Between Profit and Principle: The Moral Restructuring Paradox

Insights by Shaun Barnes

For commercial entities in modern-day South Africa, navigating the delicate balance between financial sustainability and ethical integrity feels like managing a paradox. On one hand, companies face unyielding pressure to secure financial health by increasing profits and lowering costs, especially in a post-pandemic world fraught with instability and low growth rates. On the other hand, there's a growing moral imperative to uphold ethical responsibilities towards employees and society at large.

Is this uniquely a South African problem, or are we part of a greater global trend?

To understand this, one must distinguish between shareholders and stakeholders in a business. As defined by Investopedia, shareholders are individuals who own part of a company through shares of stock, while stakeholders have an interest in a company's performance for reasons beyond stock appreciation.

Stakeholders vs. Shareholders

Stakeholders include both internal stakeholders (employees, shareholders, executives) and external stakeholders (customers, suppliers, community members). Unlike shareholders, stakeholders are deeply impacted by a company's decisions and often have long-term relationships with it. Shareholders can sell their stock and leave, while stakeholders cannot easily disengage from the company's influence.

As Allison Hendricks of Simply Stakeholders puts it, stakeholders are impacted differently. Shareholders can walk away when things go south, but stakeholders — especially employees, vendors, and customers — cannot escape the company's influence so easily. Stakeholders are therefore key players in shaping the future of businesses today.

Stakeholderism vs. Shareholderism

This shift toward stakeholderism — the belief that companies should focus on all stakeholders, not just shareholders — has generated much debate. As noted by Harvard Law School, some argue that stakeholderism is merely an “enlightened form of shareholderism,” where promoting stakeholder interests helps boost long-term shareholder value.

However, companies are increasingly held to higher standards than those imposed by short-term financial gains. A 2018 paper by The British Academy titled “Reforming Business for the 21st Century” highlighted three essential principles for modern corporations:

1. Well-defined and aligned purposes – Profit is a product of corporate purpose, not the sole aim.
2. Commitment to trustworthiness – Trust forms the foundation of corporate relationships with stakeholders.
3. Embedding an enabling culture – Clear values embedded in company culture are essential for trust.

This has led to the rise of the “Purposeful Corporation”, which seeks to align business goals with societal impact. In South Africa, where inequality and unemployment are among the highest globally, this shift toward responsible capitalism is crucial.

Moral Restructuring in the South African Context

In South Africa, unique challenges further complicate corporate governance. With sky-high unemployment rates and deeply entrenched societal inequalities, businesses face tough questions:

• How can we ensure commercial survival while considering the social consequences of retrenchments?
• What must the balance between ethical and moral business practices and profit be?
• Can we restructure in a way that honours both financial sustainability and stakeholder well-being?

This is where moral restructuring comes into play, offering a solution that balances financial realities with ethical responsibilities.

Traditional vs. Optimal Restructuring

Traditional restructuring often focuses solely on cutting costs, usually through retrenchments, to increase profits. However, optimal restructuring focuses on improving the business through resource optimisation, upskilling employees, and fostering agility. It considers both the financial health of the organisation and the well-being of its stakeholders.

This approach challenges leaders to exhaust all other avenues before considering downsizing. By prioritising creativity and innovation, businesses can find solutions that sustain both profits and people.

A Framework for Moral Restructuring

When financial distress necessitates tough decisions, moral restructuring provides a framework for making these choices with integrity. It emphasises transparency, empathy, and dialogue, ensuring that the human impact of retrenchments is not ignored.

By fostering trust and engaging stakeholders, businesses can navigate restructuring processes in a way that preserves relationships and maintains their reputation. Moral restructuring is not just an idealistic concept but a practical approach rooted in Environmental, Social, and Governance (ESG) principles.

Conclusion

In a world where stakeholder interests are becoming as important as shareholder returns, companies must rethink traditional approaches to restructuring. By adopting moral restructuring, businesses can achieve financial success while honouring their ethical obligations, fostering trust, and contributing to a more sustainable future.

Shaun Barnes, Executive Director at 21st Century

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About 21st Century:

21st Century is one of Africa’s largest Business and People Solutions consultancies, offering bespoke services in remuneration, organisational design, change management, people & talent. With a team of over 60 specialists, 21st Century serves 1700+ clients, including non-profits, government entities, and leading corporations. For more information, visit www.21century.co.za or contact Craig Raath, Executive Director at This email address is being protected from spambots. You need JavaScript enabled to view it..

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