This article calls into question the motives and practices of major corporations and their executives. Charles Handy wrote this essay in the midst of the Enron and WorldCom scandals, and throughout it stresses the need to reevaluate why businesses actually exist. In the article Handy examines executives’ intentions, the never-ending focus on stock as a symbol of success, and brings to light the concept of businesses being viewed as wealth creating communities.
According to Handy, the role of executives has changed quite a bit over the years. The people in these positions are put in place to make decisions that are best for the company as a whole with all its stakeholders in mind. Lately, Handy states, it seems that executives no longer run their companies for the benefit of consumers, stockholders, and employees, but for their own ambition and financial gain. This belief has created a large amount of distrust and disdain for upper management in the public eye. The constant focus on share price and compensation based on stock options has led to the practice of executives mortgaging the future for the present. This is an unhealthy practice that has begun to distort the business culture around the world especially in the United States, and has led to fraud and corruption that has affected the global economy immensely.
Another important topic that Handy brings up is how so much attention is paid to shareholder expectations and not to the employees of the corporations. Shareholders are important because they are basically investors that provide funds to help companies improve themselves, however they are typically not involved in the everyday operations. Employees, on the other hand, are looked at as just the opposite: costs. Many of these employees are highly talented people that should be treated as assets, and should have more of a say in the decisions that are made in the company. This would create more of a sense of belonging for the workers, and Handy brings up the notion that businesses should be run as wealth-creating communities with members rather than employees. Handy also suggests that these “members” be paid bonuses consistent with the overall income stream of the business.
Handy’s final two points are ones that focus on the importance of individual and environmental well-being. He states that businesses need to take the lead in areas such as environmental and social sustainability instead of waiting for government to impose laws and regulations. Businesses need the environment to exist in the present and the future, and should make concerted efforts to have more sustainable practices. Handy also discusses the importance of companies allowing its members to find a work-life balance that is suitable for their own well being. He fears that the “long-hours culture’ may drive away key members of the workforce, and suggests that the more balance there is, the more productive the community will be in the long run.
The overall business philosophy Handy stresses is one of community. Companies should be seen as an entity of collective members that use their talents to accomplish something together that they could not achieve individually. He also strongly believes that businesses should measure success in terms of outcomes for others (consumers, the environment, under-developed countries), as well as for the people who work for them. Companies can no longer just focus on the happiness of its stockholders; they need to reevaluate their purpose and ultimate goals, along with the well-being of all its stakeholders.
Handy brings up some very good points throughout this article. Many of them actually seem ironic considering this piece was written seven years ago. He wrote this in the wake of Enron and WorldCom, and probably hoped it would open the eyes of executives on Wall Street, but as we have seen in the past year it is clear that many of them did not pay much attention. Many corporations took advantage of naïve customers, specifically in the real estate industry, and the ripple effect this created was devastating. Handy’s overall thoughts on serving a purpose to benefit all of the stakeholders involved were basically ignored by mortgage companies in the past years, and the entire world was affected by it. These institutions did exactly what Handy criticized so much: they wanted immediate profits and success and completely disregarded the future and the world around them. His ideas are very applicable to today’s economic situation, and we all need to reevaluate how we view business now. It is quite evident that businesses cannot simply be for profits and shareholder satisfaction, but something bigger and better than that. Companies should strive to do not only those two things, but also seek out ways to improve the world we live in as a whole, whether it be working more sustainably, appreciating their employees more, treating thier customers with respect, or simply donating to a charity. This article is eerily relevant to the situation we are in today and it is essential that businesses look in the mirror and make changes before this becomes an unbreakable cycle.
- Mike Carceo
9/17/09
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