A business that produces nothing but profit is a poor kind of business

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ThinkTHUNDER BAY – Business Now – “A business that produces nothing but profit is a poor kind of business”. This is a quote from the great Henry Ford, an entrepreneur who is unquestionably on my personal Mount Rushmore of the greatest entrepreneurs in history. Great managers see beyond the numbers. This is something that can’t be taught in any business school, it’s simply an intuitive sense that great business people have on how their companies operate in a world beyond spreadsheets and the board room. Henry Ford was branded a socialist by Wall Street Investment bankers when he instituted policies such an 8 hour work day, 5 day work weeks and mandatory pay raises. These foolish management practices had such a profound effect that Henry Ford nearly single handedly created the middle class in America. His socialist policies now meant employees had leisure time on their hands. They used this time to travel with their families in their automobiles which they could afford because Mr. Ford’s assembly line innovation allowed his company to mass market an affordable vehicle. This combined with the generous wages his employees earned made purchasing a motor vehicle possible. This new concept of disposable income also meant that while they travelling with their families they could spend money on leisure activities thus giving birth to a robust service industry. His employees could afford to purchase homes and appliances to furnish them. His vision allowed numerous other industries to flourish in America, industries and businesses that would be listed on the same stock exchange as his company. This would create a rising tide floats all boats scenario whereby the increase in stock of companies like General Electric also meant a surge in the stock of the Ford Motor Company. The ripple effects of his decisions were enormous.

But, the old model set forth by the Robber Barons was to make a fortune, retire then do some good which has many flaws to it. At present time the concept of sustainability and responsibility in business has been taken to a new level by a new generation of entrepreneurs. Not because of ideology, but because of common sense. Great works now are not just the province of moguls. Many small and medium sized companies, including start-ups, do business in ways that contribute significantly to the communities in which they operate. We now hear this referred to in the news media as “sustainable business,” or “corporate social responsibility”. These practices, which include good environmental practices, began largely in response to protests about the way in which many legacy companies treated the ecosystem. Companies that were responsible for oil spills, clear-cutting of forests, and water and air pollution were targeted for boycotts and organized protests, with good effect. Companies that employed children in sweatshops or in unsafe conditions at home or abroad were also singled out. Whereas once companies argued strenuously that their products and processes were not harmful, now many of them have acknowledged the problems they have caused and have begun tackling them. They have done this because awareness, particularly about the environment, is growing, and because, not surprisingly, their customers and employees wish them to do so. People want to work for companies they are proud of and customers want to buy from businesses they trust.

What is the role of business as a responsible entity? That’s not up to a business; that’s up to society. Businesses can’t define their role, but they should be part of the conversation about what their role should be. In my opinion they should be the ones initiating this conversation. Businesses interested in a long-term future need to examine closely their behavior and choices. In a vacuum even the worlds the largest companies can’t solve the world’s problems. Nike can’t do much about world poverty. Glaxo can’t provide cures for all the diseases in the world free of charge. Exxon can’t solve the world’s energy and environmental problems. But they should act within accepted guidelines and be part of the discussion. So what are the best solutions businesses and entrepreneurs should consider? A possible solution may come from “social accounting”, which tries to measure these intangibles and capture certain aspects of the relationship between the corporation and society. Investors should care about these social aspects because they make a difference in a company’s performance. What we’ve thought of as traditional accounting issues are now part and parcel of sustainable development. The trouble with today’s accounting is that some of the biggest threats to a business are often ignored because there’s nowhere to place them in the balance sheet or income statement. If you look at drug corporations’ profit statements and analysts’ reports from a few years back, you probably won’t find many references to drug pricing. Yet that’s one of the biggest challenges facing the pharmaceutical industry today. Social accounting is an attempt to put some of these concerns on the radar screen of investors as well as society in general. We need to know what these numbers really mean. In the past we’ve assumed that social responsibility and profits are worlds apart. They are not.

I’m optimistic that things are changing. I think a big push is going to come from those who start the next generation of great companies. The factory laborers of the aforementioned Henry Ford were largely ignorant as to the companies supply chain’s sustainability. Compare that with Google’s swarms of new employees and the effect they have on how their company is run. The jury is out on how companies will behave going forward, but one thing has changed for good: the way risk levels are being assessed. How companies will respond to the concerns of people with whom they have no direct connection, people who don’t work in their corporation, buy their products, purchase their stock, or live anywhere near their operations. Understanding that human beings are a biological species who don’t exist mutually exclusive to other species we share our planet with takes a small effort, but will make a big impact. Entrepreneurs are now raising questions about what development should look like within the global community. They are challenging the assumption that corporate responsibility is simply the need to behave responsibly to the shareholders and immediate community. The innovators and entrepreneurs of the 21st century are starting to address how the business community can make a greater difference and find ways to influence the bigger rules of the game, and for this we will all reap a greater profit.

Graham Mailhot

Northwestern Ontario Innovation Centre
The Innovation Centre acts as a pivotal player in growing Northwestern Ontario’s innovation capacity. We offer support to innovative entrepreneurs, businesses, and community projects in the region of Northwestern Ontario. In addition, the Centre seeks out new approaches to improve, enhance and invigorate a commercialization system in our region. By encouraging ongoing cooperation between business, education and government, the Centre is a driving force to improve economic vitality.

Located in Thunder Bay on Lakehead University campus, the Centre prides itself on creating linkages, engaging entrepreneurs, supporting management, training people, accessing markets, developing and implementing businesses plans, sourcing financing and building success!

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