Written by John Carbrey.
This article is the first in a series exploring new approaches to venture creation.
“What should be the right level of profit?” is a question few people have asked in the boardroom. The assumption underlying most business plans and decisions is that the right level of profit is the maximum — whatever that might be — so the idea of the “right level of profit” hardly seems relevant and can cause some discomfort among the shareholders.
However, when John Mars, a family shareholder of Mars, Inc., asked his unusual, provocative, question in 2006, he spurred a movement that has the potential to help businesses redefine their purpose, becoming better able to profit while also solving problems for people and the planet.
Building on their 1947 internal letter that already declared that “mutuality” is embedded in its chief objective, Mars began innovating plans for sharing benefits among multiple stakeholders, including people and the planet. Through focused pilot programs, the company worked on building reciprocal relationships that grew their ecosystem, rather than focusing on self-protective attempts to extract the maximum from a value chain that would guarantee continued growth and increased shareholder dividends. They believed that focusing on maximum profit would constrict the flow of potential benefits to those outside the company’s core.
They were laying the foundation for the Economics of Mutuality.
Introduced through a partnership between Said Business School in Oxford and the Mars Corporation Catalyst think tank initiated after the 2006 profit question, Economics of Mutuality seeks to “complete capitalism by transforming the Economic System by creating a mutuality of benefits among all stakeholders.” An enterprise built on Economics of Mutuality principles proactively plans to benefit people and the planet in addition to generating financial profit. Its proponents believe that a company’s success is measured not only in terms of financial profit, but also in the level of practices that are mutually beneficial to many stakeholders within their industry and ecosystem — field workers in construction companies and smallholder farmers, for example.
What is at the center?
Economics of Mutuality presents a new paradigm. Instead of maximum profit being the bullseye of a company’s model, the company sees itself inside a bullseye of a larger ecosystem. As part of a larger system, the business and society benefit from the business looking not only inward at its profit goal, but also outward in consideration of how its practices and processes affect the system to which it is connected.
All businesses exist within an ecosystem, but many companies ignore this reality and focus only on themselves and their own interests. Enterprises embedded in Economics of Mutuality principles, however, acknowledge their responsibility for
“ecosystem building and mapping, . . .pain-point identification, . . .innovative management practices, . . .innovative metrics and measurement of performance, and finally new modes of profit construction — namely the concept of a mutual profit and loss statement (to help assess what the right level of profit should be, to then align purpose and practice).”
Embracing these principles will challenge a company to see profit not as an end in itself, but as a means to a purposeful existence that serves the larger ecosystem.
Asking provocative questions
Economics of Mutuality invites us to challenge the thinking that has dominated business formation in the past century by facing the following questions about the prevailing view of the social responsibility of business and how that view has affected business creation in the past fifty years.
What is the prevailing view of the social responsibility of business?
Is business inherently moral, amoral, or immoral? What is its social responsibility, if any?
In the past century, the Chicago School of thought has dominated the thinking around the role of business in society. Its most notable voice, Milton Friedman, summarized the view in his article “The Social Responsibility of Business is to Increase Profits” Friedman and others believed that the free market economy, a system based on supply and demand with little or no government control, will better society. Their understanding of a “better society” included prosperity resulting from free market practices.
How has this view affected business creation over the last fifty years?
The principles of and practices in free market economies have created extraordinary amounts of wealth, which correlates to an increase in material well being across societies.
But focusing on maximum profits alone, even for companies aiming to avoid “deception or fraud,” has resulted in many unintended consequences affecting the ecosystem around a business. In pursuit of financial profit, companies have neglected other significant considerations regarding moral obligations for the care of human conditions and ecological responsibility. While unintended, they ought to have been anticipated.
I recently spoke to a family in southeast Asia with enormous, multigenerational wealth. The grandfather, who had started the enterprise that eventually created the wealth, had set a rule early on that he was determined not to profit from the misery of others. This rule provided guard rails, stopping him from going into many different types of lucrative business opportunities that presented themselves while in no way hindering his financial success. With this simple rule, he demonstrated that it is possible to anticipate negative consequences and consider goals beyond just profit.
Profit maximization as the main goal seems reasonable. After all, a business has a responsibility to owners and investors to get the best return possible. However, a focus only on profit maximization limits the vision of a business to just a single outcome, and neglects other considerations and goals that can contribute to human flourishing.
What makes companies better
Building better companies requires questioning some previously unquestioned values that have shaped the current business culture. This is a worthwhile pursuit as we consider business goals around profit, sharing power, and creating value — questions I will explore in the next article.
In the meantime, you can learn more about Economics of Mutuality here.