Recognizing An Underlying Anti-Profit Bias

When Profit Meets Purpose.

We can see that Capitalism can be harnessed for a greater good, not a greater gain. Ralph Waldo Emerson sums this up well, saying, “Doing well is the result of doing good. That’s what Capitalism is all about.”

To get a bit deeper into this positive outlook on Capitalism check out Raj Sisodia’s Ted Talk Reimagining Capitalism with a Higher Consciousness. Now let’s get into it.

Millennials are part of a perfect storm that consists of a population of people entering and establishing themselves in the work force, people who are highly mobile and active, extremely capable, and deeply value- and purpose- driven. These values are a secret weapon to facing chronic social challenges and creating change through business. And while millennials may be bringing strong values to the table, our generation’s anti-profit bias is a huge obstacle facing our generation.

Earlier in the summer I was sent an article about this bias, in which the cover showed a young protestor welding a sign reading, “FUCK CAPITALISM”; it definitely hits home that there is a deep anger towards the capitalist society. I’ve experienced this anger in friends and colleagues, I experienced it throughout my high school years, and I experience often here at school in Michigan.

In a Forbes study where participants rated Fortune 500 companies in terms of how profitable they thought they were and how much they thought they engaged in bad business practices, such as operating at the expense of others with no concern for society, it was found that when, “Participants rated Fortune 500 companies in terms of how profitable they thought they were and how much they thought they engaged in bad business practices, such as operating at the expense of others with no concern for society. There was a clear pattern: the more profitable participants thought a company was, the more they assumed that it engaged in more bad business practices”

And while there is this ingrained profit bias in a large percentage of millennials, there is a lack of understanding of how capitalism is changing, because we are demanding it change. The biggest thing that we fail to recognize is basic macro-economics: that market forces operate on a “massive scale, in which for-profit companies competing in a free market with informed customers need to innovate, behave fairly and develop a good reputation in order to be profitable over the long term.” It’s on us to keep pushing our standards on companies, and in order to compound this effect, new companies need to start out at this standard in order to stay competitive with a millennial consumer base demanding these practices and values. And it’s awesome to see that companies and entrepreneurs are answering this demand. When we can shift the focus from fearing profit to shaping profit we are going to see change across the board of industries. The biggest roadblock on this mission is transitioning from the emphasis on a Friedman ideology of maximizing quarterly profits for shareholders and instead, maximize value for stakeholders. Similar rhetoric, yet very different meaning. Yes shareholders are stakeholders in a company, but so are the actors in a company’s supply chain as well as the natural capital they use for their product. The stakeholders of a company include the broader community they act within too, that goes beyond just their customer base. The Earth itself is a stakeholder. When we perceive companies acting within this kind of connected ecosystem we can allow for management, operations, strategy, etc. to innovate and find new ways to create value for these various stakeholders. Value is progress, values is capitalism. Value is what drives profits. That’s why capitalism works and has the power to innovate.

To go a little deeper into this idea check out Adam Goodman’s Ted Talk on Conscious Capitalism.

The quarterly profit trend has ingrained itself pretty quickly since Milton’s philosophy in the 70’s and created a lot of pressure since then. A lot of this pressure falls on CEO’s, especially of public companies. The companies and CEO’s that have excelled in managing this pressure have built their brand around prioritizing their mission and long term success while efficiently and effectively communicating that to shareholders, explaining value they create for various stakeholders.

Howard Schultz, CEO of Starbucks, stated his approach to this kind of pressure and how he’s built Starbucks to withstand.

Schultz believes his management team must make its employees proud of what the brand stands for, and that requires ongoing ‘deposits in the reservoir of goodwill of Starbucks coffee company.’ He also acknowledged that this philosophy does not always jibe perfectly with the quarterly reporting and the need to grow on a period-by period-basis required of a public company.
‘In order to be a great and enduring company, we have to play the long game,’ Schultz said. ‘We have to make long term-investments in the strategies of the company while consistently developing the kind of short-term victories quarter to quarter that demonstrate we’re meeting our responsibilities.’

Other CEOs share a similar philosophy. According to a Businessweek article, Jim Sinegal, the co-founder of publicly-held Costco, told The Container Store’s Tindell that brand-building and shareholder interests are not diametrically opposed — but reconciling them requires patience and performance. He advises:

Don’t run your business for [short-term investors]. He believes companies eventually get the shareholders they deserve. ‘We value our long-term shareholders. But we didn’t have them right away,’ says Sinegal. ‘We had to prove ourselves, and rightfully so. You have to produce.’

So yes, profit is important, it’s essential actually to any company’s success and ability to create value for it’s stakeholders. But a company does not operate to solely make a profit, it operates to serve a higher purpose. As more companies, shareholders, and investors are becoming locally and globally conscious, these new windows of value are becoming clearer. Now it’s up to our generation to harness capitalism and weave this ideology into business strategy and operations. To close the rift between making profits and value. That’s a vision to work towards.

BOOKS for further reading: Conscious Capitalism by Raj Sisodia and John Mackey

Citation
http://deniseleeyohn.com/great-brands-dont-chase-shareholders/