March 30, 2016

The danger in doing good to increase profit

Posted By: Fiona

Increasing profit by doing good is a good thing…isn’t it?

Well, it depends…

Businesses that operate more consciously make higher profits – that’s been proven time and again. It simply makes good business sense to pursue a higher purpose. So, if you want to make higher profits, particularly in the long-term, the best way to do it is to pursue a higher purpose, care for your stakeholders, and cultivate conscious leaders and culture. But there’s a catch, a trap for the unwary.

Your true motives will out

When everything is going well it’s easy for leaders to spout “our people are our greatest asset”, or “our true purpose is to (insert inspirational goal)”. We’ve all heard similar rhetoric from leaders in the good times. But what happens when things get rocky?

Traditionally, when times get tough the tough get cutting – usually starting with their people. Downsizing is so common in a downturn most leaders see it as normal, indeed inevitable. Yet how can leaders expect their employees to be loyal, creative, or intrinsically motivated when they know their jobs are on the line, that profit is prized above people?

Of course, when there isn’t enough money coming in then businesses need to see where money is going out and make adjustments. After all, a business that can’t pay its debts isn’t going to stay in business very long so won’t be able to provide employment or fulfil its purpose.

However this is where true conscious leadership comes in. Conscious leaders don’t knee-jerk in response to an economic jab. Rather they pause and reflect. What is really important to us? Where are we prepared to compromise, and where aren’t we? What’s in line with our purpose and values?

Two years ago I attended a Conscious Capitalism event at which I heard the story of Southwest Airlines and their “Bags fly free” decision. In a market where their competitors had begun charging for baggage, and with management consultants advising Southwest to do the same to increase their profits, Southwest Airlines’ leaders bucked the trend. They turned to their purpose, which I heard summarised as “To give people the freedom to fly” and is described on their website as “To connect People to what’s important in their lives through friendly, reliable, and low-cost air travel”. Based on this purpose they decided not to charge for baggage. And they launched an advertising campaign telling the public of their decision. What was the outcome? In 2014 it was the top performing stock in the S&P500, posting a 115% return. By staying true to their purpose, despite a risk to their income, they ended up being more profitable.

Had Southwest Airlines been driven primarily by short-term profit, would they have joined their competitors in charging for baggage? And if they had, what would this misalignment with their purpose have done to the confidence of their customers, employees and other stakeholders…and profit?

What will you do when times get tough?

If you decide to “do good” in your business so you can make higher profits then you’ll most likely be outed when tough times come. You’ll instinctively undermine your purpose and betray the trust of your stakeholders, particularly your employees, in order to protect your short-term profits.

However if you are in your business to fulfil your purpose and care for your stakeholders, when you hit tough economic times you’ll seek more creative solutions. Solutions that allow you to continue to fulfil your purpose and care for ALL your stakeholders, including but not limited to your investors.

What if it’s too late?

What if you’ve already had the knee-jerk response and done the cutting without carefully considering your purpose and stakeholders and creatively seeking other solutions? We’re all human and can be hijacked by our amygdalas at times, particularly if we haven’t yet taken up practices to reduce this risk.

First, acknowledge what’s happened.

Then apologise to those you’ve hurt. Sincerely.

And put in place mechanisms to reduce the risk of it happening again.

Do good to do good. Establish sensible business practices. And trust the profit to follow.

Like some help shaping your business to do good? Reach out