How do we distinguish good businesses from evil ones?

What makes a good business? Presumably it must survive; it must be profitable enough to pay its staff a decent wage and to honour its trade agreements. But beyond that there is very little debate, let alone consensus, on what distinguishes a commendable or worthwhile company from a bad one.

Google’s corporate mission statement is “Don’t be evil”, but against what measure can we establish whether it is meeting its promise?

Step forward Finbarr Bradley, a lecturer in business and management who has developed, with colleagues Dietmar Sternad and James Kennelly, a model for identifying "deep purpose enterprises".

In their book, Digging Deeper, they profile a number of businesses which create "real value" rather than pursuing short-term profit. Real value, they say, means satisfying "our deepest human needs through providing meaning and identity and a higher quality of life for owners, employees, customers, partners and the community alike while renewing the health of our planet".

Among the exemplars they cite are the 250-year-old German pencil manufacturers Faber-Castell, the Basque Mondragon workers' co-operative and the Inis Meáin Knitting Company, which in varying degrees try to meet the ideal.

Bradley, who teaches at the Michael Smurfit Graduate Business School, UCD, says “profitable business firms need prosperous societies if they are to survive and thrive”. Thus, he provides this week’s ‘Unthinkable’ idea: “Caring for our fellows and the places in which we live is as much the business of business as earning a profit.”

Does profit-making always involve moral compromise?

“No. Absolutely not. There is no need for purpose-driven enterprises, even profit-making ones, to make such compromises. In fact, it is quite the contrary.

“Conventional thinking holds that in for-profit enterprises, the interests of shareholders take precedence and that any attempt to balance these interests with those of other stakeholders necessarily involves a financial trade-off. But this is true only if the ultimate and exclusive goal of a firm is to maximise profits for its shareholders in the short-term.

“No one is arguing that enterprises should turn their backs on making money. Rather, we argue that focusing on creating real value is more likely to result in lasting, sustainable profitability of a business.”

Can companies really provide "meaning", or is their modus operandi to give the illusion of meaning in order to make money? One thinks of Facebook giving users the impression of friendship and "community" rather than the real thing.

“No, leaders of purpose-driven companies understand that the creation of real value is a ‘meaningful’ activity that is much more than an illusion. They offer employees meaningful work with a higher purpose such as improving the lives of customers. These people know why they work, not just what they work on.

“Jobs are meaningful because their work contributes to something greater than commercial self-interest. Customers find meaning when they buy products or services of enterprises that positively contribute to wellbeing, be it their own or that of society. Shareholders also generate meaning in their lives by investing in such enterprises.

“All people need meaning and purpose in their lives, and if they don’t it can be devastating and destructive. Businesses, set up as artificial persons in contemplation of the law, are no different.”

Do we really want corporations using their commercial power to express “values”? What of Facebook or Google, for example, using their dominant market position to influence political opinion?

“Deep-purpose enterprises act differently than companies driven by narrow self-interest. Self-restraint founded on integrity is the best defence against exploiting market dominance to influence, for example, political opinion.

“Leaders with integrity truly care about society, so they try to do the right thing even at some cost to their company. They act as stewards, wishing above all else to contribute to thriving communities and a flourishing society.”

What sort of structural reform is necessary to allow these sorts of companies flourish? You mention a move to “co-ordinated market economies”, but how would that work?

“The heart of a ‘co-ordinated market economy’ is collaboration between owners, management, employees, government and the local community.

“Take Germany, which is better off economically than liberal market economies like Ireland and the UK. Although Germany is still vulnerable to global competition, and despite its high wages, its industries prosper because of a culture of trust in and between companies, and an identity that blends excellence and innovation.

“You mention Inis Meáin. Its clothing is exported to exclusive stores and boutiques around the world. What makes it so authentic and distinctive is that its designs and manufacturing methods draw on traditional styles, colours and skills developed over centuries but reinterpreted to meet today’s demanding fashion markets.

“Ireland must transition from competing on a low tax rate to competing on such distinctive advantages that are difficult or even impossible for others to duplicate.”

Digging Deeper: How Purpose-Driven Enterprises Create Real Value is published by Greenleaf.

ASK A SAGE

Question: Are economists measuring the right things?

Edward Abby replies: "Growth for the sake of growth is the ideology of the cancer cell."