Sunday, March 30, 2008

What Business is Not

  1. The purpose of business is not to promote the public good.
  2. Business does not exist to foster employees' physical or emotional well-being; still less is its goal their ultimate fulfillment.
  3. It is not the aim of business to provide full employment for the nation's labor force
  4. Business does not exist to provide jobs for local workers.
  5. Business's purpose is not to serve the interests of customers or of managers or of the community.
  6. Business's definitive purpose is not to produce goods or services, or to add value.
  7. Business is not a charity or a church, a school or a club
  8. Business is not, except incidentally, an agency of government or of social policy.
  9. To focus on business's function as a producer, supplier or adder of value is to misconstrue business's purpose. If the nature of the goods or services, or the way they are produced, takes priority over maximising long-term owner value, then the activity involved is not business. An organization whose guiding principle is producing the absolutely best widgets (e.g., engines, books, healthcare) or the very cheapest ones -- independent of the consequences for long term owner value -- is not operating as a business...even if, incidentally, it sells the widgets profitably.
From Just Business, by Elaine Sternberg


Swamp Fox said...

It's ironic that while I'm reading this the Godfather on television. Don Corleone could not have said this any better. This cynical view of business is why government is essential to regulate the worst instincts of humanity.

Ben Asa Rast said...
This comment has been removed by the author.
Ben Asa Rast said...

Ah, but what IS the definitive purpose of business, if it is NOT any of the above?

Is Don Corleone all that is left...or is there something less cynical, something that does not depend on the worst instincts of humanity?

Swamp Fox said...

Sure there something less cynical. It is acknowledging that a business has obligations to constituents other than shareholders and that it is not appropriate to maximize shareholder value at any cost. Until 1865, many businesses in the US pursued the illegitimate purpose of maximizing equity value through the legal, but immoral, tactic of enslaving human beings. Managers do have a obligation to increase the long term value of equity, but only to the extent that is consistent with meeting the business' obligations to other constituents, including honoring the basic human rights of its employees. Likewise, businesses have other obligations, from product safety to environmental stewardship, that must be balanced against the long term shareholder value of the firm.