A Purpose Beyond Profit

Tony Schwartz is President and CEO of the Energy Project. The Energy Project  partners with organizations to create workplaces that are healthier, happier, more focused and more purposeful. In his blog he wrote about a purpose beyond profit for corporations. I quote “For years, I’ve listened to chief executives of large companies pay dutiful lip service to concepts like corporate social responsibility, investing in the communities they operate in, treating employees as their most precious asset and living their values. Mostly, it comes off as so much canned public posturing — boxes to be checked off, rather than any sort of deep commitment.”

Here was my comment on his blog “A Purpose Beyond Profit“:

Well put. I would like to raise another point.

For many years I marketed derivative products to major corporations in the United States and Canada. I developed a relationship with the president of a major insurance company. They were in to “slash and burn” in terms of downsizing and controlling costs. Many employees were terminated and business lines closed with a major loss of jobs. So I asked him why the continual cost cutting. Why did it seem to never end. The answer was pretty simple. They can control costs but not revenues. To have an immediate impact they can only cut costs and in people intensive industries that means jobs. This was an honest answer but demonstrates the short run decision making process with little thought about the long term. In fact, the insurance company struggled for many years and today it’s share price has only modestly recovered.

What is absent is leadership and vision. What is not absent is these failed attempts to support the share price. Executive compensation is focused on short term results and much of the academic literature confirms that notwithstanding the naysayers.

We suffer from the same malaise in politics. No leaders, just politicians. Power hungry and poll driven rather than doing the right thing. So corporate executives cannot be blamed for behaving the same way. It’s an ongoing and continuing failure of corporate governance that is responsible for this. Co-opted directors and complacent shareholders. As long as corporate executives are given short term incentives they will behave accordingly. Stock options have exacerbated the problem. So I hope that you can get these guys to think long term. But with no long term payoffs, they will not invest in long term results notwithstanding the experience of a handful of others. They will maximize their own returns to the detriment of others as under the circumstances this is the only rational thing to do.

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