8th February 2024
What is the purpose of running a business?
A business is an enterprise that sells something it makes or sells a service it provides. It can be a one person operation or a multinational employing thousands.
The business operation will incur costs and will remain viable provided it covers those costs. The business may need capital to get started or to expand it operation, and it may need loans to balance out peaks and troughs in its cash flow. Usually the business will over time earn more from what it sells than its costs and so makes a profit. Such profits are usually kept by the people owning the business. In some cases that might be some or all of the people who work in the business, in some cases it might be both employees and customers (eg a cooperative), and in some cases it might be external shareholders.
The success of a business is usually equated with its ability to make a profit. A successful business makes large profits, less successful businesses make smaller profits, and those that make no profit close down.
But is profit the only way of measuring success? What about customer satisfaction? What about being a good employer? What about the business’s contribution to the stability and wellbeing of the local community?
Thames Water makes high profits and has the worst for receiving complaints from customers. Might a more successful water company be one that best provides what customer need – clean, reliable drinking water?
Amazon is highly profitable company but many of its employees are both poorly paid and subject to stressful working conditions. Employees feel they are being constantly monitored and that even taking time to go to the toilet is counted against them. Might a successful company be one that provides long term secure employment that gives job satisfaction, wages that support comfortable living standards, and credible pension? It could be us or our neighbour or our children who are looking for gainful employment.
Small rural communities – and increasingly deprived urban communities – are finding that they have no local bank, fresh food shops, dental surgery etc as the pressure to maintain profits pushes business to leave an area or to downsize. This is not good for the local community and can become a spiral where the more businesses leave, the more quickly the area becomes depressed and the more other businesses leave. With the businesses go local jobs. The heart of the community is quickly lost. Might a successful business be one that adds vitality to its community, is valued by local people and keeps jobs and money circulating with the community?
Actually in all three of these scenarios one might feel that the customer’s wishes were not be valued by the businesses. What has happened to the understanding that ‘the customer is always right’? How often have you been held on a phone call to have the oft repeated – but barely credible – ‘Your call is important to us’ automatically relayed to you?
It does seem that the idea that the main purpose of a business is to make a profit does not benefit the consumer nor the community. Further what we are now increasingly seeing, is that the primacy of profit is also detrimental to the environment.
In Herefordshire the large number of industrial scale chicken farms has led to high levels of effluent running into the River Wye, polluting it with phosphorus and killing its wildlife.
In Spain strawberry growers have been abstracting so much water for their crops, that the Doñana national park – a renowned wetland area – is being depleted of water threatening the survival of many plants and creatures including flamingos, spoonbills and the glossy ibis.
Globally the burning of fossil fuel products has triggered an escalating climate crisis threatening all forms of life, whilst the fossil fuel companies have continued to make recording breaking profits.
One approach to this problem is to replace the traditional bottom line of ‘loss or profit’ with a ‘triple bottom line’ which measures the business’s impact over three area: economic, environmental and social – or the 3Ps: people, planet and profit. It is however harder to find ways of measuring the loss and profit aspects of people and planet, and of doing so in a way that allows for comparison across businesses. How do we put a price on community stability or clean air?
Suffolk Libraries commissioned a research company to assess the value of their libraries. Using surveys, focus groups and modelling, the researchers found ways of measuring the social impact of the services the libraries offered that translated into monetary values. They concluded that for every £1 spent, the social value gained was £6.07.
The environmental impact of a business might be measured in terms of carbon emissions, or in terms of the cost of making good damage to the environment. If the chicken farms in Herefordshire has to pay the cost of cleaning and revitalising the River Wye, it would make a significant impact on the bottom line of their businesses. In 2021 local MPs wrote to the government asking for £15 million to clean up the river.
One organisation that has developed a way of measuring better business
practices is B Lab. This not-for-profit international organisation has developed a certification system that “measures a company’s entire social and environmental performance. From supply chain and input materials to charitable giving and employee benefits, B Corp Certification verifies that a business is meeting high standards of social and environmental performance, transparency, and accountability.” Successful businesses become certified as B Corps. (For more info – https://bcorporation.uk/)
The campaign for better business practices is ongoing and seeks to include not just those businesses with a conscience, but to extend the expectation of good practice in all the 3Ps, to all businesses. B Lab UK and a coalition of more than 2400 businesses, is campaigning to amend Section 172 of the Companies Act. At present this section directs businesses should prioritise the success – ie the profitability – of the company for the benefit of its members – ie shareholders. The proposed amendment would direct that businesses should prioritise the purposes – ie the social, economic and environmental impacts – of the company. (For more info – https://betterbusinessact.org/ and https://thehumanbusiness.co.uk/better-business-act/)
Change in the way businesses operate is both possible and achievable.
The Green Tau 