This blog post will look at why companies should consider long-term profits and social responsibility over short-term profits.
The capitalist economic system maximizes the human desire to seek profit. Companies were also created for the purpose of profit, and they play a key role in the capitalist system as the main actors of production. Profits soon become the motivation for entrepreneurs to start a business.
There are short-term profits and long-term profits. In order for a company to survive and grow in the long term, it is more important to pursue long-term profits than short-term profits. In fact, companies sometimes boldly give up short-term profits when maximizing short-term profits conflicts with maximizing long-term profits. Consider the case of a dentist who recommends brushing your teeth three times a day. If everyone brushes their teeth like this, the short-term profit of the dentist will decrease as the condition of people’s teeth improves. However, many people will be able to preserve their teeth for a long time, so the dentist will have long-term customers. On the other hand, if you do not brush your teeth frequently, your short-term profit will increase, but your long-term profit will decrease as more people wear dentures.
In the early days of capitalism, companies did not need to differentiate between short-term and long-term profits. This is because in a state of free competition between small capitals, companies would be eliminated from the competition the moment they gave up on profits, whether short-term or long-term. As a result, companies began to supply goods at the lowest possible prices by using their resources as efficiently as possible to survive in the fierce competition. This means that the pursuit of corporate profits has ultimately increased the profits of society as a whole. At this stage, the purpose of the company was focused on pursuing the interests of capitalists, as the owner of the company was also the manager.
However, as the size of the company gradually grew and management activities became more complex, managers with professional management skills became necessary. As a result, the separation of ownership and management increased management efficiency, but at the same time, companies began to experience conflicts between short-term and long-term interests. This is because professional managers, who are entrusted with management as shareholders’ representatives, tend to focus on short-term profits rather than the long-term prospects of the company and try to show off their management skills. Shareholders sought to maximize their own profits as well as the long-term profits of the company by monitoring the managers’ inefficient management activities.
In modern times, this management complexity has increased, and it has become common for companies to pursue a pluralistic purpose that includes not only economic benefits but also social benefits. This reflects the fact that modern society has changed from a monolithic power to a pluralistic society composed of multiple stakeholders. In particular, today’s companies must simultaneously consider the demands of various interest groups, including labor unions, consumer groups, environmental groups, local communities, and governments. The influence of these stakeholders on corporate activities is growing, and if companies ignore their demands, it may be difficult for them to grow and survive in the long term.
In order for a company to survive and develop in the long term as a member of such a pluralistic society, it must not only maximize shareholder value, but also satisfy the needs and expectations of various interest groups. In this process, companies must fulfill their social responsibilities and pursue long-term profits by realizing sustainable management. Only then can the long-term interests of companies be guaranteed, and through this, the interests of society as a whole can be promoted.
