Wealth creation means the ability to take risk sucessfully , but what are the price of those risks?.Benefits (returns),are the first measure of risks´price . The higher the price(risk) the higher the return .That is Tobin analysis of the relationship between risk and return for an individual investment. A different thing is to manage risks on behalf of others people´s interest, like firms do.
Milton Friedman said in the seventies that the only justification for business is private profit ,which means that firms should ruled out any sense of social compromise , other than with shareholders. From this point of view ,risks are justified upon the ground of seeking short run profit, thus it does not matter the risk price ,whether there is a reasonable chance to get the highest return ,measured at the end of the year accounting balance and dividends . Following this behavior, it is usual to find opposite interest between management and owner. This is so ,because in the process managers get a pay for the results they get, the better the result the better the pay. Therefore ,short run seeking profits decisions, are vulnerable to conflicting interest, more than long run strategies, because in the short run ,CEOS do not have limits other than the expected positive result .If they fail, their retirement bonus will fix it all.
What about a long run strategy?.Any strategy has different and particular support upon which stand,(market share, increase in sales, segmentation, innovations and the like),but no matter its justification, it allow to define a set of values complementary and sometime necessary, to the proper implementation of those strategies .In the long run, social values such as compromise with community , employees and markets stability, match quite well with the profit seeking strategy. This is what empirical evidence shows since the nineties .In other words, Corporate social responsibility fit better than exclusively short run result ,the right combination of management values other than simply to earn money. It follow that the best way to match different interest within firms ,is based on a long run shared view of what each business is about. Profits seeking by itself ,do not guarantee neither stable and sustainable firms growth.-
