Thursday, November 11, 2010

Profit Can’t Be Primary Goal of Business

Interview with British Economist John Kay. Via Daily News & Analysis.
Why do you say the world’s most profitable companies are not profit-oriented…
They are not exclusively profit-oriented. Businesses that are most profitable and are able to sustain profits in the long run are actually people building great businesses and building a great relationship with customers, relationship with employees and relationship with suppliers. On the other hand, businesses that are most profit-oriented, like Enron, Bear Sterns, or for that matter Lehman Brothers, are not in the long run profitable because they are pulled apart by the greed of their own employees.
Did the attitude of companies to be profit-oriented lead to the recent financial crisis?
In the financial sector, Lehman would be an archetype of this. Organisations that were not really organisations at all but were a collection of individually greedy people. The objective of making profits as an organisation is not one which is going to appeal to anyone really. People who have a profit orientation would rather make profits for themselves, which is what people in these businesses did. A corporate culture that extols greed is, in the end, unable to protect itself against its own employees. Nor does the business with such a culture attract public sympathy when things go wrong.
What do you mean by bogus rationality?
Bogus rationality is probably best described as the kind of rationality that says this is the way we are going to make decisions in a world in which we think we know much more than we (actually) do and believe we have much more control over it than we (actually) do. We pretend the world is like that in order to make decisions in this kind of way. And that’s what I mean by bogus rationality. It is a process which has the appearance of rationality but in the end it doesn’t. It isn’t rational.
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