20 May #017 – Business As Usual Problems- “Profit” Problems
Profit is not a problem, just like money is not the root of all evil. In fact, profit is necessary for a business operating in a market economy–without it you don’t have a sustainable organization or access to financial capital. But (and it is a big “but”), Profit as Purpose is a BIG problem of business as usual, just like the love of money is the root of all evil. At Integrous, we believe Profit as Purpose creates three key problems that contribute to the brokenness of business as usual.
In considering the problems created by Profit as Purpose, three books have been very helpful to our thinking:
- Why Business Matters to God by Jeff Van Duzer
- Completing Capitalism by Bruno Roche and Jay Jakub
- For Goodness Sake by Chris Houston
Problem #1: Profit as Purpose ignores other types of capital critical to business
- There is a truism attributed to John Hayes, former Chief Marketing Officer of American Express, “We tend to overvalue the things we can measure, and undervalue the things we cannot.”
- In their book Completing Capitalism, the authors identify 4 types of capital needed for a business: Natural, Human, Social and Financial. They argue that “business as usual” has been to focus only on Financial capital and largely ignore management of the other key components. In part, this is historical going back to Milton Friedman at a time when financial capital was scarce. In part, it is because we only manage to what we can measure, and business hasn’t had a good way to measure Natural, Human and Social capital usage. As a result, these other forms of capital have been mismanaged through lack of management.
- In his book For Goodness Sake, Chris Houston points out that focusing on only one variable in a complex system ignores Panarchy–a natural law governing complex systems. Panarchy means that single variable optimization in a complex system eventually destabilizes the whole system, introducing an unpredictable entropy.
- These observations may help explain increasing protests against capitalism, the rise of support for socialism and the shift back toward a stakeholder model.
Problem #2: Profit as Purpose works against Shalom
- In his book Why Business Matters to God, Jeff Van Duzer argues that a profit focus works against Shalom. We agree.
- At Integrous, we define Shalom as “an environment in which truth, beauty and goodness are valued and people and institutional cultures flourish by doing what God designed them to do in the way God designed them to do it–assisting in God’s restorative plan for His Kingdom by adding to its beauty.“
- When profitability is the key driver for a business, increasing production and minimizing costs become priorities. Priorities of increasing production while minimizing costs creates pressure to exploit people.
Problem #3: Profit as Purpose devalues human dignity
- Again drawing on Van Duzer, the pursuit of profit as the primary purpose of a business can lead to several de-humanizing practices.
- There is pressure to overpay senior management at the expense of others.
- There is pressure to take excess profit at the expense of weaker parties in the value chain (e.g., suppliers, distributors and customers). Interestingly, in Completing Capitalism, the authors describe how the Mars Corporation (their employer) did a study to ensure that Mars was not extracting an unfair amount of profit any stage of the value chain, thereby weakening the chain. This resulted in the development of an entirely new business model–the Economics of Mutuality (a very Biblical principle!).
- When profit is the primary end of a business, people become a means–tools of production.
- Managing a tool of production involves trying to use it more efficiently. That means maximizing its productivity and minimizing its cost.
- Managing people efficiently as a tool of production means pushing them to be more productive while compensating them only as much as is necessary to prevent costly attrition and ensure satisfactory production, just as one would manage the supply of a key material input.
- Managing people efficiently as a tool of production means eliminating jobs when unnecessary for maximizing profitability.
Market forces are not necessarily aligned with God's kingdom values. There may be times when . . . the more successful business (at least measured against the scale of what God would want the business to be) might be the less profitable one. (Jeff Van Duzer)
If profit is necessary to a business operating in a market economy (and it is), but Profit as Purpose is perhaps the most important factor leading to the brokenness of business as usual (and it is), what is the right role of profit? Can it be “a” purpose? What about a business that says “We have several purposes, and profit is just one“? We would point to Matthew 6:24 “No one can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money”. At the end of the day, there can only be one primary “WHY” for the organization that will win out–other “purposes” get reduced to being “means” or “strategies”. What is yours?
In talking about how a business functions within a market economy, Van Duzer makes an important observation: “Perhaps the best that can be said is that the market system reflects, in part, God’s concession to a fallen humanity. It is a system that helps to preserve order through mutual cooperation without central coordination. . . . It was not, however, God’s original plan for humanity. It, like all other institutions, is fallen.”
SPOILER ALERT: In the area of purpose as well as in the area of identity, a key message of in the RENEW step of Integriosity® is to “Keep First Things First“–be intentional about your primary WHY and your primary WHO. Greed is Not the Creed and You Are Not What You Do.
PERSONAL FOOTNOTE (from PM): Some people are advocating the “B-Corp” model as a way to put profit in its proper place and advance social purposes for companies. I even read one commentator suggest recently that conversion to a “B-Corp” should be a condition to getting any government relief payments. The B-Corp model (“benefit corporation”) requires a company to articulate a social purpose it will pursue along with profit and then subjects its pursuit of the social purpose to government accountability and even shareholder lawsuits. There is even an organization that, for a fee (and at the expense of additional reporting), will “certify” a B-Corp. The problem with the B-Corp model is (at least) three-fold. First, it tries to create a “two-masters” model, which doesn’t work. Second, in an effort to ensure that the social purpose is not ignored, it “motivates” through regulation and fear, which is unhealthy. Third, and most importantly, it sends the message to regular businesses that they can just pursue Profit as Purpose (in trying to make their case, some proponents of B-Corps go so far as to argue, incorrectly, that regular businesses are legally required to maximize profit). Integriosity is about changing the heart of an organization. A B-Corp structure may be useful to “legalize” the changed heart of an organization, but a B-Corp structure doesn’t change an organization’s heart and isn’t necessary for a business with a changed heart.