The Idea in Brief
In the wake of U.S. corporate scandals, many are questioning the assumptions underlying the triumph of stock-market capitalism. Should the market no longer be king? Success no longer measured in terms of shareholder value? And profit no longer suffice as an end in itself?
The recent scandals aren’t just a matter of rogue companies fudging the odd billion. And the cure won’t come solely from tougher regulations. We must ask more fundamental questions: What is business for—and for whom?
Enlightened companies answer that they exist not just to make a profit, but to use profit to achieve a nobler end. That end? To do something better, more useful, or different than anyone else. To make the good things of life available to ever more people.
Companies achieve this purpose by gathering a community of individuals who want to accomplish something collectively that they couldn’t do separately—people eager to make contributions to society. And they see those individuals as assets to be cherished and grown, not costs to be minimized.
Unless American business rediscovers this higher purpose, more people will view capitalism as a rich person’s game, interested mainly in itself and its agents. High-minded talent may shun it, customers desert it, and government begin controlling its every move. In such a scenario, everyone loses.
The Idea in Practice
How to begin defining your firm’s true purpose—and repairing the damage to capitalism’s image? Consider these guidelines:
- Put shareholders in perspective. Shareholders provide essential fuel in the form of investment capital. But they have none of the pride or responsibilities of ownership. Resist the urge to define your firm’s purpose solely as meeting shareholders’ financial expectations.
- Cherish and reward community members. Good businesses are communities with a purpose. Communities consist of members (not merely employees) who have the right—indeed, the responsibility—to tell the truth, express their views, and be rewarded for their time, talent, knowledge, and skills.
More companies are rewarding members for their intellectual contributions by sharing income streams: portions of after-tax profit, bonuses, royalties. This practice reveals the connection between efforts and results, strengthening members’ commitment and desire to contribute even more toward the community’s purpose.
- Extend sustainability from the environmental to the human level. To survive, business needs a sustainable planet and human society. When companies demand that employees forgo the rest of their lives for work, they risk losing key members and damaging productivity. Consider, instead, Europeans’ five to seven weeks of annual vacation, less-than-40-hour work weeks, and mandated simultaneous maternity/paternity leaves.
- Measure corporate success in terms of outcomes for others, as well as for your company. By creating new products, spreading technology, and enhancing quality and service, business has always been an agent of progress. In itself, this is a noble cause. To make more of it, ask whether your firm is making the good things in life accessible to more and more people—in addition to providing adequate returns to those who risk their money and careers.
Could capitalists actually bring down capitalism? A writer for the New York Times asked that question earlier this year, as the accounting scandals involving big U.S. companies piled up. No, he concluded, probably not. A few rotten apples would not contaminate the whole orchard, the markets would eventually sort the good from the bad, and, in due time, the world would go on much as before.