Responsibility of doing business the right way

Everything that is done must be of high quality

WHAT is the business of business?

The answer to this question may seem obvious. We are told it is to maximise shareholder value. But what exactly does this apparently simple statement mean? Are companies supposed to maximise shareholder value at the expense of customers, employees and the community?

Are we talking about the short term or the long term, and what exactly do we mean by short and long term? Is it okay for companies to break the law, pay fines and get away with doing this again and again as long as the fines they pay are less than the profits they make by breaking the law? Are we talking about maximising profits or some cash-based measure instead?

As directors and senior managers think through the implications of these questions, it is clear that maximising shareholder value is not as straightforward an objective as might have seemed at first sight.

The famous Johnson & Johnson Credo, written in 1935 by General Robert Wood Johnson, puts satisfying customers first, respecting employees second, being a good citizen third and giving the shareholders a fair return last:

“We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs, everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.

“We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognise their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must … help our employees fulfil their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical.

“We are responsible to the communities in which we live and work ... We must be good citizens – support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.

“Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programmes developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realise a fair return.”

For a better answer to what is the business of business, look at why entrepreneurs start their companies. When asked, they do not talk about shareholders or maximising profits.

Instead they talk about the ideas they believe will change the world and how they want to make a difference.

Akio Morita, founder of Sony and father of the Walkman, wanted his engineers to make a product that would allow his daughter to listen to music as she walked to school. He wanted simply to make a difference to his daughter’s life.

Steve Jobs had a vision of a computer in every home when he and Steve Wosniak set up Apple.

Datuk Seri Tony Fernandes talked about the revolution in travel he wanted to bring to Malaysians who had never been in a plane when he founded AirAsia.

Henry Ford wrote this when he changed all of our lives by creating the mass produced motor car: “I will build a motor car for the great multitude … it will be so low in price that no man making a good salary will be unable to own one – and enjoy with his family the blessing of hours of pleasure in God’s great open spaces… and we will give a large number of men in employment at good wages.”

No mention of shareholders.

Peter Drucker makes the point even more clearly: “It is the customer who determines what a business is. For it is the customer, and he alone, who through being willing to pay for a good or a service, converts economic resources into wealth, things into goods…” (Drucker P, The Practice of Management, p35)

Yet we cannot say that all that matters is satisfying the customer. To do that would be at the expense of the other three key stakeholders: employees, community and shareholders. I will deal with them in turn in my next articles.

John Zinkin is CEO of Securities Industry Development Corp (SIDC). He believes that people should put the soul back into business.