PROFITS

Let´s start with Profits. “By pursuing his own interest, he frequently promotes that of society“, said Adam Smith in the Wealth of Nations talking about the famous invisible hand.

Business has very often been viewed as a type of machine with various types of inputs with profit being the output.

Economists routinely teach us that the purpose of business is to maximize shareholder value.

But running a business while keeping your eye only on the profits is a little bit like playing a tennis match with both eyes on the scoreboard.

In my opinion, just as in tennis, the best way to win a match is to keep the eyes not on the scoreboard , but on the ball, in business the best way to maximize long term profits is not to make them the primary goal of the business.

The Paradox of profits is that they are achieved in the long term by not focusing directly on them.

HAPPINESS

Going on to Happiness, which in the short term can be achieved by setting specific “Happy“ targets.

I will be happy if I go for a vacation to ………………..

I will be happy if I buy this Cabriolet…………………..

I will be happy if I increase my profits by 25%..................

This happiness is, in my humble opinion, flawed by the conditional clause. I will be happy when….. is a state of mind which obviously tells me I am not happy now and when I do become happy, it is short term bringing me back to my normal state of unhappiness sooner or later.

In my experience, happiness is a state of the mind that is unconditional and comes more from giving than from getting . It could come from a sense of deeper purpose, great products or services, excited and happy customers, excellent suppliers, satisfied employees, community and environmental responsibility.

INTEGRITY

They say, “If you grow in a home where praise, encouragement and caring are the rule, then you are more likely to learn to appreciate and respect others as well as have confidence in youself.“

And confidence in yourself and the need to be happy gives you the strength to make good ethical decisions, despite the pressure to act otherwise.

A poem by Dale Wimbrow comes to my mind:
THE MAN IN THE GLASS

When you get what you want in your struggle for self

And the world makes you king for a day,

Just go to a mirror and look at yourself

And see what THAT man has to say.

For it isn't your father or mother of wife

Whose judgment upon you must pass;

The fellow whose verdict counts most in your life

Is the one staring back from the glass.

Some people may think you a straight-shootin' chum

And call you a wonderful guy,

But the man in the glass says you're only a bum

If you can't look him straight in the eye.

He's the fellow to please, never mind all the rest,

For he's with you clear up to the end.

And you've passed your most dangerous, difficult test

If the man in the glass is your friend.

You may fool the whole world down the pathway of life

And get pats on your back as you pass,

But your final reward will be heartaches and tears

If you've cheated the man in the glass.

RESPONSIBLE CAPITALISM :

A word coined by Mohd. Yunus when he started Grameen Bank in 1983 in Bangladesh. Grameen has not only helped millions of people out of poverty, but it has also become financially sustainable. It provides small, collateral free loans to (94%) women below the poverty line. Grameen has realized a repayment record of 97% ( one of the best repayment records in the world ) compared to a repayment rate of under 60% in the Bangladesh banking sector. Grameen methods are now applied in over 58 countries including the US, Canada, France, Norway and the Netherlands.

But Responsible Capitalism does not only have to be “Heroic “ as is the case above or what the Bill & Melinda Gates foundation tries to achieve in trying to eradicate Malaria and AIDS from the face of this earth.

It can also be “Service to others” and great example companies are Nordstrom, Whole foods or Singapore Airlines or “Quest for excellence “ and the first examples that come to my mind are Four seasons Hotels or even Apple. Then ofcourse there could be “excitement or discovery” and names like Google or Amgen come to mind amongst many companies that set a higher goal for themselves………and ofcourse there could be other higher goals

In the book „ Firms of endearment : the pursuit of purpose and profit ( Wolfe Sisodia and Sheth 2007 Wharton school publishing ) the authors pick 30 companies that are managed to optimise total stakeholder value and track them over 10 years against the S&P 500. These companies returns were over 600%. This could be no accident. I beleive this is the resultt of a superior business model - the business model that I trust should become dominant in the 21st century.

I would go on to contend that in the big picture the sole purpose of business is to make this world a better place to live in, add value to society and the environment and make profit in the process of doing so.

IN CONCLUSION

The old paradigm of maximizing shareholder value needs to be changed in the 21st century to a new paradigm of RESPONSIBLE CAPITALISM, maximizing stakeholder value - where society and the environment are two major stakeholders besides customers, employees, suppliers and …………ofcourse shareholders.

To achieve it we will need ethically strong leadership. Positive reinforcement and praise are the only tools we have to generate the level of confidence that will create responsible leaders that will maximize stakeholder happiness as well as profits and practice Responsible Capitalism at the same time.

I am of the strong belief that as these leaders grow in numbers, we will get a tipping point within this decade or the next that will fill the leadership vacuum left by politicians , but maybe I am too hopeful, but then hope is the one that dies last.

In the long run they say that we will all fertilise daffodils but in the slightly shorter run this maybe a hope worth living for. We at Zatisi are committed to practice responsible Capitalism with integrity more and more, so that we may make this world a better place to live in, at the same time generating profits and Happiness.

Sanjiv Suri
sanjiv@zatisigroup.cz