Monday, January 30, 2012

Purpose, profits and people.

Slowly and inexorably the tide has turned. Being customer driven as opposed to profit driven is no longer an exercise in public relations, but has become a strategic necessity for survival.

The writing may have been on the wall for some time now, but one only notices how far things have moved when one looks back on the debate over a number of years. Since then, the financial crisis, wealth disparities, public debt, global recession, unemployment, and social and political protests have culminated into what a current Financial Times series has called “Capitalism in Crisis”, setting a scene for a similar debate at Davos. World Economic forum founder, Klaus Schwab put it strongly, describing capitalism as being “out of whack” and adding: “I'm a deep believer in free markets but free markets have to serve society," Even if one agrees with Citigroup CEO, Vikram Pandit that the loss of public trust is “not as a result of a failure of capitalism but from specific failures by certain participants in the financial system”, we cannot escape the reality that some of the fundamental tenets of the system are being increasingly scrutinised by a growing number of even the capitalist elite.

The profit motive is one of these core principles. Under its mantle, and the seductive call of immediate self-gratification, behaviour has been allowed to develop into reckless short-termism and the creation of large volumes of financial froth. What is being observed to an increasing extent is something which a few decades ago would never have been seriously argued: that there is not an axiomatic link between the profit motive and service. The idea that being profit driven is the same as being market driven has been thoroughly debunked. We have witnessed too many appalling cases world-wide where customers and society as a whole have been severely disadvantaged, if not harmed by greed and profit maximisation, often within legal boundaries.

So it is not totally surprising that Netcare CEO Richard Friedland proclaimed recently that the company was “going to put purpose before profits.” Perhaps it is not surprising, but rather puzzling, given that for decades business schools have steadfastly preached the Milton Friedman edict that the purpose of a business is to generate profits. No doubt creating ambiguity around a simple and uncompromising word such as “purpose” is a product of organisational theorists ever keen to create consulting interventions.

But if Friedland’s logic is that the company’s focus is going to be on customers then the company is certainly in touch with a global shift. The 2012 Edelman Trust barometer based on research in 25 leading economies and released at the World Economic forum this week confirms again that business has a monumental task in regaining public trust. This has plunged to below half for the general public, and is barely above 50% for the informed public. In the United States, still only half of the informed public trust business to do what is right. Unsurprisingly, there have been massive falls of up to 20 percentage points in trust in business in key Eurozone economies. Perhaps even less surprising is the very low credibility of CEO’s: down to 27% in the U.S. and 22% in the United Kingdom, France and Germany.

About half of the informed public in the 25 countries believe that governments do not regulate business enough to ensure consumer protection and responsible corporate behaviour.

This is a bit of a paradox, because the same survey revealed an even bigger decline in public trust in governments than in business. This has fallen from 52% to 43%, the biggest slump in the Barometer’s history and meaning that while business is not widely trusted to do the right thing, governments are trusted much less.


Richard Edelman observes that business still has a promising opportunity to take leadership not only in regaining trust but in shaping society. He points out that what most stakeholders want from government are actions business can take on its own without waiting for regulation. Unilever CEO, Paul Polman is quoted in the survey as having told the Washington Post: “Our version of capitalism has reached its sell-by date. Never has the opportunity for business to help shape a more equitable future been so great.”

Taking its cue from its respondents, the survey lists (see graph) a number of actions business can take to engender trust, and the extent to which they are doing them at present. Top on the list is listening to customers! Even for this cynical, profit driven age, the low number of people (36%) who believe business

currently does so, is quite appalling. Other top requirements are high quality products and services, treating employees well and putting customers ahead of profits. Most of the current assumptions about good business actually rank pretty low in what the informed public expect businesses to do. The delivery of financial returns ranks 14th out of 16 attributes.

As I read the list, I hear echoes of the words of great past and present entrepreneurs, whose ventures pre-date the profit driven madness of these last few decades. “It is nothing more than business sense,” they would argue.

Or, as Bill Kellogg once put it: “The purpose of a business is not to make a profit. It is to add value to people’s lives.”

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