Here’s what’s wrong with current business education, indeed current business thinking—in a nutshell.
The current issue of the MIT-Sloan Management Review trumpets the main feature: "Sustainability as Competitive Advantage."
You really don’t have to go any further. The clear implication is in the syntax: do this (little) thing, and you’ll get this (big) thing. Do this (responsibility) thing and you’ll get this (profitability) thing.
Turn the hands over this way, you’ll correct your hook. Sell this way, you’ll make more money. Practice sustainability, you’ll beat your competitors. Use these means, and you’ll get those ends.
This means-end confusion isn’t just in the headline. One article makes it crystal clear in the opening three sentences:
Many companies are taking the first incremental steps toward sustainability, such as energy conservation and recycling. That’s a good start — but going further can yield significant competitive advantage. The growing movement toward sustainability in business offers companies a powerful lever for creating competitive advantage.
Get the picture? The ultimate reason to do this ‘good’ stuff is because it’s profitable at the individual company level. Interesting: it suggests high profitability is the measure of social responsiblity.
MIT Sloan is hardly alone. I’ve taken flak lately for supposedly singling out Harvard. Neither school is unique.
Capitalism-as-competition always implies an end goal–typically shareholder value, or sustainable competitive advantage. Led by a variety of influences ranging from Milton Friedman to Ayn Rand, the idea of capitalism-as-competition has been transmuted and transmitted by business gurus like Michael Porter, government gurus like Alan Greenspan, and business superstars like Jack Welch.
Note: it hasn’t worked too well. Business has gotten so co-opted by the competitive paradigm that we’ve lost all sense of even the possibility of another view.
Yet there is another view, and a very obvious one at that. It’s right under our noses. Let’s call it Buddhist Capitalism.
I don’t mean this too literally. I am no expert in Buddhist teachings, and not all Buddhist precepts track easily to business.
But one difference between capitalism-as-we’ve-come-to-know it and Buddhism is instructive. One is about vanquishing one’s foes; one is about getting along harmoniously in the world. And we all know which is which.
Business-as-competition is all about linearity: if you do this, you’ll get that. And the more you tighten those links, the more you control them.
Buddhism, on the other hand, embraces paradox. If you let go your attachment to X, you’re more likely to get it. But only if you give it up. The outcome cannot be sought successfully, it can only be received if you stop seeking it.
It isn’t all that alien a concept. The best salespeople know that success comes to those who give selflessly to their customers. From Dale Carnegie to Zig Ziglar, people have known that you succeed best by getting others what they want.
What I mean by Buddhist Capitalism comes down to doing two things: help others, and stop focusing on your own immediate ends.
Capitalism-as-competition negates the oncept of ethics, since it subordinates even ‘ethical’ ideas like sustainability to the overarching goal of profits and competitive advantage. A business school can’t feasibly teach ethics when, down the hall, the strategy course teaches that your ultimate goal is to win battles against your supply chain, customers, unions and employees. Who’s left to behave ethically towards?
Is Buddhism Profitable? It’s the Wrong Question to Ask
Business (some of it) is more and more focusing on things like ethics, social responsibility, and sustainability. And that is a good thing. But it’s doomed as long as we can’t get past the question: “Can I gain sustainable competitive advantage by doing it?”
Believing that the purpose of business is to make profits is like believing the purpose of living is to eat. The purpose of sustainability is sustainability—not the competitive advantage of those who practice it. As long as we limit our definitions of ‘good,’ ‘social benefit,’ and ‘business ethics’ to definitions couched in competitive advantage, we subordinate them.
We need to make profit a byproduct, not a goal. While it is true, very true, that ethical and customer-focused business focusing on the long-term really are more profitable, that is Not. The. Point.
The point is to make business a full partner in society, not a mad dog following an ‘invisible hand’ that responds only to heavily enforced legal mandates. If business wants a seat at the social family table, it needs to act like it’s a member of the family—not an outsider following its own rules.
In an increasingly interconnected world, it’s Buddhist Capitalism, not Competitive Capitalism, that we need more of. The fact that it’s also more profitable is a lovely byproduct. But not a goal.
I once heard a quote that "Anything done as a means to an end is self-robbery." Your points are VERY well taken and I submit that the Pharmaceutical Industry made this mistake in the 90’s when it was well respected and trusted. Today, due to a profit oriented focus rather than a patient oriented focus, the Pharma Industry is mistrusted, almost despised.
Call me naive & simplistic but at one time, businesses & mgr use to ask, "Why are we doing/making this??" "Why will customers want it", "what makes it worth doing", "does it add value", "if there’s a better mousetrap for the money – what’s the point", "why us?" The responses used to determine if the business was worthwhile and viable. It was the rationale used to start a business and/or create a plan that one used to ask investors to start the business, or at least it was until the early 90’s technology fiasco.
Silly me…I always thought "Competitive Advantage" started out as a mkt term created by business schools and mgmt consultants so companies could think of & invent different ways to promote themselves and their products. Somehow it has turned into the justification for Gordon Gekko’s, "greed is good" philosophy on how much and how long can we can stick it to the other guy for our benefit. Sustainability apparently now refers to Maximizing Profits, not a business’ viability and/or value to the market.
I think Barbara points to the important piece.
The question underneath your graphic, "How much money can I get by monitizing the stones?" is what’s causing so much psycho-emotional (not to mention financial) upheaval for so many.
For me the question is "Why do I choose to monitize the stones?" If one uses the Japanese management practice of "five whys" and asks the question five times and for each answer asks, "Why?" (i.e. how so? or what would that get me?) one will arrive at the "root cause" or motive for the action/behavior in question – pointing to values and motives. On one end of the continuum is "greed and me;" on the other is a utilitarian "for the goid of scoiety." Spiritual capitalism falls somewhere towards the latter.
Buddhist or spiritual capitalism (more here- http://www.spiritheart.net/media/The_economy_and_the_world-_a_spiritual_perspective.pdf)
is basically values-based, and takes into account a conscious sense of society (waaaay over and above "me"). Asking "what does society need?" and doing the right thing, one produces not for one’s self alone, but socially (and environmentally).
Companies such as IBM, Proctor & Gamble, Omron (Japan), Banco Real (Brazil), do more than create pretty mission statements. They create value by looking at the larger good, what the community or the world needs and ask how their organization can contribute. In a sense they look to see how the world can be their customer. They’re not perfect but they have a conscience and are looking to raise their standards.
People who share these spiritual values monitize the stones in part to serve the greater good. Folks who don’t, monitize the stones for themselves.
The spiritual capitalists are guided in part by having their finger on the pulse of a changing society. Those who aren’t have their finger on their own pulse.
It’s not about the money. It’s about what one does with the money…and why.
Part of the root cause of the issue here has got to be the way a corporation is constituted with the sole purpose being to make profits for the shareholders, along with the relative "distance" between said shareholders and the actual activities of the corporation and those that are effected by the activities. Back several decades when many businesses were partnerships or owner/operators making profits for shareholders didn’t dominate so much and this distance didn’t exist in the same way – there was a direct intimacy between the actitivies of the company, those carrying out the activities, those benefiting from the activities and those effected by the activities. Where there is intimacy there is no need to look for sustainability, one simply doesn’t do things that harm (ie are unsustainable) those that one is intimate with.
So I think there needs to be a change in the way corporations are constituted to create a deep and meaningful change.
Hmmm…a good start, but as long as we still have capitalism, by definition everything is aimed towards maximizing profits. Why not change the structures that define how markets are created, how corporations are formed and dissolved, etc?
A spiritual view of a broken system doesn’t change the system
Puerhan and Duff, I have great news for you!
Nowhere is it written that the "purpose" of a corporation, or of capitalism, is the pursuit of profits. Nowhere!
There is no ‘purpose’ except as stated by those who avail themselves of the corporate form. Historically, corporations grew out of the need to raise capital on a large scale. There was a loose connection raising capital and the profits to repay the investors–vital, but loose.
But there have always been plenty of other purposes to which people have put corporations. For example, a way to divide the inheritance of a family business. A way to manage tax exposure.
In the United States, a major ‘purpose’ of a corporation, if you look at government policy, is the means by which we have chosen to distribute health care, unemployment and pension benefits. It’s also a way by which the government collects (corporate) taxes; quite apart from that, it’s also a vehicle for the record-keeping of individually-owed taxes. Other countries use companies for various other purposes, and do not use them for some of the purposes we use them for.
There is nothing god-given, man-given or government-given that states the single ‘purpose’ of a corporation is to earn profits.
And since we’ve changed the various ‘purposes’ we associate with corporations all the time (right now we’re debating whether to remove them as sole providers of health insurance for most people), we have tons of choices. We do not necessarily need to resort to the drastic measures Duff suggests, i.e. how corporations are formed and how markets are used.
Though I’m not sure exactly what Puerhan means by ‘constituted,’ it seems to me we can (and do) make various kinds of changes to the responsibilities of corporations. We don’t need to rewrite their charters to make them accountable for environmental damage. Apparently we don’t even have to make structural change to get them to change pay policies (to my somewhat amazed eyes).
I call this good news, because it means there is no inherent ‘purpose’ to the existence of companies but what we make of them. Remember, their very legitimacy was granted by government, and can be taken away by government, and can be infinitely tweaked in between by government, and in some ways government is still the extension of the people.
So don’t give up!
I appreciate the way you peel back the layers and get at the underlying ideas. And you make several good observations about how means and ends become confused, but it seems the shift away from short-term profit is a means to your end of making business a "full partner" in society.
How is your idea of social responsibility better than the ideals of someone who sincerely seeks to benefit shareholders?
thanks for the thoughtful response.
As I understand it there is a legal obligation for corporations to put the "interests" of the corporation and shareholders first. That is, above any social, environmental or other "interests". In the UK this is written into the "Articles of Association", a legal document required when a company is incorporated (which is what I meant by how a company is constituted – the legal documents that give a corporation ‘existence’ as a legal entity). In the US I believe that corporation law requires the same "…the directors and officers of a corporation shall exercise their powers and discharge their duties with a view to the interests of the corporation and of the shareholders….", is this not correct? This of course does not dictate that profits necessarily must be put first, but to avoid this the shareholders will need to make clear what their "interests" are*, as strictly speaking the shareholders "interests" are whatever amount of capital they have invested in the company. So I think that the way corporations are constituted with this obligation to put the interests of the corporation and the shareholders first is what needs addressing to actually allow corporations to have genuine sustainability, social responsibilty etc. as their purpose.
If you want to take the Buddhist ideas further you will find that a key idea in Buddhism is that we must stop putting our own self-interests first and put the benefit of others first. But we are people don’t have a legal requirement to put our own interests first where corporations do. (And presumably this is why so many people argue for corporate sustainability / social responsibility as a competative edge or way of increasing profits etc – they are thinking inside the current paradigm of a corporation)
(*As has been tried a couple of times in the UK at least when activists bought enough shares to participate in shareholder meetings and put forward proposals for social or environmental goals)
Loren and Puerhan, you’ve just taken this to a whole ‘nother level; thank you, and please help keep moving the dialogue further. I’ll add a bit, but I don’t have all the answers.
Loren, the shift away from short-term profit is generally in the interest of, not against the interests of, the shareholders. Plenty of studies (see for example Peppers and Rogers in Return on Customer) prove the intuitively obvious–that operating from long-term consistent strategies provides performance superior to that of short-term tactical and shifting strategies.
Typically the people arguing for short-term focus are management, not shareholders. And if short-term management is antithetical to long-term shareholder value, I think that is a case of the agency problem. That is, are managers really reflecting the best interests of the shareholders?
So, short-term profits are not what drive shareholder value–long term does better. If you sincerely want to benefit shareholders, you don’t need my arguments; you can make the case for long term sheerly on economic terms alone, as long as you don’t have managers mucking up the works for their own self-aggrandizement (not that that would ever happen in this country, of course…)
But Puerhan does complicate matters by invoking (thanks for reminding us, I’m going to assume you’re factually correct) the legal obligations of an incorporated entity. Let’s assume that you’ve worked the short-vs-long term argument for all you can, and you’re still left with (in principle) a conflict with the obligations to shareholders as diametrically opposed to those of society.
You make a great point: people don’t have such obligations to behave in their own interests, whereas corporations do. And yes, you can get on boards and work from the ‘inside,’ thinking inside the paradigm as you put it.
But I’m a little more sanguine. First, private companies have enormous sway to do what they want. I just shared the stage this morning with an extraordinary man, Aaron Feuerstein. If you never heard of him, check out this YouTube video. No disconnect there.
But I’m even a little more sanguine in the case of public companies. Take Johnson & Johnson, whose famous credo articulates four broad obligations: to customers (patients, doctors, etc.); to employees; to communities; and to stockholders. Of the four, stockholders come last: and the last line of the last clause says, "When we operate according to these principles, the stockholders should realize a fair return."
As late as this morning, I’ve heard it confirmed from J&J employees that they take this pretty seriously. As far as I know, no one has ever sued J&J for having a credo that violates their incorporation responsibilities; (and if ever anyone successfully did so, we should all hang it up and go home because that would indicate the loonies have taken over the asylum.)
I take the J&J example pretty seriously because it shows what is possible within the existing system. At least I think so.
Thanks to all for this great dialogue; there’s more to be said…
Thanks again Charles for the engaging comments.
The sort-term vs long-term interests for shareholders is interesting in terms of what I first commented about "intimacy" I think. There is a bit of an issue in the way financial markets around the world work now, particularly with traders for example. On the whole traders have no "intimacy" in their relationship with the shares or the corporation concerned – they are playing with a commodity based on the stock market value and short term returns. In this case the long term interests are out of the picture largely, so there is a real question of what proportion of share holdings fall into this kind of ownership.
Lots of great starting points for further exploration and investigation!
To Puerhan’s point: anyone out there have data on shareholder volatility, or share turnover, or whatever that statistic might be called?
In our book From Principles to Profit – The art of moral management (the title alone indicates that we agree with your thrust), we quote from the late Pope John Paul II: "The purpose of a business is not simply to make a profit, but is found in its very existence as a community of persons who in various ways are endeavouring to satisfy their basic needs and who form a particular group at the service of the whole of society.
Profit is a regulator of the life of a business, but it is not the only one; other human and moral factors must also be considered which, in the long term, are at least equally important for the life of a business."
Business is not about making a profit. It is about service, to the customer, to hhe supplier, to society and indeed to the shareholder. When that service is given (literally given, albeit for a consideration) fully, over the long term, profit results. There is nothing wrong with profitable business. Indeed if a business does not make a profit then that is an indicator that something is wrong- what the business is providing is not what the market wants. In that sense it is a good regulator, as Pope John Paul put it. But if the focus of attention is on the profit then it will not be on the customer or the service, and the customer always knows.
Amen to that!
The art of moral management, almost an oxymoron today, isn’t it?!? All joking aside, based upon your comments Chris, I’m intrigued…I’ll put it on my reading list!!
Thanks Barbara. I’ll be interested in your reaction. One reader told me that when he started reading the book, he thought that our proposition was that if you work to the highest principles, profit will follow. By the time he had finished reading it, he had concluded that in fact what we were saying was that over the long term businesses were only sustainable and profitable if they worked to the highest principles.
But I don’t think that the art of moral management is an oxymoron. Of course examples of immoral management are all too common and have played a large part in bringing on the current economic and financial crisis. However I believe that most ordinary businessmen and women are ethical in their dealings.
We recommend this test. Assess your own decision making on the following scale:
1. Do you decide on a course of action based on your spiritual principles?
2. Do you act from a sense of duty or honour?
3. Do you act in a moral way because acting morally is good business?
4. Do you follow the rules of your profession?
5. Do you refrain from action only if it is illegal?
6. Do you decide based on what you think you can get away with?
So where Charlie started was level 3, and there are three more steps down. It’s not good, and it’s the wrong sound as he argued, but it could be worse and often is!
I have not been familiar with Budhist capitalism but it sounds to me very much like common sense. Concentrate on the value added side of the business and profits will flow. In other words, the object should not be to seek profits but to add value to the world. Profits will then automatically devolve from there on because society will recognise such value added.
Putting profits first would be lile putting the cart before the horse.
Nice write up. Though the reference to Buddhism might be to the detriment of the idea being broadly accepted in the US.
There is nothing peculiar to Buddhism that says that participants should not be engaging in actions that destabilize the ecosystem that they are participating in, and yet this is what capitalism encourages. By dividing property into ours, and not ours, we can forget there are some that can never be owned – like air, water. Another problem with capitalism is while resources like oil is being consumed, money itself still stays around.
The old Indian proverb of trying to eat money when all else is gone is a stark reminder of the folly of allowing the accumulation money to decide the course a person’s actions.
In summary, while capitalism may be a useful tool in keeping in check unfettered consumption, it is not particularly good at keeping in check unfettered chasing of wealth.
Interesting post. I have no doubt that sustainability is set to become a (the?) critical source of brand and competitive advantage. The big question is HOW companies can achieve lasting and meaningful advantage.
It starts with businesses understanding that sustainability goes way beyond ‘green’ and the cosmetic veneer of Corporate Responsibility. Sustainability is fundamentally about longevity – the capacity to survive and prosper over generations. It naturally involves dimensions of ethical behaviour and environmental stewardship, but it’s about much more than that. It’s about the answer to the question ‘Why will I still be in business in 50 years?’
It isn’t a separate agenda, it’s an integral part of strategy and culture – a fundamental belief and way of thinking that encourages us to consider the long-term implications of our actions. It isn’t just a tactical bolt-on to business as usual, it’s a fundamental design value – a lens through which to challenge and transform existing practices. It isn’t about ‘CR as PR’ and reputation management, it’s about creating value by identifying opportunities for disruptive innovation.
The pursuit of sustainability and the pursuit of profit are by no means mutually exclusive. There’s no reason we can’t have both provided we’re smart about it – as proven by the likes of Ray Anderson and Interface Inc.