The business of business is …

20/04/2011 § 3 Comments

“It is in exchanging the gifts of the earth that you shall find abundance and be satisfied. Yet unless the exchange be in love and kindly justice it will but lead some to greed and others to hunger”. Kahlil Gibran.

Following on from my previous post on emptiness, I took a break from posting a blog entry last week, while on a family holiday in Germany, staying with Dasha’s parents. I haven’t done too much work while away but I did have a phone call with someone that got me thinking.

The question was to do with the common practice in business to seek to justify any decision on the basis of a cost/benefit analysis. “If it doesn’t make sufficient profit,” they say, “we won’t do it.” This often seems a massive obstacle to the realisation of truly sustainable business, since it excludes so much that is important in life.

To me it is closely related to the whole purpose of being in business in the first place. When people say that the purpose of a business is to make money, it is the same as saying that a business has no purpose.  Making money is what you say you do when you don’t know why you are doing what you are doing.

Yet there is nothing wrong with making money. And indeed if you pay no attention at all to whether your business makes money or not, you are sooner or later likely to run out of it and go out of business.

Maybe we need to distinguish between making a business case for something i.e. justifying the cost of something to a business, versus prioritising shareholder value. Whatever business you work for (an Oxfam shop, the Eden Project, BP or Tescos) decisions need to be made about how you allocate resources. When running a business, there will always be costs that don’t immediately contribute to bringing in income, but that nevertheless contribute to strengthening the business in some way. The trick as a business person is to differentiate between those costs which don’t strengthen the business (a lot of sponsorship deals fall into this category, for example) and those that do. Even business philanthropy must contribute to the business as a whole, otherwise the business shouldn’t be doing it.

It is a surprisingly small step for most business people to go from “Everything must have a business case” to “The purpose of a business is to maximise shareholder value”. A small step but a massive one.

It is such a small step that it happens almost by accident. I believe nearly all businesses start with some meaningful purpose – it takes a lot of energy to start a business and that energy often comes from doing something that has meaning. Merck the drugs company for example was founded with the aim of healing the sick. As the business grows, new people join and the message gets simplified – staff are told to focus on serving customers, managing resources and making profit. Gradually the original purpose gets lost. Rather than have no meaning (without any meaning, people know intuitively the business would die) people adopt a meaning – pursue shareholder value.  This seems logical because shareholders sit at the top of the corporate hierarchy – they can fire the board, the board can fire the senior managers, the senior managers can fire the junior managers and so on. The remorseless logic of the limited company structure encourages staff to focus on shareholder value above everything else.

At the same time the step is so large that it can completely distort the culture and behaviour of the business, allowing people within the business to justify all sorts of wicked behaviour in service to shareholders, rather than having to justify how it serves any more complex purpose. Drug companies such as Merck now seem far more interested in pushing drugs than healing the sick.

I am fascinated with social enterprises (what I call business with a purpose) because they are consciously seeking to hold onto an inspiring and meaningful purpose while they must continue to make a business case for everything they do.  This involves weighing up monetary and non-monetary matters or, as someone put it to me once, mixing “value” with “values”.

Actually we make these sort of decisions every day in our private lives – where do I go on holiday, can I afford that book, that car, that flat, and so on. By the way, my theory is that making such decisions well requires healthy intuition, which women are in general better at than men.

Before the conversation with my friend, I hadn’t really thought about this before. Never having run my own business, I have been able to stand at one side and be critical of those who emphasize profit in their daily business activities, viewing them as no better than Scrooge or Shylock. Yet I see more clearly now that there is absolutely nothing wrong with making every day business decisions about how to spend your money and other resources in an efficient way. We could do with a lot more of it in our public services. The problem comes when this starts to dominate the conversations at work, to the extent that people forget what they have come to work for.

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