22 Apr #013 – Blue Pill Brokenness – Business As Usual – Profit as Purpose
At Integrous, we believe there are four key aspects of “business as usual” that lead to its brokenness, and the most important of these is “Profit as Purpose”–the idea that the primary or sole purpose of “business as usual” is the maximization of financial profit for the benefit of shareholders. This mindset, in turn, flows into several other aspects of “business as usual” that are crucial to understanding why workplaces are broken and workers are breaking.
Without getting into a history lesson about prevailing management theories, for many years a debate ensued between “shareholder primacy” and “stakeholder” models, with the stakeholder model being predominant until a famous article by Milton Friedman in 1970 in which he said “There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits.” The shareholder primacy model has been predominant for the last several decades. For an excellent history of the debate (as well as an analysis from a corporate law perspective), we recommend The Shareholder Value Myth by Lynn Stout. For an excellent economic analysis of the Friedman doctrine and its problems, we recommend Completing Capitalism by Bruno Roche and Jay Jakub.
In a nutshell, in the 1970’s the debate shifted in part because of frustration with management performance; that shift led to a move to align executive pay with shareholder value; and this, in turn, led to a massive increase in CEO compensation as well as an emphasis on short-term profit management. As discussed in the most recent post, in recent years there has been a movement back toward a stakeholder model in response to, among other things, vocal criticism of corporate profits, CEO wealth and employee dissatisfaction.
We believe several aspects of “business as usual” flow from “profit as purpose”. If maximization of profit is the “end” to which a business is managed, then:
- By definition, people can never be more than tools of production to be managed toward that end (“No one can serve two masters“, Matthew 6:24).
- People will be valued based on their perceived profit contribution, and value is likely to be based on short-term profit or stock value. Senior management will be perceived as more valuable, particularly by senior management.
- Decisions will be made mainly based on financial metrics, because they measure profit and they are easily measurable. This includes decisions as to:
- What products to offer and where they are made and sold.
- Raw material sourcing and use and environmental impact.
- Hiring, firing and compensation.
- Because an organization manages to its purpose, a key role of the organizational culture of the business will be to drive profit. Business culture can be designed (or will just emerge) to drive or inspire people to perform at higher levels and contribute more to profitability through mechanisms like bonuses/commissions/promotions and the fear of elimination or demotion.
Profits are fine, they enable the investment we need to produce value. But almost nothing benefits from being the only thing we seek, and the pursuit of profit at the expense of our humanity is too high a price to pay. (Seth Godin)
In future posts, we will dig into the problems created by “profit as purpose” and why it isn’t enough to add a social purpose (like a B-Corp), sprinkle a little faith, donate generously from profits, or try to treat people a bit better or pay them a bit more. Integriosity is about transforming the heart of an organization–its “end”–to be in alignment with Biblical priorities and principles and then aligning its culture to reflect and reinforce that new heart.
SPOILER ALERT: One of the key mind-shifts in the Renew stage of Integriosity is “Greed is Not the Creed“. Profit is good, but it needs to take its proper place as a means rather than the end. In the words of Hewlett Packard founder David Packard, “Profit is not the proper end and aim of management— it is what makes all of the proper ends and aims possible.”