Earlier this week Stephen Green, HSBC Chairman, challenged the free market economic guru Milton Friedman’s assertion that companies should focus on shareholder value above all other considerations. In a lecture on “Tomorrow’s Value”, an event organised by think tank Tomorrow’s Company and the Chartered Institute of Management Accountants, Mr Green said:
“What is the purpose of a business? Friedman says the social responsibility of a business is to make a profit. But that will no longer do. Plain common sense will tell you that that cannot do.” Plain common sense will tell you that you have to have a sustainable business model.”
So he gets it. It is not “Capitalism OR Common Sense” it is “Capitalism AND Common Sense”.
But does he get it all and can he explain it in ways that others, particularly the 300,000 people in HSBC can understand and actually implement? Not quite we think. He is still talking in terms of the need to earn a satisfactory return on shareholders’ risk capital but with some add ons like building lasting and sustainable relationships with other stakeholders and finding a real place for corporate philanthropy in business processes and activities.
All good stuff but it still misses the point; not by much but the margin is sufficient to confuse the thinking. The crucial point is that if:
“You do all the right things and you do them really well one of the results will be superior profitability and returns for shareholders.”
Profitability is an outcome which Mr Green sort of understands but when he describes profit as a “… by product, a hallmark of success. It is not the be all and end all. It is not the raison d’etre of business” you can see he hasn’t quite got it.
If you want to generate superior returns for your shareholders, not just for this year or next but sustainably into the future, generation after generation then doing all the right things and doing them really well has to be at the core of your business philosophy and strategy. How can we make this assertion?
Well first from many years of business experience, including learning from our many mistakes in not doing all the right things and/or not doing them really well. Then nearly 20 years of working with clients as business coaches and learning what really enables sustainable, superior business performance and what does not. But it’s not just us; the research of several eminent business and economic experts backs up our experiential conclusions. For example:
- Professor Vinod Singhal of Georgia State Institute of Technology, whose extensive research into the effective implementation of TQM demonstrated that those businesses that achieved and sustained this were twice as profitable as the average business.
- Robert Buzzell & Bradley Gale whose work on the Profit Impact of Market Strategies identified the crucial importance of Relative Perceived Quality by the customer as a key driver of profitability, described in their book the PIMS Principles.
- The work of Robert Kaplan and David Norton on the development of Balanced Scorecard demonstrated clearly how financial performance is an outcome of the quality of everything that goes before.
- Jim Collins research on what makes a good company able to become a great company, described in his book “From Good to Great”.
- Michael Jarrett, Adjunct Professor of Organisational Behaviour of at
whose work published in his book “Changeability” in 2009 confirmed our own work and experience when we first defined and publicised this new business culture criterion in our “Why Excellence” seminars in 2003. London Business School
So not only is it Common Sense but a lot of work and research by some really bright people says that common sense works and works better. To actually make it work in your business requires you to find the answer to two questions.
What are all the right things?
What does doing them really well actually mean?
If you want to know more about how to find the anwers for you, your people and your business then give me a call, Steve Goodman, 07802 385586 and visit our change website at www.changeworld.co.uk and our Business Breakthrough Coaching website at www.achievementcoachinginternational.com
Capitalism or .... Common Sense is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at “Exceeding Expectations","You're having a laugh ... Seriously?", "Business Bloop of the Month Award".