Pressing the reset button on Business

As I’ve mentioned before, I just don’t buy the fallacy that profit is the sole driving force of great businesses.  If you are a business owner (like I am), then it’s easy to understand why profit is such a motivation; profitable companies frequently equate to wealthy owners (though they don’t have to).  In my own case I (and my fellow owners) don’t rip the heart out of the business with huge dividends, instead we use profits to drive growth and reinvest in the business.

The concept of profit focused businesses is ultimately a selfish one.  A drive to profit at all costs devalues investment, growth, job creation and CSR for the sake of enrichment.  It’s also a view that ultimately derives from the common belief that people are inherently selfish.  I don’t buy that either, it’s a flawed projection of what Darwin was saying, rather than a substantive fact.  In my travels around the world I have spent time with literally thousands of people from numerous cultures, and I just can’t subscribe to such a view.  In my own experience, most of the people I meet are a complex mixture of selfish and selfless desires.

Gordon Gecko got it wrong –

“The point is, ladies and gentleman, that greed – for lack of a better word – is good.
Greed works.
Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.
Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind.
And greed – you mark my words – will not only save Teldar Paper, but that other malfunctioning corporation called the USA.”

In fact, in his book “The Age of Empathy: Nature’s Lessons for a Kinder Society “, Frans de Waal (the dutch primatologist and ethologist) debunked the belief that humans are inherently selfish, demonstrating selfless traits in other species.  I particularly like the following quote –

“The possibility that empathy resides in parts of the brain so ancient that we share them with rats should give pause to anyone comparing politicians with those poor, underestimated creatures.”

He also alludes to the admirable quality of empathy when he talks about my favourite subject (dogs) –

“I’ve argued that many of what philosophers call moral sentiments can be seen in other species. In chimpanzees and other animals, you see examples of sympathy, empathy, reciprocity, a willingness to follow social rules. Dogs are a good example of a species that have and obey social rules; that’s why we like them so much, even though they’re large carnivores.”

If one can accept people can rise above selfishness, surely it is a small step to believe that business can too.  And if we admire animals for morality, and we clearly admire people for the same traits, then why do we not judge businesses – the ultimate endeavour of our collective efforts – in exactly the same way.  Surely the last measure of a business should be its level of self-interest?

Which is why we need to rethink public companies.  For too long the role of the collective ‘shareholder’ has been an obsession over profitability.  I’m somewhat ambivalent to the recent government consultation on executive pay, which aims to hand yet more control to the shareholder masses.  On the one hand it helps prevent executives seeing businesses as a personal bank, to be leached for their own gain, on the other it reinforces the idea that the role of a shareholder is to stay out of the way unless it comes to issues regarding profitability.

Would that it were possible to come up with a concept where shareholders were rewarded based on their level of impact within an investment.  Shareholders, as a general collective, are focused purely on the return on their investment. I’m sure there are individual shareholders who would disagree – that take interest in the ethical impact of their investments, and indeed their are companies that offer ethical investment opportunities – but as a collective whole the evidence is pretty damning.

Jack Welch, former CEO of General Electric, gave a speech that launched the concept of shareholder value.  To quote wikipedia –

On August 12, 1981, Jack Welch made a speech at The Pierre in New York City called ‘Growing fast in a slow-growth economy’.  This is often acknowledged as the “dawn” of the obsession with shareholder value. Welch’s stated aim was to be the biggest or second biggest market player, and to return maximum value to stockholders.

In March 2009, Welch criticized parts of the application of this concept, calling a focus on shareholder quarterly profit and share price gains “the dumbest idea in the world”.  Welch then elaborated on this, claiming that the quotes were taken out of context.

In reality, the legal premise of a publicly traded company is to maximise profits, in such a context public traded companies should not be deserving of our highest respect.

Does that mean I’m anti-profit?  Far from it!  In fact the danger of such polarising articles is that they can state one side of a coin too vehemently.  In reality profit is a necessity for thriving business, it is a key component of stability and growth.  In that context, profit is vital.  But it should never be the sole measure of a company any more than the ability to breathe is the true measure of a man.

We should aim higher, and we should look long and hard at how we judge companies.