Profit maximization

Purposeful leadership

Business legitimacy depends on public confidence in business, as well as its leaders, a precondition that became problematic during the first decade of this century due to diverse critical incidents. Business executives often took on enormous, even dangerous amounts of risks in finance and operations alike. They gamble with the interests of speculative shareholders, exploit employees for personal gain and try to satisfy customers from a short-term perspective, all in order to push profits for the period they are at the helm. They also rigorously fight all kinds of interventions or regulations from society.

But excessive short-term profit maximization thinking can prevent necessary adaptations in the way business should be done and may ultimately lead capitalism to destroy itself.[i] A narrow quantitative understanding of welfare has recently been more and more criticized by leading economists.[ii] However, even business leaders, such as Jack Welsh or Paul Paulson, have started to doubt the adequacy of the dominant short term profit orientation.

In a globalized world, not only business gets more and more complex, citizens are also increasingly voicing their interests and aims in new organizational forms as for example CSOs or NGOs. Value creation consequently is based on different interests, knowledge and experiences, which in turn also shape the purpose of firms[iii] and organizations, including the role of leaders in firms as well as that of stakeholders.[iv] These continuing challenges are moving people and institutions inexorably toward a new paradigm for future value creation. Purposeful leadership is needed, instead of narrow profit maximization, in order to build trust and sustainable value creation.

(Sachs & Rühli (2011), Stakeholders Matter - A New Paradigm for Strategy in Society, Cambridge University Press)

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