It’s not about profit, it’s about impact

January 12, 2012

It’s impossible to consider the economic and financial events of the past few years and not conclude that the business world has lost its way. Many people have cynically used the crisis to push their pre-existing agenda. The left has gleefully argued that capitalism is dead or that it never really worked. The right has argued that the crisis proves we have to reduce regulation even more. But I think we need to think about what’s going on in a very different way. Yes, capitalism is not a perfect system. Like any human invention it will sometimes go haywire. And yes, sometimes regulation should be eliminated. But all of those arguments presuppose that we are asking the right questions and thinking about events in the right way. And I don’t think we have been.

I think business has lost its way – starting with its self-conception as an institution.

In the olden days (I always wanted to say that) business owners clearly understood that their businesses were social institutions. That is, that they were part of the social fabric. It was impossible not to see this because business used to be a local phenomenon. The butcher knew his customers. He knew what was going on in their lives. He knew the owners of the other businesses. He went to church with them. Their kids played together. He clearly felt the connection between anything that went on in the town and the rise and fall of his own business. Business owners understood the system and their role in it. If a businessman cheated a customer or mistreated an employee, he was cheating or mistreating his neighbor. If he polluted, he was ruining the water that he and his children drank – literally.

I’m not suggesting that businessmen were all righteous and that all business was conducted with grace and nobility. Clearly that is untrue. But I am arguing that businesspeople conceived of business as a social phenomenon and institution. Sometimes it served the community, sometimes it harmed the community. But nobody had any doubt that it was of the community – that what a business did affected (and effected) the community and vice versa.

In the march towards mass global corporations, business lost sight of its connection to people and society and therefore stopped self-conceiving as a social institution inextricably tied to people and communities. Without real tangible immediate connections to people and society, businesspeople were left with nothing to ground their efforts but abstract concepts. It was probably inevitable that as business yanked up the anchor that tied it to actual people and a local community, that it focused on money as its foundational concept. Money is inherently abstract. We often don’t even see our money anymore – we pay for products, we pay bills, we move money from account to account without ever actually touching money. Money allows business to measure its contribution in units that have nothing to do with people. (Sure, businesses also measure customer service. But even those measurements are done from afar – very afar – and feel very sterile and clinical.) Finally, money is fungible. It is easily moved around the world – it neither knows nor cares who touches it and for what purpose.

Today, (big) business is done under the theory of shareholder value. Business has decided that its purpose is to make money for “investors.” Not people mind you but nameless faceless entities called “investors.” This is about as abstract and soulless as you can get. Business today no longer self-conceives as a social institution. It is something else. It floats above people and society and even nationality. And it feels no accountability to people or society or nations. So it doesn’t surprise me that we’ve found ourselves in a crisis. When business readily lays people off to make its number, when it devotes itself to uninspiring products rather than taking risks to change the world for the better, when it skimps on service to save a nickel, when it puts money above all else, ultimately it will be rejected by society.

Business may prefer to conceive of itself as global, unanchored and unaccountable but the world is not obligated to agree. The fact is that business still is a social institution insofar as its employees, suppliers, partners, customers and even investors are human beings who exist in society. It seems to me that business has gone too far. It has attempted to remove itself too much from society and now society is fighting back.

I think it is a time for a new self-conception for business. Business should not just be about financial profit. It should be about impact. And there are many forms of impact. Yes, financial profit is one of them. Helping investors make money is worthwhile. But so is employing people. So is maintaining communities and even helping them grow. So is contributing to local and national discourse on issues that matter. And so on. These are ends in and of themselves. And they should not be pursued only when they are accretive to the bottom line. They should be pursued even when they dilute the bottom line. Being decent and human is not a luxury to be pursued only when net income and earnings per share meet Wall Street expectations. They are what is important. Financial profit is a means towards those ends, not vice versa.

I’m not arguing that business should think of itself as not for profit. I’m all for profit. But I’m arguing for placing profit in its place. Understanding that it is but one way of having an impact on the world and that sometimes lowering EPS so that you don’t make some kid’s daddy and mommy poor is exactly the right thing to do. Wall Street should not have the right of first refusal.

This new self-conception can allow business to feel much more comfortable about innovating, about investing in people and communities, about doing interesting valuable work that matters to people not just to balance sheets and income statements.

Isn’t that the work you’d like to do?

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