Peter Drucker says the two diagnostic questions every organization must answer are “What business are we in?” and “How’s business?” What business are you in? What is your organization’s ultimate purpose? Your answer will suggest whether your company takes its “moral DNA” seriously or treats it as absurd—as a wink and a nod.
There is a difference between an organization’s purpose and mission. Mission is what an organizations does. Patagonia’s mission is selling outdoor apparel. Purpose explains why an organization exists. Patagonia’s purpose is environmental activism. Mission statements describe to-dos. Purpose statements answer what for? An organization needs both. Over the last 40 years, purpose statements like “restoring business” or “doing the right thing” have largely become wink-wink, nod-nod. Shrewd people know the “real” business is merely making money. Purpose statements? Whatever. However, the recent economic crisis is causing some to revisit the first question.
“It has rarely been clearer that the business of business is everyone’s business,” Yale University Professor Emeritus Alan Trachtenberg writes. The last time we faced a worldwide economic crisis—the 1930s—the answer to the first question was clearer: companies were “social institutions.” They were moral organizations as well as moneymaking enterprises. They had a purpose that transcended the mission of making products and profits. “This idea was not limited to mid-century intellectual opinion, but was central to the cultural scripts relating business corporations to the broader social order,” David Franz writes. As social institutions, companies had social obligations requiring moral language. Purpose statements reflected this. They were taken seriously.
The 1930s cracked this foundation. The world was facing an economic crisis of unprecedented scale. Crises raise questions and often cause people to recalibrate their take on reality. It was during this period that a new answer for the business of business emerged. Economist Ronald Coase argued that corporations could dispense with the idea of being a social institution, reducing work to a “nexus of contracts between self-interested individuals.” The corporation existed to turn a profit.
Maximizing financial return was elevated to the status of Holy Grail in 1970 when economist Milton Friedman wrote that the social responsibility of capitalism is to increase shareholder profit. Period. The mission became the purpose—making money. Lofty statements like “do the right thing” became platitudes or poster board material. Finance came to define the corporation. Financial statements found new importance as the bottom line for corporate existence. This became the real purpose of business.
This isn’t a screed against spreadsheets. Max De Pree said it well: profits are like breathing. You don’t live to breathe; but you have to breathe to live. Once however corporations became conduits for financial gain, talk of purpose beyond profits wasn’t taken seriously. It didn’t translate into meaningful action. Enron Corporation is a classic example. It had a 65-page ethics manual. But Enron created a Potemkin trading floor when the company was on the ropes. When New York investors visited, Enron executives rushed employees down to the empty floor and told them to act as if they were trying to sell energy contracts over the phone. “It was an elaborate Hollywood production that we went through every year when the analysts were going to be there to be impress them to make our stock go up,” former employee Carol Elkin said. “It was absurd.”
“Absurd” is a telling word. It means senseless. Absurdity treats morality as wink-wink, nod-nod. There is no up or down, no right or wrong. In business, profits become preeminent. Any purpose beyond that is nice but not necessary for the business to flourish. This is why talk of business and moral and ethical behavior is often nothing more than “public-relations puffing,” planning consultant David Hussey writes. It has become “an area of platitudes, or noble sounding statements which frequently have no bearing on the real way in which the business operates.” Winks and nods explain why Enron, Worldcom, Bear Stearns, Countrywide Financial, Broadcom, Lehman Brothers, and AIG didn’t take “do the right thing” seriously.
In reality, corporate malfeasance is obscene. “Obscene” means “without story.” All good stories are based on a code, ought-is-can-will. Behaviors deviating from this code were once considered obscene. People object to obscenity, because it has a moral dimension, a storied “ought.” They don’t object to absurdity, because it accepts reality as it “is” without purpose or a moral framework. That’s why no one spoke out at Enron. The business of business was making money.
As we recover from this latest economic shockwave, even Greenspan now admits to a “flaw” in his thinking. Greenspan’s mistake, by his own admission, was “presuming that the self-interest” of bank executives would best protect shareholders. If he took the ought-is-can-will code seriously, he’d see how Pollyannaish that sounds. When the “real” purpose is profits, it’s all about the Benjamins. Our current system of wink-wink, nod-nod is perfectly designed to yield the results we’re getting.
Recalibrating Corporate America’s present “take” on reality won’t be easy. This is a culture that has been around for over eighty years. Cultures embody unexamined assumptions. Institutions led by influential individuals create images and items that reinforce the idea of “the business of business is profits.” It’s the predominant force in Corporate America today. The companies doing the best job of reframing the business of business have strong C-level leadership that can sail into these strong headwinds. It will take years of purposeful attention and time to recalibrate businesses’ current “take” on reality.
Every week this autumn, high school football coaches implore their players to get some sleep before the game. “No ladies or liquor.” Players are careful not to roll their eyes. They know the real purpose of the game. If they win, no one asks about the night before. Wink-wink, nod-nod. What business are you in? Your company’s answer will determine whether it takes its “moral DNA” seriously.
Sorry. When Mr Ford created the assembly line, his primary and ultimate goal was profit and profit only. The turn of the century “companies” purposely impoverished thier workers (mostly immigrants)in order to create a society of serfs they could exploit…for max profit. Let’s also not forget how we construted the trans-continental railroad. I think Professor Trachtenberg is a victim of nostalgic misinterpretation.
Another institution had to be formed, unions, to successfully combat that immoral exploitation. Of course, that institution now has immoral people in it grabbing for as much money as they can pry from companies like Ford and GM as well as from the workers they represent.
This is a world full of evil people that, when left to thier own devises, will do evil things. In everything they do including thier business dealings. The challenge is to create a society that rewards ethical actions and punishes unethical ones. If, like you say, winning is the metric and players are not benched if they violate the rules, you have wink-wink, nod-nod society.
So how do you change college football so that more than just winning is measured and valued?
I love your blog and I miss the well!
Hi Mike,
I agree with your Mission/Purpose statement. DSI’s mission relates to what we do, and our purpose relates to a higher calling on how we impact the lives we touch. What makes this most interesting is when you start a project, such as building a new dynasplint or planning for a new facility to be our corporate headquarters. What you see competing in the planning committee, is the tension created by opposing factions. The first faction represents squeezing every dollar to make the most short term profit( although short term can mean a long time of 10-20 years) vs. the second faction goverened more by doing the right thing. People on design teams sometimes have a difficult time understanding when you decide to spend more money than you absolutely have to in order to create a better outcome having its pupose be something beyond the simple construct of the project itself. For instance, just making a buiding so that it adequately will house a business for 20 years can lead to an entierely different design and budget, then if you think in terms of that building’s impact on not only the people working inside the business it holds, but also its impact on the surrounding community, the environment and what it will look like and reperesent after it serves its initial 20 year purpose-period. If the major industries built along the tributaries of the Chesapeake Bay had thought more in those terms 50-100 years ago, I doubt our bay clean-up work would be so laborious and bleak as it is today.
Hi George:
Outstanding points. You make a great point of holding the twin competing tensions of doing well (profits) and doing good (corporate culture). Like a clothesline that needs two posts held in tension against one another to support any weight, so too an organization needs to hold purpose and mission in tension.
Again, well said.
EXCELLENT. Right on.
I’ll tweet this for you… unless you object 😉
I thought that the real reason the high school coach exhorts “no ladies or liquor” BEFORE the game was that all the players and coaches know that if the do win, they get ladies and liquor AFTER the game. nudge, nudge, wink, wink.
BTW, there are lots of companies who are large and profitable, and simultaneously attempt to also have purpose. Sometimes the constraints of the industry make it harder to have an obviously moral and good purpose, but it is still there. Someone has to clean toilets or haul trash, which can be done ethically, but…
And don’t underestimate the value of profit. Profit is what keeps a company in business, which is what lets it provide work and income for people and thereby participate in the economic, social, and moral system of the society. This is true even if the people aren’t creatively stimulated at work. God made work, and he also created us as beings meant to orgnize into societies. If a company is not profitable, it cannot succeed either in providing work or in participating in the social system. So I suppose that while there is tension between profit and purpose, purpose without profit will not carry a business anywhere — so the purpose will be pointless.
Moral and ethical behavior should not be a purpose, it should just be a basic assumption. We might start a company with the purpose of unleashing the creativity of its workers, or of cleaning up the bay, or whatever; but we would not seek to start a company with the purpose simply to “act ethically.” Acting ethically isn’t a purpose, it is just an adverb clause modifying the part about how we will go about accomplishing our purpose – whatever that purpose may be.