This blog post explores why companies should consider long-term profits and social responsibility over short-term gains.
The capitalist economic system maximally guarantees the human desire to pursue profit. Companies, born from the purpose of profit-seeking, play a central role in the capitalist system as the primary agents of production. Profit, therefore, serves as the motivation driving entrepreneurs to start businesses.
Profit can be short-term, realized immediately, or long-term, realized continuously over an extended period. For a company to survive and grow long-term, pursuing long-term profit is more important than short-term profit. Indeed, when maximizing short-term profits conflicts with maximizing long-term profits, companies sometimes boldly abandon short-term gains. Consider the case of a dentist who recommends brushing three times a day. If everyone followed this advice, people’s dental health would improve, reducing the dentist’s short-term profits. However, since many people would preserve their teeth for longer, the dentist would secure long-term customers. Conversely, if people brush less frequently, short-term profits might increase, but long-term profits would decrease as more people require dentures.
In early capitalism, businesses didn’t need to distinguish between short-term and long-term profits. In a state of free competition among small capitalists, abandoning profits—whether short-term or long-term—meant immediate elimination from the competition. Consequently, to survive fierce competition, businesses maximized the efficient use of available resources to supply goods at the lowest possible price. This means that the pursuit of corporate profit ultimately enhanced the interests of society as a whole. At this stage, since the owner of the company was also the manager, the company’s purpose was focused on pursuing the capitalist’s profit.
However, as companies gradually grew in size and management activities became more complex, managers with specialized management skills became necessary. Consequently, ownership and management were separated, increasing management efficiency. Simultaneously, however, companies began to experience conflicts between short-term and long-term profits. This is because professional managers, entrusted with management as agents of shareholders, tend to prioritize short-term profits over the company’s long-term outlook to demonstrate their managerial prowess. Shareholders sought to maximize not only their own interests but also the company’s long-term benefits by monitoring such inefficient managerial activities.
In modern times, this managerial complexity has intensified, and it has become commonplace for companies to pursue pluralistic objectives encompassing not just economic gains but also social benefits. This reflects how modern society has transformed into a pluralistic society composed of multiple stakeholders rather than a single authority. In particular, today’s companies must simultaneously consider the demands of diverse interest groups such as labor unions, consumer groups, environmental organizations, local communities, and governments. The influence these stakeholders exert on corporate activities is steadily increasing, and companies risk long-term growth and survival if they ignore these demands.
For a company to survive and thrive long-term as a member of this pluralistic society, it must not only maximize shareholder value but also satisfy the demands and expectations of diverse stakeholder groups. In this process, the company must pursue long-term benefits by fulfilling its social responsibilities and achieving sustainable management. Only then can the company’s long-term interests be secured, thereby also enhancing the interests of society as a whole.
