustainable Business Model?

Milton Friedman, a prominent economist, argued for shareholder primacy. This theory suggests a company's main social responsibility is to maximize profits for its shareholders. He famously stated this view in a 1970 New York Times article titled "The Social Responsibility of Business is to Increase its Profits" [Friedman, 1970].

This focus on profit can lead to business models that are unsustainable in the long run. Here's how:

• Short-termism: Companies might prioritize short-term gains over long-term investments in environmental or social responsibility. This could involve cutting corners on pollution control, using up resources quickly, or neglecting worker safety.

• Externalization of Costs: Businesses might focus on lowering their own costs by pushing environmental or social problems onto society. This could involve polluting waterways, using cheap labor with poor working conditions, or not recycling waste.

• Ignoring Long-Term Risks: Focusing solely on profit may lead companies to overlook long-term environmental risks, such as climate change or resource depletion. These risks can eventually disrupt supply chains, damage brand reputation, and lead to higher costs.

Criticisms of Shareholder Primacy

Friedman's theory has been criticized for:

• Sustainability Issues: As mentioned above, it can lead to unsustainable practices that harm the environment and society in the long run.

• Stakeholder Neglect: It overlooks the interests of other stakeholders, such as employees, communities, and customers, who are also impacted by business decisions.

• Short-Sightedness: Focusing solely on short-term profits might neglect long-term opportunities in sustainable practices and innovation.

Moving Beyond Shareholder Primacy

Many businesses today are recognizing the limitations of shareholder primacy and are adopting more sustainable models.This can involve:

• Triple Bottom Line: Considering environmental, social, and financial factors when making decisions.

• Environmental, Social, and Governance (ESG) Investing: Investors putting their money into companies with strong ESG practices.

• Sustainability Initiatives: Companies proactively reducing their environmental impact, improving labor practices,and giving back to communities.

While Friedman's theory has been influential, the concept of corporate social responsibility is gaining traction. Businesses are increasingly recognizing that long-term success requires considering the impact on all stakeholders and the environment.