Many British firms are just investment vehicles with nothing inside. Maximising profits alone cannot provide businesses or anything else with a meaningful purpose.
I run a small business. We don’t have a mission statement and we’re not about to write one. But I do sometimes think about what the purpose of our business is. I know it’s not to maximise profits. It might be to make enough profit so my business partner and I can earn a reasonable living. It might be provide us with work we enjoy. Or to work with clients we like and whose aims we respect. Or it might just be a way of dodging the routines and vicissitudes of corporate life.
It’s probably a bit of all of these things and more. We have a variety of purposes and a range of motivations, some of which probably conflict with each other, and the relative weight we give to them probably changes from time to time. I suspect most very small businesses are like this — their purposes directly reflect the lifestyle choices and shifting enthusiasms of their owners and workers.
Large companies, with thousands or millions of anonymous owners, inhabit a different universe. Shareholders demand returns, and increasingly the returns they want are quick ones. Fewer and fewer investors in our hyperactive financial markets are interested in long-term earnings from anything as boring as dividends; they want higher share prices and they want them now. That way they can cash in their winnings double quick and don’t have to stick around for when things go south.
Maximising shareholder value is the only game in town. This means prioritising short-term profits over long-term growth and sustainability, ramping up asset values, constant image makeovers and rebranding exercises, hyping up mediocre or under-developed products and a mania for acquisitions and mergers (since takeover speculation tends to inflate share prices – I wrote something last year on the Anglo-American obsession with takeovers, which many executives seem to see as some sort of virility test.)
The problem of short-termism in British firms has been well recognised, even by business insiders. But I think we’ve gone beyond short-termism. The problem is no longer just that companies think too short-term to achieve their purposes, it’s that they often don’t seem to have any meaningful purposes at all.
If shareholder value is all that counts, then firms are nothing more than financial products – effectively they are all part of the financial services industry which dominates the British economy. Many big British firms seem to be conglomerates of convenience, flashy investment vehicles cobbled together to catch the eye of speculators. It doesn’t seem to matter much to their owners or top executives what they actually do or make.
Maximising profits alone cannot give firms any meaningful purpose. As a goal it doesn’t get you anywhere. It’s like someone saying their career goal is to make as much money as possible. Yes, but what are you going to do now?
Writing in the Observer about the phone hacking trial last year, Will Hutton said: “Companies in general, and media companies in particular, must put a sense of purpose at their heart.” Even some business moguls can see the problem. Hutton quoted Elisabeth Murdoch (of all people): “It’s increasingly apparent that the absence of purpose, of a moral language within government, media or business could become one of the most dangerous own goals for capitalism and freedom.”
Good, but looking at the published strategies of FTSE 100 companies is still dispiriting. Capita and Wolseley are two (not untypical) examples. Capita tautologically describes its “business goal” as “building a sustainable business that meets the needs of our stakeholders”. It’s business goal is business. Capita “generates and supports growth” by “targeting growing markets”, “securing organic growth and acquisitions” and “building our capacity and scale”. Capita grows by growing. This is a firm which seems to have no other purpose than getting bigger.
Wolseley, which (I think) has something to do with building materials, has a “vision statement” on it’s website: “Wolseley creates enhanced value for all stakeholders by leveraging the considerable strengths of its individual businesses.” That’s it. At least it’s short, but it’s no more meaningful than Capita’s.
Nothing about what they produces or the services they offers, nothing that shows any pride or interest in the work of their staff, nothing about what the firm aims to do for people or to contribute to society. It’s as if these companies exist in a separate world called “business” and have no relationship at all with the society in which they operate. Simply replacing the word “shareholders” with “stakeholders” doesn’t really cut it.
Does this matter? I think it probably matters a great deal. I have a small hunch this sort of attitude, coming from the top, has something to do with Britain’s notoriously crap productivity, and a big hunch that it’s behind our rubbish levels of staff engagement. Certainly its hard to see how many workers will be enthused by concepts as remote and meaningless as “leveraging strengths” or “enhancing value”.