I recently read this landmark article from the Harvard Business Review by Charles Handy entitled “What’s a Business for?” I don’t typically list the HBR in my regularly read periodicals but this 2002 article, pointed out to me by my professor Michael Meeks, was too compelling to pass up. It was comforting to see that a some of the most salient points of the socialist argument are not lost on deaf ears to the business world. You can read the full article here (PDF |HTML) but I’ve summarized the main points below. The thesis of Handy’s argument is that the TRUE value in a business then is in how it brings people together, it is “the human association which in fact produces and distributes wealth”. The value of a restaurant is not in the Chef’s ability to devise great recipes (not to say it isn’t an integral ingredient). If that were the case the Chef wouldn’t need the restaurant; she could simply sell her delicious dishes from a stand on the street. But if she did that, given the time it takes to prepare a four-course meal, the Chef would only be able to serve two, maybe three people at each meal. No, the restaurant allows the Chef to sell her food to many more people because it brings together the talent of several people - Cooks, Sous-chefs, Waiters - to deliver food of a high caliber to many people. And not only that, the restaurant provides an opportunity to create an experience for which people are willing to pay, one they could not recreate at home (or at least not without a concerted effort). Alone, a chef could create this for a small group of people at a dinner party. With a restaurant behind her, she can share it with the world. And this makes sense; society as a whole gets more, higher quality products produced more efficiently, employees are afforded more benefits like healthcare, and the business makes a profit. Where then, does the modern idea of the corporation fit into this with its financial reports, and margins, and stockholders? If you ask investors the primary responsibility of corporate leadership, most will tell you maximizing shareholder return. By maximizing profits, stock prices stay high allowing the company to raise money more easily stay in existence; just as an individual must make a living so must a corporation. As Handy points out though, this does not mean that the purpose of a business is to make a profit. Handy likens such mentality to a person who lives to eat as opposed to eating to live. A Corporation can have all the cash in the world, but that money is not turned into wealth without the human association that is the company. In the old days, the necessary resources for creating wealth were primarily tangible assets. Land, Buildings, Machinery all could be purchased wholly from their owner. But now as we have moved into an information economy, the primary factors of production are intangible assets. The Deep Smarts of the organization are more important than its physical capital. It is easy for your competitor to purchase the same machinery; it is not as simple for him to mimic your business processes. And this is an important reason as to why people invest. If a plant, machinery and some unskilled labor was all it took for me produce the same product as you, I would be smarter to open up my own shop than to give you my money in return for only a cut. I invest because the company has built into it something that cannot be found elsewhere. If today’s corporate culture doesn’t realize this soon, and start acting like it, they will have bankrupted public faith in the system. “Markets rely on rules and laws” warns Handy, “but those rules and laws in turn depend on truth and trust. Conceal truth or erode trust, and the game becomes so unreliable that no one will want to play. The markets will empty and share prices will collapse, as ordinary people find other places to put their money- into their houses, maybe, or under their beds. The great virtue of capitalism- that it provides a way for the savings of society to be used for the creation of wealth-will have been eroded.” But some would defend the behavior of today’s corporation, “It’s a dog eat dog world” they say, “it’s not pretty but what other choice is there?” The corporation has long been compared to a person, and is treated as such under American legal systems. In their book Built to Last Collins and Porras make the point that companies compete in the marketplace in much the same way organisms compete in ecosystems; by adapting to their environment and finding niches to fulfill. By fostering an environment that encourages creativity and experimentation a company can stumble onto a path they would not have otherwise seen. This is not the first time business has been compared to evolution but there is an important distinction between this and the frame that is commonly used in this situation. The idea behind the mechanism driving evolution, natural selection, is that advantageous mutations and adaptations allow certain organisms to survive by giving the a competitive advantage in propagating their DNA, and consequently, the advantageous trait. This is a much more nuanced view then the typically espoused “survival of the fittest” description of business as evolution. The Giraffe’s ability to reach the leaves no other animal can reach is just as much evolution as the Lion’s ability to pounce on a gazelle. So if it is true, businesses are competing just like organisms, what helps organisms evolve and survive? Science’s answer: genetic diversity. The more genetic samples that get mixed up as organisms reproduce the greater the possibility for an advantageous mutation to occur. And how does a business emulate this process? By having a free flow of ideas, by experimenting, keeping what works, throwing out what doesn’t and moving on. Businesses need to constantly be looking for a new niche where they don’t need to worry about competing. Furthermore, the picture of evolution as big guys eating little guys isn’t sustainable. Imagine for a moment two bacteria, each in an identical Petri dish, one is carnivorous and the other photosynthetic. The carnivorous bacterium eats up all the food in its tray and then dies because there is nothing left to eat. The other creates new energy from the sun and lives much longer. A shortsighted attempt at profit or an advantageous position can be ultimately harmful to everyone but a few executives at the top. To continue the evolution analogy, this is also why it is important to build businesses that last generations. The longer an organism’s life cycle, the more time it has to develop into a complex being. How much wisdom can be gained by a fruit fly that lives but only a day? Unfortunately the culture built up around today’s culture is so focused on speed, durability is forgotten. I’m reminded of a scene from Michelangelo Antonioni’s L’Aventura when Sandro looks around him and says “these buildings were built to last one hundred years, who builds anything to last even ten years anymore?”