Around the world today big business is in trouble with regulators and their customers for ‘not doing the right thing’ and being too focused on profit at all costs. This is not isolated to any one country or industry, and it’s not the first time we have been here.
Is this just part of being in business or are we missing something?
Active Knowledge Questions:
What do you believe is the role of business in society? Is it all about pushing the boundaries of profit as far as you can, or is there something else?
Where Are We Now?
In Australia, a ‘Royal commission into misconduct in the banking, superannuation and financial services industry’ is currently underway. The general theme of which is the industry has failed to put the customer first, has been interested solely in profits, and has had little regard for complying with regulations.
The Commission is set to run into early-2019 but that may well be extended given the evidence to date. The impact on the industry is – as you can guess – significant. Not only in terms of resources being dedicated to responding to the Commission’s enquiries (including senior executives appearing for examination before the Commission and its lawyers) but also the flow-on effect throughout the business. In these first few weeks, there has been both board chairs and CEOs forced to resigned, the likelihood of significant fines, the real possibility of criminal prosecutions, the talking-up of shareholder action against directors and, of course, the impact on share prices.
And, of course, we all saw Facebook founder Mark Zuckerberg appearing before Congress in the USA and calls for him to appear to answer questions in the UK and the European Union. Again, the impact on the individuals and the businesses involved are significant. The flow-on effects through increased regulation, possible fines, and other consequences have not yet even started to emerge.
There are many other big businesses facing similar trouble and likely many others who are keeping their heads down and hoping their number does not come up.
These are interesting times for the business community, but the real underlying question is, why are we even here? What has allowed business leaders to take their businesses into such troubled waters?
The Problem Is Profit-First
The answer as to why we have ended up where we are is pretty straightforward and staring us all in the face. However, we seem to be blinded to the fact that it is actually the wrong path and we should never have allowed ourselves to be led down it.
The preeminent motive of businesses in putting profit-first is the reason.
In business, motive is everything. If the right motive is not established and defended the business will never achieve the successes and impacts that are within its reach.
When it comes to business and motive, the greatest fallacy of our time is that businesses exist to profit (view video). And that their prime goal is, therefore, to maximise that profit for its owners each and every year. In business, for many, profit equals, and is, motive.
If you have any doubts about the strength of the mantra that ‘businesses exist to profit’, then simply look to our financial markets and media outlets to see what is the one result that is relentlessly pursued and reported on. Yes – profit… and then, more and more profit, each and every reporting quarter.
Making profit the motive for being in business is the least effective one that a leadership team can set for itself.
Profit is an outcome. It is one of the results of a business’s efforts to out-compete others in its chosen marketplace. But it can also be a catalyst – and not in a good way.
A profit-first motive seeds selfishness, self-interest, politics and short-termism. Making profit a motive for being in business literally saps the competitive strength from it.
And herein lies the fallacy because profit as a motive will deliver less profit for a business.
Profit as a primary motive principally goes unchallenged in most businesses. Therefore, many business leaders find themselves solving problems, fighting fires, and listening to everyone’s complaints day after day.
Businesses exist to compete. They exist to provide the greatest value they can to the community of customers they seek to serve. It is around this value that they compete. If they do this well then great profit is one of the outcomes.
Who Is To Blame?
Business leaders who find themselves sitting before commissions, Congress, parliaments and any other forms of oversight for their failure to put the customer first, being more interested in profits and having little regard for compliance with regulations, only have themselves to blame.
But not because they have done something wrong – well, yes they have – but really because they have allowed the voices of profit-first to override what is good business strategy.
They have allowed self-interest to override the purpose for which businesses actually exist in our society. That is the self-interest of shareholders, boards, colleagues, themselves and the finance industry generally. This includes all those who view ‘profit as king’ and always want more and more now, for themselves.
The other day I saw a shareholder representative expressing their disappointment in a company board, which had been caught up in an oversight review and was likely to be issued with significant fines and possibly irreparable damage to their brand.
The question I would ask is: Were you as a shareholder standing there, at the last reporting period, demanding that profits be lifted and dividends increased?’ Do you want more profits, and do you want them now? My guess is probably yes, and, therefore, you must accept part of the blame, as you are part of the profit-first voice.
The blame must be shared by all those who place their own self-interest and their desire for wealth ahead of all else.
Honestly, great businesses are built over decades and the value of those businesses grows over that time. Wealth is not made overnight, but we seem to have landed in a place in our business community, and society, where the expectation of more wealth every day is the norm. That drives many bad outcomes, and what we are seeing with profiteering by big business is really only the tip of the iceberg. The effect on people and our communities is much greater.
Who is to blame? Everyone chasing wealth for themselves, and the business leaders who have not found the courage to say no.
There Is A Better Path
A business exists to meet the needs of the community and their prime focus is to continually improve the value they deliver to that community. Profit is an important part of business, as without profit the business will not be sustainable. It will be unable to reinvest in creating future value for its customers, that is, the community whose needs they strive to meet.
Profit is the outcome, it is not the purpose and it should never be allowed to become the purpose. To do so is simply poor business strategy.
Businesses are made to compete, they exist to compete. They compete around the value they deliver to their customers. This is where leadership must focus, and then profit will be a natural outcome. Compete better than anyone else and you will make more profit than anyone else.
Within every business, there is a competitive engine. A range of interdependent agents that determine how competitively fit a business. Leadership should focus on making their business more competitively fit, and all the problems associated with a profit-first motive will disappear.
It starts with motive and all else, including culture, flows from it.
Motive And Purpose
People need a reason for being and for doing things.
In business, we operate at a very basic, and really a non-motivational, level. Come to work, do a fair day’s work and we will provide you with a fair day’s pay. Yet there are lots of disagreements over what a fair day’s work and pay are.
For far too great a percentage of people, work is what they do to survive. Their goal is to get out as quickly as they can and find another job, or better still retire and have a ‘real life’.
Think of the number of people you know who are living to retire. Work is what they are seeking to escape from.
I am not sure how businesses can expect to maximise their profits or compete effectively with a workforce who are only there because they have no other choice. But that’s what many businesses accept as the reality they are dealt.
A ‘profit-first’ motive says, ‘We are here to maximise the profit for our shareholders and your role as an employee is to help us achieve that outcome. You are a cost, which therefore must be minimised. While we need you to work hard, we really don’t want to pay you more than we have to.’
A ‘compete’ motive says: ‘We are here to deliver the greatest value we can to our customers. We need you to make this happen, without you it is not possible. We will pay you the best we can but we can assure you that we will support you in your role so you may be fulfilled and contribute your greatest talent to this goal.’
I would much rather work with people who love their job and find real satisfaction from it, and are paid ‘okay’, than work with a team who are only in it for the money they can personally get, and because they have no other choice.
‘Profit is our motive’ – money is the denominator of all discussions.
‘We’re here to compete’ – performance and continual improvement is the focus.
A business that is able to provide its people with a purposeful and fulfilled life where there is a real meaning and personal reward for the effort they put in, will attract the most talented people who will give their all.
Working with the best at their best throughout all areas of the business. This the goal of a business that competes.
A Symbiotic Relationship
There exists a symbiotic relationship between businesses and the communities in which they exist.
A business that is well run and managed provides fulfilling employment to the community in which it exists. That community being well remunerated and provided with vocations that meet their needs as humans, are, in turn, able to support the growth and success of that business. Not just through buying their goods and services but also by applying their combined talents and efforts to their maximum effect in making that business competitive.
Introduce profit-first as a motive, and then wages are seen as a cost to be reduced, self-interest, short-termism and politics are suddenly prime and the connection between the business and the community is broken. The business seeks to maximise its profit for its shareholders and the community is only a potential source of workers and customers in the pursuit of profit. The community sees the business’s agenda and responds in kind.
Many business leaders would see that the health and welfare of a local community is principally the responsibility of others, including government, to which they pay taxes. However, there is a much more complex relationship between businesses and communities.
Of course, it is not simply a responsibility of businesses to support communities, but of communities to also support their businesses.
Strategically, a symbiotic relationship does exist and should be a cornerstone of the long-term success of any business. However, a profit-first motive by businesses, and the acceptance of wealth as a key metric of personal success undermine the integrity and importance of this relationship.
A Better Motive
You may tie someone’s monetary rewards to profit-performance but that does not yield the right response to drive the competitive engine of a business.
A profit-first motive drives all the wrong levers in seeking to build a competitive business. It incentivises leadership in the wrong ways and fails to engage the core strength of the business. Remember, the core strength of any business is the combined talent and effort of everyone involved in your business.
To compete effectively today, to be able to continually redefine and lift the customer value you deliver, you must engage and activate that core strength to its full potential. A profit-first motive – the wrong motive – disperses and neutralises any strength that may exist.
A compete motive opens the door to engage and activate, and the competitive engine provides the framework and mechanics to be able to fire up and direct that strength.
If you want to work with the best at their best, if you want everyone’s individual potential to be taken to its limits and beyond, if you want your business to be great, then make ‘we’re here to compete’ the motive of your business.
The best business strategy for any business is to pursue a motive of being competitively fit, as this will maximise its performance and, therefore, profit and value.
As a business leader, what is the motive you have established in your business and is it the right motive? And if it’s not, are you willing to challenge it?
The enduring success of your business depends on your courage to openly challenge motive and ensure the right motive is set and upheld at all times.
The above article has drawn upon Richard’s latest book due to be released shortly, ‘Compete – Activating The Competitive Engine In Your Business’.
We’re here to Compete.
Does your business know how to Compete?
Join the Entrepreneurs+ Community to learn how.
All the best in the success of your business,