This thoughtful commentary was written by Brian Engelland, PhD, Associate Dean and Professor of Marketing at the Catholic University School of Business and Economics. We invite your comments.
Corporate greed certainly played a large role in the housing market crash. But to say that all corporations are greedy is a gross mischaracterization. Yet that seems to be what many people believe.
The general public exhibits a pronounced misunderstanding of the profit-motive that is part of corporate DNA. I often hear complaints that big companies only care about making money, and by their nature, don’t care about employees, customers or the needs of society at large. This misconception is reinforced by news reporting that focuses on corporate greed rather than the good that businesses do.
Some media outlets project the attitude that profit is a four-letter word and when profits increase, it must mean that customers, employees or the general public is getting the shaft. A sampling of recent news headlines reveals the following examples: “Energy Suppliers Pocket Biggest Profit Margins in Two Years as Households Suffer,” “Banks Cut Services to Maintain Profits,” and “Cash Grab by Big Business.”
This anti-profit attitude fails to consider the fact that failing businesses don’t create new products and services, don’t hire new employees and don’t create economic well-being. Only profitable businesses do. So when businesses post improved profitability, it is not a bad thing, it’s a good thing.
Many sources like to quote Milton Friedman who is credited with saying, “The one and only obligation of business is to maximize profits.” This statement makes for a memorable sound bite, but it is equivalent to saying that the only obligation of a human person is to breath air. Sure, profits are necessary for business survival just as breathing is necessary for human survival. But profits or breathing is not the only obligation.
Humans exist to accomplish a whole host of strongly-held objectives, including working, forming loving relationships, raising families, and learning. Similarly, businesses seek to accomplish many objectives, including the creation of high quality products, the service of customers, and fair treatment of employees. Granted, profitability is needed or the firm will not survive for long. But profit is more of a score-keeping discipline than a driving force.
Pope John Paul II said it well: ““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 run, are at least equally important for the life of a business.” —John Paul II, Centesimus Annus, 35.
Businesses serve an important and irreplaceable role in this world. According to the Pontifical Council of Justice and Peace document, The Vocation of the Business Leader: A Reflection, business is a noble calling to participate in God’s ongoing creation. Businesses create products and perform services that individuals or government bodies are ill-equipped to provide. These products and services make the challenges of life (transportation, education, housing, food, and healthcare) easier to bear.
Business leaders I know run their organizations so as to balance the needs and desires of multiple stakeholders, including consumers, employees, suppliers, and the community in which the business is located. Their daily concerns involve product quality, new product innovation, employee training, and supplier partnerships, to name a few. Those businesses that achieve success in these areas achieve consistent profitability. But there is an important chain of causality here. Profits arise not because they are the over-riding goal. Rather, profits arise because of a focus on all of the individual, people-related elements of running a business that involves customers, employees, suppliers and community.
Putting people first tends to yield a prosperity dividend that enables the business to continue. Pope Leo XIII wrote “[W]hen Christian morals are completely observed, they yield of themselves a certain measure of prosperity to material existence.”— Leo XIII, Rerum Novarum, 42.
When an individual or business operates according to Christian principles, there is a certain order that follows and a degree of success is achieved in this world. The key is person-centeredness. When we reduce the content of business to performance metrics like profits, we miss the soul of business life: people.
Businesses exist to serve people with products, services, jobs, and the necessities of life. When businesses do well in accomplishing those objectives, they are rewarded with prosperity to material existence. In other words, investors earn a return on their investment. That return is called profit.News media have a moral obligation for truthfulness, accuracy, objectivity, impartiality, fairness and public accountability. Their over-emphasis on profit in business creates the potential for misleading the public. So come on, news media, get with it! If the public had a better understanding of the profit motive, we would all be better off.
Brian Engelland, PhD
Catholic University School of Business and Economics