What's a business for?

 

“Markets rely on rules and laws, but those rules and laws in turn depend on truth and trust. Conceal truth or erode trust, and the game becomes so unreliable that no one will want to play. The markets will empty and share prices will collapse, as ordinary people find other places to put their money – into their houses, maybe, or under their beds. The great virtue of capitalism – that it provides a way for the savings of society to be used for the creation of wealth–will have been eroded… Trust, too, is fragile. Like a piece of china, once cracked it is never quite the same. And people’s trust in business, and those who lead it, is today cracking. To many, it seems that executives no longer run their companies for the benefit of consumers, or even of their … employees, but for their personal ambition and financial gain.”

Why would people want to make business or invest their money on an unreliable company? Why would they want to trust their capital to a leader’s company of dubious reputation and questionable work or personal ethics? Every day we are informed of new cases of fraud, bankruptcy, or CEOs escaping with their customer’s capitals and, in most cases, they never paid this money back. Moreover, why would we trust on someone whose sole motivation is to enrich him or herself instead of using profits to create wealth for their customers? Rules and laws are intended to keep an economy running and to create a trustable business culture and environment. However, when people notice that executives are only focused on personal interests and rewards, and they do not care about virtue or integrity, then economies face a huge problem. At this scenario, outside players get in the scene and profits go directly to foreign pockets.

“Reports that CEOs in America earn more than 400 times the wages of their lowest-paid workers make a mockery of Plato’s ideal, in what was, admittedly, a smaller and simpler world, that no person should be worth more than four times another. Why, some wonder, should business executives be rewarded so much better financially than those who serve society in all the other professions? The suspicion, right or wrong, that business takes care of itself before it cares for others only fuels the latent distrust.”

As we read along the article, companies should create an environment or culture where employees could provide feedback, ideas and opinions to improve its functioning and to address the consumers’ needs. They are better suitable to do it because they are at the frontline of the business, listening and trying to solve everyday problems and making their best efforts to fulfill the organization’s mission or purpose to exist.

“The purpose of a business, in other words, is not to make a profit, full stop. It is to make a profit so that the business can do something more or better. That “something”becomes the real justification for the business. Owners know this. Investors needn’t care. To many this will sound like quibbling with words. Not so. It is a moral issue. To mistake the means for the end is to be turned in on oneself, which Saint Augustine called one of the greatest sins. … ask about any organization,“If it did not exist, would we invent it?” “Only if it could do something better or more useful than anyone else” would have to be the answer, and profit would be the means to that larger end.”

Businesses exist for a greater reason more than making money. They exist to contribute something to the world. To provide a solution to a problem, to facilitate people’s lives, to solve challenges humankind face related to health, housing, clothing, nutrition, education, employment, and so on. Profits should be used to create more riches and use them to fulfill these purposes.

More corporate democracy and better corporate behavior will go a long way to improve the current business culture in the eyes of the public, but unless these changes are accompanied by a new vision of the purpose of business, they will be seen as mere palliatives… Dave Packard once said, “I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately – they make a contribution to society, a phrase which sounds trite but is fundamental.”

Thus, the number one reason for a business existence is to make a meaningful contribution to society. Nowadays we are all worried about climate change. Big companies are improving their production practices and work to obtain the certifications that guarantee it at the view of the public. One of them are the ISO standards, for instance. Besides, they are testing and improving packages, biodegradable ingredients, bottles made of recycled plastic, etc. Even though it is not widespread yet, it is, at least, the beginning of a change.

“The contribution ethic has always been a strong motivating force. To survive, even to prosper, is not enough. We hanker to leave a footprint in the sands of time, and if we can do that with the help and companionship of others, so much the better. We need to associate with a cause in order to give purpose to our lives. The pursuit of a cause does not have to be the prerogative of charities and the not-for-profit sector. Nor does a mission to improve the world make business into a social agency. By creating new products, spreading technology and raising productivity, enhancing quality and improving service, business has always been the active agent of progress. It helps make the good things of life available and affordable to ever more people… Business cannot always afford to be so generous to so many people, but doing good does not necessarily rule out making a reasonable profit. You can, for example, make money by serving the poor as well as the rich… companies make money, but the driving force is the need to serve neglected consumers. Profit often comes from progress. There are more such … business companies, but they remain the minority. Until and unless they become the norm, capitalism will continue to be seen as the rich man’s game, serving mainly itself and its agents.”

Businesses can contribute to the improvement of people’s lives by making commodities accessible and affordable to everyone, and not keep them available only to those in better economic positions. That does not mean that making a profit should be neglected; however, this should be the result of pursuing the mission of doing good to the world and not the main outcome, or the reason to create a company. At the sight of the public opinion, an organization that cares for their consumers and make proven efforts to create products following standards, laws, and rules, is more trustable than those who only focus on earnings. This will result in a positive reputation, and, at the end of the day, on the increasing of the business profits.

References

1. Handy, C. (2002). What's a Business For? Harvard Business Review, RO21 2C.