Reconsider the Raison dÉtre of Business
31 Jul 2020
In an ever-changing world, can the advice of forty-plus years ago still be relevant? I would suggest not. Unfortunately, despite the world around them changing, too many businesses have not evolved beyond a formula that has been in vogue since the 1970’s. Is it not time for business to align itself with reality and be relevant in the contemporary world?
 
too many businesses have not evolved beyond a formula that has been in vogue since the 1970
 
“Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”
 
These are the words of arguably the second most influential economist of all times (second to John Maynard Keynes), Milton Friedman, who won the Nobel Prize for Economics in 1976, and was the advisor to the likes of Ronald Reagan and Margaret Thatcher.
It was his advice that set the direction for a generation (or more) of politicians, economists, central bankers and business leaders. 
Guided by Friedman and his disciples and emboldened by the discrediting of Communism and the collapse of the Soviet Union, the western world was about to witness the rampant and unfettered rise of the free market economy.
 
In these heady times, the reason for a business to exist was clear – to maximise its profitability.
 
To salve their conscience, the free-market supporters contended that with the tide coming in i.e. increased profitability, all the boats would rise. In other, words everyone would be better off. Proponents of this spoke of ‘trickle-down economics’, the phenomenon whereby an increase in the company profits and the earnings of the rich would have a positive impact on all elements of society.
It was thus clear that, “the business of business is business.” Anything else was seen as an unwelcome distraction.
 
It was thus clear that, “the business of business is business.” Anything else was seen as an unwelcome distraction.
 
As Oliver James writes in his book, The Selfish Capitalist, businesses prioritised profit for shareholders and executives and became obsessed with financial engineering, which prevented innovation and reinvestment. Rather than being judged by their innovation and long-term growth, the principal arbiter of a company’s success became its share price, and rapid and hefty returns were demanded by investors. Increasingly, the businesses were perceived as commodities, no different from the goods and services they produced, to be bought and sold for the profit of executives and financial middlemen such as merchant bankers.
 
The new creed contended that tax was to be avoided if it could possibly be helped. Businesses were held to have no duty to the community and had no obligation to provide support for the poor and disadvantaged. It was up to rich individuals if they wanted to provide money through charitable donations for such things as education or health care for people in the wider society. 
 
And the result? 
 
Fast forward to the second decade of the new millennium and let’s take stock of what we have.
If we look round us, we will see:
  • A world in debt in which people are struggling to make ends meet. Unemployment is on the rise and life becomes more expensive every day.
  • The richest 1% of the world’s population owning as much wealth as the remaining 99%, with just 26 tycoons owning the same wealth as the 3.8 billion poorest citizens of the world.
  • Our planet is broken with climate change, ecological mayhem, biodiversity loss. A small minority consumes more than 75% of all the planet’s resources, and every minute, 41 hectares of trees are felled.
  • Waste is everywhere. There is a trash vortex trapped in the middle of the ocean, extending for twice the size of the US. We throw away enough stuff to fill a line of trucks from Cape Town to Nairobi every day.
  • Human beings have lost a sense of purpose. We simply repeat irrational routines every day and too many of us have lost the compass, which perhaps explains why more people die from suicides than wars or natural disasters combined, especially amongst the youth who have lacked confidence in the future. 
* Before COVID
 
Is it any wonder that in the minds of many, Capitalism is in crisis?
 
Is it any wonder that in the minds of many, Capitalism is in crisis?
 
As Alex Edmans cites in his recent book, Grow the Pie, the consensus among politicians, citizens and even executives themselves is that business just isn’t working for ordinary people.
 
There are serious concerns that businesses are using their power to exacerbate social problems, exploit colleagues and generate returns only for the elites. Rapidly increasing sections of the population feel excluded from the benefits of economic growth. Incomes of ordinary people have stagnated, while profits and executive pay have soared.
 
Whilst it is obviously unfair to blame ‘Business’ alone for the state of our world, it has no doubt played a role; and it is largely to business that we must look if things are to improve. There is a case to argue that now, more than ever before, business needs to recognise its responsibility to a broader society.
Is it not time for businesses to commit to generating profits only by creating value for society through the development of products that truly benefit customers, the addressing of societal challenges and by sharing the fruits more equitably?
 
Is it not time for businesses to commit to generating profits only by creating value for society
 
As Edmans indicates, when all members of an organisation work together, bound by a common purpose, and focused on the long-term, they create shared value that is to the benefit of everyone – shareholders, staff, customers, suppliers, the environment, and communities.
I would suggest that the successful businesses of the future will be those that position themselves as both profitable economic entities and important social institutions, using their resources to add value to society in general and to people’s lives individually.
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HOW GMM CAN HELP YOU
With experience gained from over 20 years of facilitating crucial conversations with senior leaders and their teams, we can help you:
  • Question and clarify the Purpose of your organisation – Why does it exist? What contribution does it make to society?
  • Consider your contribution to the Sustainability Agenda?
  • Balance the demand for growth/profitability and responsibility – doing well and doing good.
  • Create mechanisms for meaningful engagement with your people.

 

- Mark Campbell