Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

Reject Business Mindset to Avoid Crisis

The last few years have been disheartening for observers of business. Countrywide Financial sold bad products to ignorant consumers. A bloated banking system collapsed. Banks helped Greece manipulate its debt. Toyota knowingly covered up problems in quality at the expense of human safety and, consequently, its reputation. The U.S. Department of Agriculture has allowed some meat producers like Seaboard Farms to violate U.S. food safety and humane slaughter laws.

The weaknesses in global business are widespread and stem not from a temporarily weak economy, but from a flawed mindset. As I follow these news stories, it seems that rather few people, from students, consumers, observers and business managers themselves, realize that the current crisis runs deeper than typical economic weakness. I see problems with business in three main areas, and a new business paradigm is needed.

Environmental sustainability is often viewed by business leaders as a nuisance. But those who are more forward-looking will realize that sustainability makes for good business. The easiest way to cut costs over the long run is to aim for renewable energy use, elimination of waste and responsible, sustainable agriculture to ensure health and viability. All of these practices save costs and build reputations, as well as bring effects like better human health and less political instability with regard to pollution and energy policy.

General Motors’ new LEED-gold certified Lansing Delta Township plant is a good example of a factory of the future in this model. Environmentally sound practices, however, will not result from force by the government. It is up to interested investors, consumers and related parties to demand sensible environmental action.

Labor relations are also often viewed as a necessary ordeal. But labor and management are not adversaries; together they comprise the whole that forms a business. Companies will succeed only with a unified, communicative labor structure that rewards hard work fairly at all levels and encourages a sense of ownership. Unions are not always the answer, but unions were originally created because of the failure of many businesses to codify collaborative workforces.

Stable, successful companies have workers that are well informed regarding details of company products or services. Worker input regarding management could have solved many problems we have seen recently such as those plaguing Toyota. Companies like Whole Foods and Publix Supermarkets, in contrast to Toyota, have adopted sound labor practices and demonstrated that the model works.

The third, and most important, facet of the archetypal business model that is directly related to the financial crisis is its end goal. Companies are usually concerned with profits or maximizing short-term payouts for managers. Toyota, for example, considered only the immediate profit when it decided not to fix its quality problems in 2007. As a result, Toyota could now face up to $3 billion in lawsuit costs. Company actions should be focused less on short-term and more on long-term interest, and rewards should be tied to creating value and success broadly.

Changing the modern business model requires not simply ditching the profit-maximizing stockholder theory of the firm, but a more nuanced consideration of value creation, interested parties, consequences and how to reconcile and reward them. If companies do not shift their focus, investors and customers will stop coming to the table and short-term economic bubbles will repeat and worsen.

Far too many have lost sight of the real purpose of business, which is to provide goods and services with consistent high quality, efficiency and mutual benefit for involved parties. For-profit business is an incentivizing means for satisfying this goal, but profit is not the ultimate goal. If a firm strays from this central purpose, its profit will inevitably evaporate as it has for many companies over the last three years.

Businesses that fulfill this purpose, however, will by their nature not compromise legal requirements, moral expectations or long-term best interests. Unless more companies want to destroy themselves and drag down the economy in worsening crises, they ought to refocus on the true goal of business and give their environmental and labor relations practices a major overhaul.

Brian Harbour is a senior in the McDonough School of Business.

*To send a letter to the editor on a recent campus issue or Hoya story or a viewpoint on any topic, contact Letters should not exceed 300 words, and viewpoints should be between 600 to 800 words.*”

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