Profits should be a result of excellence–not the main goal
I recently received an email from Bill Budinger, the founder of Rodel Inc. Bill expressed a core idea of about great leadership: that if you put people and mission before profits, then the profits will flow. Bill went on to explain how putting profits first makes it very difficult to run an ethical company. Bill’s formulation was so clear, and backed up with such authority of experience, that I asked him for permission to post his email. The key section is in bold, below.
Dear Professor Haidt:
EthicalSystems.org is a breath of badly needed fresh air.
As a young man in 1968, I’d just come from the military, was full of esprit de corps, and thought that a business ought to be about its people and its mission. I and some partners founded a manufacturing business on that ideal, and it worked better than our wildest dreams. The company, Rodel, Inc., made materials essential to the production of semiconductors. The world’s leading chemical companies were our competitors. Yet by the 1990s, Rodel was supplying 95% of the world market, from plants all around the world. No semiconductor chip was made anywhere in the world without using our materials. We became immensely profitable. That incredible success was due largely to the dedication of our people — and that, in turn, was due to their belief and trust that their company put them first, ahead of profit or even market share. None of our competitors had that advantage.
Your page on corporate governance caused me to think about how the purpose of a corporation seems to have changed in the last several decades. In your executive summary of that page, you state:
“Good boards provide a balance of advisory support as well as monitoring oversight, but the most important job of the board is to get the right CEO (and to be willing to get rid of the wrong one).”
I think this is exactly right, but I would suggest that you clarify what it means to get the “right” CEO, or fire the “wrong” one. I believe that the CEO’s first job is to set and define the company’s purpose and priorities — and set its culture. If those priorities put profits, shareholders, and the CEO’s stock options first, employees will feel like servants and be more vulnerable to corruption. On the other hand, if the company is pursuing a greater mission (and the CEO exemplifies that pursuit), employees will feel they are working for a greater good. They will enjoy coming to work and their company will prosper. Profit should be the result of excellence, not an end in itself. If profit is the ultimate purpose, then anything that is thought to get in the way, like ethics at times, will be discarded. One cannot create an “ethical system” if profit or “maximizing shareholder value” is seen as the organization’s ultimate goal. Rather, profit should be seen as the reward for doing things well.
Don’t get me wrong, profit is as essential for a business as food is for one’s body. But the body’s need for food is not the reason for living. A vibrant enterprise must have a better reason for existing than just to make profit.
Rodel was not the only company to benefit from these ideas. Many of our new entrepreneurial companies put shareholder value way down their list of priorities. Ironically those companies tend to do much better for their shareholders than the companies whose goal is pursuit of profit and shareholder value. [editor’s note: see our “ethics pays” page]
I’m delighted to see you working to raise awareness.
In an email exchange afterward, Bill expressed the core idea in an even more succinct formulation:
As Thoreau put it: “Happiness is like a butterfly: the more you chase it, the more it will elude you, but if you turn your attention to other things, it will come and sit softly on your shoulder.” So it is, I believe, with profit over the long term.