Well, should it? Or to put it differently, the purpose of profit may not be what you think.
Colin Kaepernick has dragged the NFL into the daily media narrative by refusing to stand for the national anthem. Tony Abbott et al have accused the NRL of dragging politics into sport by having Macklemore singing ‘Same Love’ at the Grand Final.
What role should business play in socio-political issues?
To answer that question, we have to ask what the purpose of business is. The simple response is that a business must create a profit for its shareholders. But, there is a catch:
The purpose of profit is not what you think.
Most businesses make 5%-10% profit, to distributed to its shareholders. And the other 95% of its money recycles effectively through the organisation to allow it to keep going.
That is, if the organisation spends 95% of its revenue on sustaining the organisation (with only 5%) leaving the organisation more or less permanently, in practice a business exists to feed its employees. (Even if half of that is spent as COGS, it is still an act of recycling funds in order to keep going.)
Now before you think I have gone all Marxist, just hear me out:
Most people believe that we have come a long way since the robber barons of old filled medieval factories with indentured labourers; what with fixed salaries, executive perquisites, bonus incentives, and not to mention a panoply of ‘programs’ for the people like:
- employee recognition
- workplace improvement
- or whatever #hashtag there is to celebrate.
On the negative side, you get people abusing their privileges:
- stealing office stationery
- accepting kick-backs
- taking ‘sickies’
- or more insidiously, postponing (or timing) capex or investment decisions to boost short-term performance so that the results ‘on your watch’ look good
It seems to me that it is a commonly accepted fact that people know and act as if the company exists for them and they may feel they are not getting what they deserve. What we have on display in most organisations is the economic reality that the modern organisation exists primarily to sustain the business, and that the practical reality that people in the business act accordingly.
And that might well be the kiss of death.This may seem to be a counter-intuitive position, so please bear with me.
Whilst it is true that almost all funds are cycled into the business in order to sustain the business and its people, this should not be the objective of the organisation.
When you start focussing on the system of business for the sake of sustaining the system, paradoxically you diminish the sustainability of the business. And since all businesses fail (eventually) it seems as if no one is immune to this distraction.
When celebration of the employee and the culture becomes the ‘purpose’, the organisation is doomed.
I am not suggesting that employees are not important and that they should be treated poorly.
But when anything but shareholder returns becomes primary, it is a sure indication that an organisation has lost/ is losing focus. (I am not saying that employee needs are not important; quite the opposite. They ARE, but the question is how do you meet those needs sustainably.)
That 5% return that finds its way to the shareholder, whilst only a small portion of the total, is the ONLY portion of funds that are external. That 5% is the objective, ‘north star’ by which you can navigate BECAUSE it is outside the system.
When an organisation starts making decisions and taking actions that based on what is best for the system by referencing what is IN the system, it become self-referential. You cannot make good (objective) decisions by being self-referential.
You don’t achieve your primary objective by focussing on your secondary objectives.
Your SatNav can’t navigate your Mercedes by referencing the star on the bonnet, because it is part of your Mercedes - it needs an external point of reference.
I would suggest it is useful to examine many corporate activities in the light of this perspective. I am not advocating a return to indentured labour, and I am not saying ALL non-core activities and initiatives are automatically inappropriate.
But I would say a healthy, focussed organisation must thoroughly examine itself and the activities that are not directly related to driving shareholder returns. (And I mean directly - because if you draw a long enough bow, even having an office cat can be said to link to shareholder returns.)
I am not advocating for corporations to accept no responsibility for their actions and their role in society, but rather question some, now commonly accepted, corporate practices:
- Should it really be the responsibility of an organisation who is comprised of a diverse range of people (employees and shareholders) with a diverse range of beliefs, to dictate what its definition of (say) ‘wellness’ is?
- Should an organisation (via the Executive) really decide which political party to support - when half the employees (and shareholders) are likely to support the other party?
- Should the organisation decide which charity should be supported, or is it best to return the funds to the shareholders (or pay the employees more) and let them decide who they would like to support?
- At what stage does the organisation’s engineering of employee interactions and ‘change management’ become manipulation? And who decides where the line is?
It seems, if considered superficially, that there is always a justification to spend money (and it is easy to do if it is other people’s money) on some social/ employee initiatives (because of that 95%) but this would be an egregious error in judgement.
Organisations must obviously comply with the law. Organisations have a duty of care to ensure no one gets harassed or is put in harm's way, and that might well be the full extent of it if you want to err on the side of caution.
When you take your eye off the ball (shareholder returns) no matter how ‘noble’ the alternative seems, the result is inevitably a dropped ball. When that happens, there is nothing to share, and worse, no job to go to and no one gets to appreciate the poster in the canteen that proudly proclaims that ‘we put people first’ when the organisation ceases to exist.
As employees and executives, we have one job: to leave the organisation in a position that allows it to provide purpose and employment for future generations. That is, we put current and future employees first. BUT - we achieve that by not treating the company like our plaything, and by not expecting it to cater to our every whim, but instead ensure it stays true to the external objective of meeting customer needs and rewarding stakeholders.
Image courtesy: http://www.theloop.ca/