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What are You in Business For?

Profit vs. Purpose

· Entrepreneurship

The declining levels of trust in both government and business is a call for both to cure a generalized amnesia with respect to the purpose of business. Business is part of society, not its enemy. The business of business is about contributing to economic development and growth by maximizing value for all stakeholders, not about sacrificing the Common Good to the pursuit of maximized individual profit.

This is not to say that companies should pick up the slack in government roll-backs by serving a social purpose. But the purpose of business is not to achieve short-term shareholder payoffs in pursuit of maximum personal profit by using one’s economic muscle to gain political influence and get the best possible deal to the detriment of the Common Good.

The purpose of business is to achieve profit through an efficient use of resources in a way that delivers financial performance while adding value to society through positive contributions that improve the Common Good.

Visionary companies like Boeing, Merck or Citicorp were created in pursuit of a cluster of objectives, of which making money was only one and not necessarily the primary one. Jim Collins and Jerry Porras, in their book Built to Last (1994), describe the successful habits of visionary companies. Built on a reputation for integrity, the business ideology of visionary companies went beyond the simple pursuit of profits. They sought profit, of course, because without profit a company ceases to exist. But they were equally guided core values and a sense of purpose beyond profit.

Boeing created a commercially successful aircraft company through love of planes. Merck was inspired by advances in medical science and pursued medicine in service of humanity through the responsible application of chemistry. Citicorp sought to help the middle class access retail/consumer credit. Maximizing shareholder wealth and profit maximization was not their driving force or primary objective of doing business.

Unfortunately, they all strayed off the path guided by their original core values and principles. Like many other big corporations, they fell victims to profit-seeking through shareholder value maximization, in detriment of the Common Good they were born to serve. Some individuals made huge sums of money but the companies themselves ultimately lost money and reputation.

There’s a reason why Jack Welch, the CEO of GE, said that “Shareholder value is the dumbest idea in the world”. Because the job of a business leader and his/her team, be it a big corporation, a small family business or a one-person micro-enterprise, is “to deliver to commitments in the short term while investing in the long term health of the business” ensuring all stakeholders – employees, customers, communities and shareholders – will benefit, because successful companies give back.

In other words, the route to profit is an oblique one. As John Kay, in his book Obliquity (2011) explains, you don’t achieve business success by following a direct path to materialistic profits. The most successful business people are not the ones who pursue wealth and focus obsessively about profit and the bottom line.

The most successful business people are those who achieve their goals indirectly through a professed love for their business. They have the ability to create shared benefit through a gradual process of risk taking and discovery that allows them to use revenues and capital to produce customer satisfaction, reward capital providers and generate value for the Common Good. They “do something” that counts rather than just simply pursue the money they can make.

As this New Year begins, amidst a sense that our system as a whole is no longer working as it should, business owners must decide whether they will sit on the sidelines thinking of their own survival, or engage fully in restoring the full value of business by considering their role in society as ethical trustees who pursue profit with a purpose in order to create and deliver shared value.

What we do in and with our business should be a guide for what we do in society. Make your New Year’s business resolution to practice business as it should be: meaningfully impactful for good.

Astrid Ruiz Thierry, Principal, UpBoost LLC

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