Management And Accounting Web

Handy, C. 2002. What's a business for? Harvard Business Review (December): 49-55.

Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

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Recent scandals have revealed, or perhaps just reinforced what we already knew, that stock market capitalism has some serious flaws. But the American disease, according to Handy, is not just a matter of unethical behavior, creative accounting and auditors' conflicts of interest. These are certainly serious problems that better regulation and a separation of auditing from consulting would help relieve. However, a more fundamental problem relates to the underlying culture and assumptions of business. The question addressed in this article is "Whom and what is a business for?"

Handy argues that to assume that the answer to this question is shareholders' needs is to mistake a necessary condition for a sufficient condition. The purpose of a business is not just to make a profit, but instead to make a profit so that it can do something more or better. To assume that profit is the only goal is to mistake the means for the end. The idea that those who provide the financial backing are the company's rightful owners is outdated. Today, the value of a company is determined largely by its intellectual property, brands, patents, and skills of its workforce. According to Handy, "A good business is a community with a purpose, and a community is not something to be 'owned'." A company should think of itself as a wealth-creating community, with members rather than employees. It seems only fair that the members of the community who contribute their intellectual assets should receive dividends as well as those who contribute their money.

Changing how employee members are compensated may help remedy some to the problems of stock market capitalism, but this will not solve the image problem that views business as a cult of selfishness. Businesses should take the lead in areas such as environmental and social issues, and place more emphasis on the individual needs of their members. A company doesn't exist simply to make money. A company is a community made up of a group of people who join together to accomplish something collectively that they could not accomplish separately. They make a contribution to society to provide a purpose for their lives. The measure of success for an organization should include outcomes for others as well as outcomes for its members.

Unless companies change their culture, capitalism will continue to be viewed as the rich man's self-serving game. Investors, talent and consumers may desert it and governments may impose more limiting regulations. If so, we will all be the losers.

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