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Home» Notes on Noble Business » Business Strategy » Profits & Social Values – Closing the Gap

Profits & Social Values – Closing the Gap

October 11, 2012 - Business Strategy, Societal Evolution
6

Last week, I had the honor of speaking at an international business conference on “Profits and Social Values: Closing the Gap” put on by Fundacao Dom Cabral, a leading business school in Brazil, ranked #8 globally the past three years by Financial Times. FDC regularly puts 30,000 people annually through its programs, many of them going through customized programs developed directly for clients companies.

The conference featured speakers, including yours truly, from Europe, Asia, South America and the U.S., all addressing the topic from their own experience and perspective.

The theme was about the gap between what corporate boards (and thus top management) focus on (the bottom line) and social values (as described, for example, in terms of disparities in income and quality of life). The big question was: what should/can we do about the gap?

One of the most striking presentations was from Pedro Luiz Passos, founder and chairman of the Board of Natura, a “most admired” Brazilian cosmetics company founded in 1969. It operates in several Latin American countries and in France. Passos talked about the importance of relationships – built with their sales staff (independent “consultants”) as well as with customers.

What struck me was that, though he could have easily talked about the company’s products and markets, he was pointing instead to the “building block” of the company – relationships. Yet most traditional companies focus on profits – and thus, thanks to the way accounting works and the way the traditional leader’s mind thinks, about transactions. The traditional corporate profit formula is about

a) the number of transactions,

b) the size of the average transaction, and

d) the profitability (profit margin) of the average transaction.

Maximize the “product” (a * b* c) of these factors, and presto, you get total profits. So the traditional business leader is trying to increase the size of a, b, and/or c – and thus is focused on transactions – to maximize profit.

But Passos was talking about building the quality and strength of relationships. Profits (and a, b, & c) come out of those relationships. That puts the focus where it should be. And, in the process, naturally addresses social values.

One of my purposes in going to Brazil was to see what company or companies from South America I might consider including in my next book, tentatively titled Origins of a New Corporation. I think I found that company in Natura.

My main purpose, of course, was to speak and thus share my perspectives with the audience of over two hundred business (80% of the audience) and government and non-profit leaders. In brief, here’s what I shared:

  • That much of my early career, I straddled the “gap”- with my “day job” being involved with the corporate world, helping them achieve their objective of profits – that’s where I put my mind to work. But there was this other aspect, call it social values, where I put my heart to work.
  • This other dimension included: Starting with my minister in 1981 for business executives in our church a group which we called “Christianity in Business” to explore what it meant to put Christian values into action in business situations; then later getting involved in socially responsible business organizations and speaking at various SRB groups; then also speaking at several Spirit at Work conferences.
  • Increasingly, in the last ten to fifteen years, I felt that gap diminishing – in my own work at least – particularly as I saw the connection between Capitalism and serving Humanity. (Much of this is described at www.HumanCapitalism.org.)
  • The book I wrote that Cosimo Books published in 2008, NOBLE ENTERPRISE: The Commonsense Guide to Uplifting People and Profits argues that companies that act with nobility will create a winning competitive advantage.
  • In that book, I identified certain “inner” sources of competitive advantage which could power a company’s performance, whereas traditionally, companies have relied on “external” sources of competitive advantage.
  • I called these inner sources of competitive advantage Spiritual Capital (which is described both in the book and at www.HumanCapitalism.org).

The bottom line that I was suggesting was that the so-called “gap” was an artificial construct (caused by defining the corporation in a narrow, historical way) and that when one “connects the dots” and sees the larger definition of business, one sees that social values are part of that. Furthermore, I have chosen to focus on those leaders (and companies) who see and act on this.

I see my purpose as one of inspiring business leaders to explore and adopt this larger view of the corporation, and to provide them with compelling examples of other business leaders who are already doing that, in the process serving social values – and generating superior profits.

Judging by the enthusiastic response of the audience and the conference sponsors to my message, it seems this message rang true.

6 comments on “Profits & Social Values – Closing the Gap”

  1. Chris Albright says:
    October 18, 2012 at 6:49 am

    Bravo re your trip!
    When is your next book due?

    Do you posit that closing the gap between profits and social values (a) is the “right thing to do” from a moral/humanistic perspective, or (b) closing the gap improves the bottom line and, hence, is self-enlightened?
    Take care. Our best to Ana.
    Chris

    Reply
    • Darwin Gillett says:
      October 18, 2012 at 11:34 am

      Thanks, Chris.

      Great question on a topic that’s getting more and more attention!

      My earlier view was that business and social values were totally separate, except for things legislated by society – child labor laws, etc. My view followed those of Nobel economist Milton Friedman, who argue persuasively at the time (I thought) that the role of business was to make money, and that giving to charity should not be done by the corporation directly, but rather by the shareholders individually. That was a much narrower view of the business corporation than I have now.

      I have seen wonderful examples of business owners who have embraced social values and built them into their companies – and that has contributed to their companies’ success. Some of these I will include in the next book I’m working on. (No publication date scheduled yet, but I plan to work on that, now that Ascendza, the new company I formed with a partner earlier this year, is beginning to take off.)

      Thus, I’m not approaching this from a moralistic view – that companies SHOULD include social values for the benefit of society, but rather that it can be a way to build a better company that attracts great people, great customers, and in the process generates better profits. The moralistic approach runs into the problems of: who decides what they should and should not do? (We have plenty of that already!) and who policies it, and who doles out punishments? All of that goes against a free market and free nation, and puts more power into the hands of the elite (even though some trust government to look out for the people over the greedy corporate types).

      Incidentally, probably the main reason that I no longer subscribe to the old view that the ONLY purpose of the corporation is to make a profit is that it’s no longer the case that Financial Capital is the only resource driving corporate success. It’s just one of several resources, the main other being Human Capital, driving the wealth creation process. Since financial capital is only one key resource, the return to that resource is only one measure of success and long-term corporate health. Thus profits are not the “be all, end all” of corporate performance – to be maximized. Profits are necessary, and a healthy level is important, just not the all encompassing objective it used to be. (Now if your business is entirely about investing money, fine, that’s a different story, but I’m thinking of companies that use more resources than just money.)

      I intend to come at the subject in more depth in the book, with a chapter on Capitalism.

      Stay tuned, and thanks for commenting!

      Reply
  2. Carol Coutrier says:
    October 18, 2012 at 12:18 pm

    Dear Dar,
    I am fascinated with your report on the conference in Brazil. I have sent your
    email to Marion Stoddart, Sue Edwards (both from “Work of 1000”) and Constance Wark, the colleague who is working with me on the Italian women farmers project. Marion is starting to show the film and make presentations to corporations on the relationship of leadership and her work to clean up the Nashua River. Question – how far reaching does “social values” in
    corporations go when considering the world and social/humanitarian issues outside the corporation? Was this part of the discussion at the conference?
    How important is the involvement of corporate employees in social values/humanitarian issues outside the corporation to their motivation, commitment to and sense of purpose in the corporation?
    Thanks,
    Carol

    Reply
  3. George Starcher says:
    October 19, 2012 at 9:35 am

    Dear Dar,

    Very interesting news about your trip to Brazil and plans for another book. I am sure it will be a winner and know you are on the right path to this challenge of building spirituality into the values that drive business success.

    Keep up the great work.

    Warmest greetings,

    George

    Reply
  4. Darwin Gillett says:
    October 29, 2012 at 6:42 pm

    Carol & George:

    Thanks to both of you for your kind words.

    It seems like those ideas that we have discussed together for decades for improving companies by awakening the Human Spirit within employees and executives alike are finally happening.

    The conference alone is an indication of that awakening. It’s especially note-worthy because that business school is ranked in the top ten globally by Financial Times.

    Carol, your question: “how far reaching does “social values” in
    corporations go when considering the world and social/humanitarian issues outside the corporation?” is an important and big one. I do not have the answer. But many of us will be watching closely to see what the answer is.

    I suspect that there will be for some time two different realities. On the one hand, will be enlightened leaders and companies that do view the social values far reaching that companies should be incorporating. (Those will be the ones that I highlight in my forthcoming book.) But there will be plenty of business leaders who scoff at that idea and flount it in their business dealings.

    My role, thus, in helping to bring about the change is to shine a bright light on those that are acting from higher purpose, etc – AND building a successful business not only at the same time, but doing so BECAUSE they are “taking the high road.”

    Those who argue against this will be right – in their own frame of reference, their view of reality. But in the broader, deeper frame of reference that is emerging, and is more and more the operating reality, they are wrong, and they will find the going tougher and tougher to create business success following the old rules.

    You also asked, “Was this part of the discussion at the conference?” Not so much in the formal presentations, but there were small groups of people with whom this subject I know came up.

    Thanks again for your comments and support.

    Dar

    Reply
  5. Darwin Gillett says:
    October 29, 2012 at 6:55 pm

    CaroL;

    I neglected to address your last question: “How important is the involvement of corporate employees in social values/humanitarian issues outside the corporation to their motivation, commitment to and sense of purpose in the corporation?”

    I suspect you have a good idea of what the answer is. I think it’s all related. Giving to the community, both individually and as a company can be a good spirit builder. But I think it’s just one of many things that builds (and brings out) spirit. And if the company is not doing the other things – like treating employees with respect and care, and having compelling purpose, and great values, then involvement of employees in humanitarian issues outside the company can fall flat.

    Hope that helps. I invite others to leave comments -and examples too.

    Best,

    Dar

    Reply

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