Since the time of Aristotle, business has been disparaged by people of culture and refinement-like ourselves. Critics of business have argued that the people who engage in it are selfish in their motivation, narrow in their interests, and instrumental in their behaviour. The values of business are different from, and inferior to, those of other human activities.
In the past 20 years, something odd has happened. This characterisation of business, previously put forward only by those who were hostile to it, has been adopted by business people themselves. They no longer feel obliged to deny that their motives are selfish, their interests narrow, and their behaviour instrumental. They routinely assert that profit is the defining purpose of business, that their responsibilities to society do not extend beyond the constraints imposed by law and regulation, and that their obligations to their employees and customers are incidental to their duty to shareholders. They accept that business values are different from those of other activities; they describe the nature and purpose of business in terms which would seem grotesque if applied to other spheres of life.
We do not think that good parents are people whose goal is to derive pleasure from the performance of their offspring, or to ensure that their children supplement their pensions when they grow old; although we observe that good parents do find great pleasure in what their children do, and maintain mutually loving and supportive relationships into old age. We do not think that fine teachers are people who devote themselves solely to improving the GCSE grades of their pupils; although we note that the students of fine teachers do well, both in examinations and in life. When we talk of great sportsmen, we think of Stanley Matthews and Don Bradman, and admire not just what they achieved but the way they did it; when we deplore the decline of sport, we are not deploring the achievements of modern sports people, who are stronger and faster than their predecessors, but the instrumentality of their behaviour.
Our motives are neither wholly selfish nor wholly altruistic. Parenthood is personally satisfying; vanity, in moderation, is a characteristic of the successful teacher or sportsman. But if personal satisfaction and personal vanity are all that parenting, sport, or teaching are about, our performance is rarely worthwhile-even, in the long run, in giving us satisfaction or stimulating our vanity.
Most human activities are rich and multi-dimensional. Those who participate in them have complex motives. Their objectives are numerous and hard to measure. We find it difficult to define exactly or measure precisely what we mean by a good parent, a fine teacher or a great sportsman. Nevertheless there is little disagreement about who are and who are not good parents, fine teachers, great sportsmen.
Is business fundamentally different from these other activities? Is business, necessarily and properly straightforward in objective, simple to measure, limited in responsibility, selfish in motivation?
Many people seem to think so. Consider the following quotations-I did not have to search hard to find them. First: "While business has relations with customers and employees, its responsibilities are to its shareholders." This statement comes from the Confederation of British Industry's evidence to the recent Hampel committee on corporate governance and was reproduced, approvingly, by the committee. Second: "The social responsibility of business is to maximise its profits." This widely quoted assertion is by Milton Friedman of the University of Chicago. Third: "The provision of goods and services of good quality to the company's customers at fair prices. What a glorious utopian (socialist) concept. There is only one price, monopolies excepted-the good old market price. Fair is a word I have never heard voiced in a pricing meeting." If you are wondering which shop to avoid, it is Dixons, the electrical goods retailer-that was the voice of its chairman, Stanley Kalms. Fourth: "The most ridiculous word you hear in boardrooms these days is 'stakeholders.' A stakeholder is anyone with a stake in a company's well-being. That includes its employees, suppliers, the communities in which it operates and so on. The current theory is that a chief executive has to take all these people into account in making decisions. Stakeholders! Whenever I hear that word, I ask: 'How much did they pay for their stake?' Stakeholders don't pay for their stake. Shareholders do." That comes from a recent book by Al Dunlap, former chief executive of Scott Paper (nicknamed Chainsaw Al, for his stewardship of that and other companies). And finally, here is the commentator Samuel Brittan: "In matters such as buying and selling, or deciding what and how to produce, we will do others more good if we behave as if we are following our self-interest rather than by pursuing more altruistic purposes."
To see how offensive these statements are, imagine them translated into different contexts. How would we react on being told that the word "fair" was never mentioned in cabinet meetings, in family life, or in the decisions of the committee of a sports club; that all of these bodies came to their conclusions on the basis of naked assertions of self-interest by the participants? What would we think of a motorist who said that, while he had relations with other road users, his responsibility was to get to his destination as quickly as possible; or of a teacher who said that, while he had relations with his students, his responsibility was to his wife and family? What would be our response if the dean of the Chicago Medical School declared that the responsibility of doctors was to maximise their incomes? Imagine an extract from the Al Dunlap manual of parenthood: "The current theory is that parents have responsibilities to their children. Parental responsibilities indeed! Whenever I hear that phrase, I ask: 'How much do children pay their parents?' Children don't pay for their upkeep-parents do."
In business and perhaps in life, the only form of relationship Dunlap can conceive is a commercial, contractual one: the only source of obligation to other human beings is that they paid you. He genuinely believes this. As he says: "If you want a friend, get a dog. I'm taking no chances, I've got two."
The CBI statement is equally striking. Few of us would dispute that we have responsibilities to, not merely relations with, other road users; responsibilities which extend beyond formal conformity with the provisions of the Road Traffic Act and the Highway Code. These responsibilities require us to treat other road users with care and courtesy: not simply because that will help us get home on time, but because we understand that these are obligations we assume when we make use of the roads and that they are self-evidently part of what we mean by being a good driver. The import of the CBI quotation is that the extra-contractual obligations a business has to its employees are less demanding than these. This statement is not casual or ill-considered. It is the product of careful deliberation by conscientious businessmen. But a climate of opinion in which this assertion is possible is one which treats business behaviour as very different from the standards of behaviour which apply in ordinary life.
Part of the problem is that the claim that business is only about profits has in the past been contrasted with two unconvincing alternatives. One is that the purpose of business is to do good. Those who are in business should work for the benefit of the community. Another is that profit is immoral and that therefore all the assets of corporations should be transferred to the state. Since neither of these approaches seems to work very well, Al Dunlap and Stanley Kalms have a relatively easy ride.
But I want to test their assertions against a much more powerful contrary position: that successful business in reality is not selfish, narrow and instrumental. What makes somebody a good parent, a fine teacher or a great sportsman, is a combination of talent relevant to that activity and a passion for-and commitment to-parenthood, education or sport. Similarly, the motives which make for success in business, both for individuals and for corporations, are commitment to and passion for business-which is not the same as love of money. The defining purpose of business is to build good businesses-as the defining purpose of parenthood is to be a good parent. What we mean by a good business is as complex as what we mean by good parenthood. Nevertheless, there is widespread agreement on which are, indeed, good businesses. The same names keep cropping up-Marks & Spencer, Hewlett-Packard, Sony. They are admired by everyone-their customers, governments, the financial community, the people who work for them and other businesses.
There is a similarity between the way I have described parenthood, education and sport-and would wish to describe business-and what Alasdair MacIntyre, the philosopher, has called a "practice." MacIntyre recently explained how his concept of a practice relates to commercial activities which have external criteria of success, such as profitability:
A fishing crew may be understood as a purely technical means to a productive end, whose aim is overridingly to satisfy as profitably as possible some market's demand for fish. Just as those managing its organisation aim at a high level of profit, so also the individual crew members aim at a high level of reward. Not only the skills, but also the qualities of character valued by those who manage and work in the organisation, will be those well designed to achieve a high level of profitability... When, however, the level of reward is insufficiently high, then the individual whose motivations and values are of this kind will have the best of reasons for leaving this particular crew or even taking to another trade... Consider, by contrast, a crew whose members may well have initially joined for the sake of their wage or other share of the catch, but who have acquired from the rest of the crew an understanding of, and devotion to, excellence in fishing and to excellence in playing one's part as a member of such a crew. Excellence of the requisite kind is a matter of skills and qualities of character required both for the fishing and for achievement of the goods of the common life of such a crew. The dependence of each member on the qualities of character and skills of others will be accompanied by a recognition that from time to time one's own life will be in danger and that whether one drowns or not may depend upon someone else's courage...
One thing on which Al Dunlap and Al MacIntyre would agree is that they would expect the first crew-"whose aim is overridingly to satisfy as profitably as possible some market's demand for fish"-to be more successful. But would either of them be right? As so often, we have a Harvard Business School case to help us: the Prelude Corporation (Harvard Business School, 1972), once the largest lobster producer in North America, which sought to bring the techniques of modern management to the fishing industry. Listen to its president, Joseph Gaziano: "The fishing industry now is just like the automobile industry was 60 years ago: 100 companies are going to come and go, but we'll be the General Motors. The technology and money required to fish offshore are so great that the little guy can't make out."
If you're wondering why the Prelude Corporation is not now grouped with General Motors in the Financial Times index, it is not because I have made this story up. The Prelude Corporation did exist, but not long after the Harvard case was written up it became insolvent-for reasons which are clear enough from MacIntyre's account. You don't make fish, you hunt them. Your success depends on the flair, skills and initiative of people who cannot be effectively supervised. The product of people who feel genuine commitment, who "have acquired from the rest of the crew an understanding of and devotion to excellence in fishing," exceeds that achieved when the "only aim is overridingly to satisfy as profitably as possible some market's desire for fish." That is why MacIntyre's second crew is still fishing while his first is not.
In Oxford, not only do we now have our own business school, we have our own case as well. You can find it in the film True Blue, in which talented but individualistic Americans join the Oxford boat race crew and destroy its team spirit with their rationality and competitiveness. They are expelled, and the revived morale of the restored Oxford crew sweeps it to victory. The story is pure "Al Dunlap meets Alasdair MacIntyre"-and MacIntyre wins.
If we had to choose between the MacIntyre crew and the Dunlap crew, I suspect that most of us would prefer to be members of the MacIntyre crew and that most of us-provided the price is much the same-would prefer to buy fish from the MacIntyre crew. Moreover, being in the MacIntyre crew has an enormous benefit: we need experience no conflict between the values we apply in our working lives-the values of business-and the values we apply in our private lives, our values as social beings.
the argument in favour of the "pure" profit motive is that it is clear and easy to implement. But on reflection, this turns out not to be true. The injunction "go and make money" provides very little guidance to the newly appointed manager of a business. It fails to distinguish between the job you assume as chief executive of Shell, Siemens or Disney Corporation. And the assessment "does this add to shareholder value" is possible only for a very narrow class of decisions. It is mostly true that when a business is faced with an important strategic decision, it will be presented with a detailed financial assessment of the consequences. But it is na?ve to think that these decisions are truly based on these calculations. In reality they rest on the trained, experienced intuition of able managers as to whether this fits with their sense of the proper development of the business: the same kind of trained, experienced intuition which guides the professional in other spheres-medicine, the law, education. And successful business people, like successful professionals in other disciplines, are people who get these decisions right more often than not. If this is true at senior executive level, it is even more true further down the organisation. Disney employees are not told to go and make money for Disney. They are told to make sure the guests have fun. They feel they are part of a great business. The result makes a great deal of money for the Disney Corporation.
If profit maximisation provides no clear guidance in anticipation, it provides no clear measure in retrospect. Did the people who built up Marks & Spencer or Shell maximise profits or not? I don't know and neither do they. But I do know that they created great businesses. They succeeded in MacIntyre's terms: these companies epitomise the practice of business.
There is something paradoxical here. How can it be that a fishing crew organised on rational lines to maximise its catch and its profits would be less successful in achieving these ends than one less selfish in motivation, less narrow in its objectives, less instrumental in its motivation?
The issue has been noted before. I first came across it in my research into characteristics of exceptionally successful companies. Whatever their common features were, exceptional focus on profitability did not seem to be among them. They were particularly profitable, but not particularly profit-oriented. A recent study assessed 18 paired comparisons of successful and less successful companies in the same industry. Its judgement was: "We did not find 'maximising shareholder wealth' the dominant driving force or primary objective; the visionary companies have been more ideologically driven and less purely profit driven than the comparisons in 17 out of 18 cases."
The most profitable large US companies today are Merck and Microsoft. George Merck set out the company's approach in explicit terms: "We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and when we have remembered that, they have never failed to appear." The profits appear, appear and appear.
I do not recommend that you read Bill Gates's recent book any more than I recommend Al Dunlap's. But if you do read them both, you should notice the contrast: Gates's is entitled The Road Ahead; Dunlap's is called Mean Business. Gates is enthused by what businesses he might set up; Dunlap by those he might close down. Above all, you learn that while Dunlap's primary concern is money, Gates is primarily interested in computers. Yet Gates, not Dunlap, is America's richest man.
I call this paradox the principle of obliquity. It holds that some objectives are best pursued indirectly. I owe the phrase to James Black, the chemist whose career illustrates this principle. Black made more money for British companies than anyone else in the history of British business, by inventing beta-blockers and anti-ulcerants. He discovered the first in the laboratories of ICI; the second in those of Smith, Kline & French, after he had decided that ICI was more interested in profits than in chemistry.
We are all familiar with one application of the principle of obliquity. While Americans, characteristically, talk of the pursuit of happiness, happiness is rarely best achieved when it is pursued. Research in social psychology confirms our intuition. Happy people are not, in the main, those who selfishly promote their own interests, but those who have a kind of uncalculating and outgoing generosity.
Instinctively, we understand why. What makes for happiness is complicated. The frequent repetition of pleasurable experiences, although superficially appealing, rarely leads to happiness: hedonism and happiness are not the same thing. Our own satisfactions depend on the responses of others, and instrumental behaviour is rarely effective. Flattery and bonhomie do not evince the same response as genuine praise and genuine friendship.
Noting these things, we can see that they have direct business analogies. Al Dunlap is the business equivalent of the hedonist. He recognises a series of actions which improve immediate profits, just as the hedonist knows what actions provide immediate gratification. But neither Al Dunlap nor hedonism create anything of enduring value. And instrumental behaviour towards employees or customers is ultimately-and often quickly-distinguishable from similar actions motivated by genuine concern.
Let me state the principle of obliquity more formally. When a characteristic is selected in an uncertain environment, deliberate action to promote that characteristic is often self-defeating, and the highest values of the characteristic will often be achieved by chance. (Incidentally, individual wealth and corporate profit are quite different; if you want to be rich the best way is probably to try to get rich).
Perhaps the clearest way to see the principle of obliquity in action is to look at one remarkable example: natural selection in modern evolutionary biology. Richard Dawkins has described this through the metaphor of the selfish gene. He claims that most of species evolution, and much of species behaviour, can be explained by the hypothesis that genes act so as to maximise their incidence in the population. This is why we show more concern for our siblings and children than our cousins or great-grandchildren, and more for the latter than for the population at large. It is why we love people more than ants.
Now-as Dawkins must continually repeat to critics-the selfish gene is a metaphor. He does not believe that genes literally act selfishly, or indeed have any motives at all, or that someone who jumps into a raging torrent to save a life calculates the fraction of genes they share with the person drowning. But genes and people typically behave as if they made these calculations, because that is the behaviour which selection has favoured.
What would happen if genes did become literally selfish? Suppose someone was appointed-call him the gene manager-to instruct genes how best to propagate themselves. The gene manager would certainly want to make changes. Al Dunlap would have little time for the "cleaner" fish which swim into the mouths of much larger fish, clean the detritus from their teeth, and are allowed to swim out again unscathed. Or what of the drone bees which consume the honey but do no work? They would soon receive their redundancy notices.
But in implementing these reforms, the gene manager would be making a mistake. Although the survival of cleaner fish looks like an act of altruism, and the presence of drones an instance of inefficiency, each actually serves the end of genetic propagation in terms of the complex social systems of coral reefs and beehives.
It is not my purpose to argue that conscious intervention can never be useful, that management is always counter-productive. Rather that the value of these activities depends positively on the extent of our knowledge and understanding of the environment and negatively on the effectiveness of the process of natural selection.
The most memorable statement of the principle of obliquity is, of course, that of Adam Smith, who wrote how in a market economy an individual "is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." Smith's case was that the wealth of nations was best secured not by people who set out to promote it, still less by people who appealed to others to set out to promote it: that we do better to rely on the somewhat chaotic process of experiment and natural selection. We now have powerful evidence from eastern Europe and Africa that this is right. Is the wealth of corporations different from the wealth of nations?
While some shift from the tired consensus of the 1970s was necessary, most of the new macho management talk is hot air. It bears little relation to the reality of successful businesses such as ICI, Unilever, Glaxo or Shell. But the rhetoric does have some influence, most of it bad, on how people behave: reducing motivation; encouraging self-aggrandisement; favouring the smart deal over the creation of competitive advantage; and favouring the calculable benefit from cost reduction over the incalculable gain from the development of new businesses.
My conclusion is that business is-and ought to be-a practice; a profession like any other. It requires the same sort of dedication to its values, the same sort of breadth of understanding of the complexities of society and individuals, the same sort of sensitive understanding of people, as parenthood, education, sport, or any other complex human activity.
