Profit

I am a bad capitalist because I don’t understand the concept behind profit.

I mean, I get what profit is – the money you have left over after paying all your bills and maintain your business: Profit!

What continues to boggle me, though, is the constant need to make more. And more. And more and more and more and more. Record breaking profit.

And you can’t fault companies for having this goal, it seems crazy to question it. I mean, how could you NOT want to make more than you did the year before? Even if the year before you made millions, maybe you even made billions. But if you don’t make more your company’s value will drop, and your shareholders will be mad, and then what? Bad press, sales will suffer? You’ll still make money but maybe not as much as you did before. You’ll still be able to pay your bills and pay your employees, but that pure profit will have suffered. Maybe.

And where does that profit go? Who gets that money? Does it just sit there? Does it go to the CEO? Does it go to “the board”… the board seems to have a pretty sweet job, by the way, from what I can tell.

If you’re not growing your business that’s a bad thing. If the excel bar graph doesn’t go up up up and up there is a problem. But what if the line where you started to make money was millions, billions of dollars below the tippy top of your graph? What if the need to grow grow grow and make more and more meant you put tons of pressure on your workers? What if it meant underpaying them? What if it meant creating a subpar product to cut costs? Or to have more product to sell? What if it meant treating the environment like crap? Or treating your customers like crap? Is the bottom line still profit margins?

I guess my question is: When is it enough?

And my statement is: There should be a point where it is enough.

And maybe that’s not very American of me. I’m probably a dirty red commie, because maybe when your business makes more than any 1 person could spend in a life time, maybe it’s enough. Maybe that money should be spread around? Maybe it should be re-invested in people. Or maybe, striving for profit shouldn’t be the number 1 goal. Call me crazy, but if we’re talking business, maybe it should be about creating an amazing product while having a really great work environment. But either way… record breaking profit? At a certain point it stops mattering.

21 thoughts on “Profit”

  1. “… maybe it should be about creating an amazing product while having a really great work environment”. Yup, I am totally with you. I also don’t get profit at the expense of a bad product (that you know precisely how to improve, because you are getting the feedback from multiple sides), less than ideal customer service, a bad work environment that ends up having employees feeling constantly undervalued… I really don’t get it. And I think the money must be staying at the top somewhere, because it is certainly not reaching the “middle classes” or your average employee… and depending on the level I do not even think in that kind of situation management gets much of a say.
    Just to say, I get you, and feel you so much. I am right there with you not understanding any of this.

    1. Yes! This is a thing that is possible and is good for you. My parents owned their own business for 25 years- just them (and small me). They bought a house, sent me to dance classes, lived a very stable lower-middle to middle-middle class lifestyle. They did end up having to close it becasue of global manufacturing and also the downturn, but it was 25 years of great, great life. My father has been saying things recently of “if only we grew… we would still have the business” which I totally disagree with. Growth without the ability to manage it is worse than staying small and throwing in the towel when you need to. I am so very proud of my parents for doing it for so long, and for closing a business in 2009 in the black.

  2. Ahhh…yess…You know we stand on the same side with this. My greatest confusion is the “Where does it all go?” When one company makes 10 BILLION dollars in a quarter…where does all that money go? *sigh* Why can’t we just go back to the barter system?

  3. Dear Lauren,
    Let me start by saying that I agree with you, but the other day I actually talked about this exact same subject with a friend of mine during squash. He told me something his boss told him:

    “If companies don’t keep making more profit and thereby keep growing they are unable to provide growth opportunities for their employees. They would end up with only managers and no one would be left to do the actual work.”

    This kinda made sense to me, but at the same time I know companies that want to make more profit and don’t plan on using it for the career of its employees.

    So in the end I am still left with the same question. Where is the extra profit going to?

    1. “This kinda made sense to me, but at the same time I know companies that want to make more profit and don’t plan on using it for the career of its employees.”

      Exactly. I don’t see McDonald’s using its $1.5 billion profit to make the lives of its employees any better.

      1. I think as a general concept it makes sense. I get that $$ growth also equals growth of the business and more opportunities overall, but so often I see that the money keeps getting bigger and bigger and bigger and the benefits to the employers are only seen at the very top. When a company is making billions and it STILL isn’t enough… I don’t get that.

  4. To answer your probably rhetorical question, the money goes to the shareholders and to the officers and directors (CEO and board). I think that in theory, most companies would like to balance profit with a good work environment and good practices (ethical, environmental, etc.). But if a company’s profits drop, it’s not just that the shareholders will be mad. It’s that the shareholders will fire the decision-makers. And the next set of decision-makers then faces a tougher choice, knowing that if they don’t maximize profits, they will also be fired. And not just fired, but potentially sued for all they’re worth, because the law is set up so that a corporate director who neglects his duty to earn more money for the company is legally liable.

    I mean, I agree with you, on all points. I just think we’re in sort of intractable situation here in the US. Because everybody agrees with you in theory. But lots and lots of very rich people don’t want to see their lifestyle threatened. And the law is skewed in favor of corporate interests. And we’re not even talking laws that we can get lobbyists to change. We’re talking hundreds of years of case law decided by courts that is not easily, if ever, undone. Clearly my life as a corporate lawyer has made me cynical.

    The one bit of comfort a take is that, increasingly, in some parts of the marketplace, consumers are demanding more ethical behavior. In the legal world, for example big corporate clients increasingly choose law firms that engage in pro bono work and that are committed to diversity and inclusiveness. Basically, if law firms want to keep being profitable, they have to embrace these practices that harm the bottom line in the short term, but help it in the long term (like making charitable contributions). I would love it if everyday people would make decisions about where to spend their money in a similar way. If we only supported companies with good practices, they’d be forced to adopt those good practices. Or, you know, lose profits.

    1. Yes, to customer demand driving practices! As another example, people want cheap food, even though we pay a lower percentage of our earnings on food than ever before in history. And to make cheap food, you have to spew environmental toxins into the environment, treat farmworkers poorly, use cheap additives to increase shelf life, etc. If we don’t want profit to rule the day, we have to pick the most responsible, more expensive products (and probably do without some other things) rather than rewarding the companies that makes the cheapest items and trying to have it all.

    2. But what about profits not dropping. What if they stay the same? What if a company makes what it made last year? The graph doesn’t show an upward line but they are still in the black. If everyone is still making money, but not more or less money than the year before, why is that bad?

  5. I think corporates view profit the same way that individuals do – it’s financial security. When my own income exceeds my expenses I put that money into savings and into buying myself financial security (e.g. saving for retirement, emergency fund etc.). At a corporate level it’s the same thinking – the bigger a company is and the more it can ‘put away for a rainy day’ the ‘safer’ and less likely to fail it is.

    Now obviously the financial crisis taught us that there isn’t really such a thing as too big to fail, but I think the idea is still powerful for individuals and businesses. For a small, subsistence business one bounced cheque, one bad month of sales, one equipment breakdown could impact the ability to pay employees a salary. For a bigger, more profitable company, the buffer of profit makes these risks much smaller. However, as a company gets bigger, it’s committed costs and investments get bigger too, hence the need to keep growing profit even more to maintain that buffer.

    My view: the drive for profit is based on a risk/fear based view of the world (and I actually think that makes sense, to a degree).

      1. Yes this is exactly my point/question. At what point can we say “ok, that’s good enough. No need to continue to break records.” Because at a certain point, (the oil industry for example), the need to make record breaking profits does begin to negatively impact consumers and local economies.

  6. Red-commie club – count me in. I have this exact same thinking process any time I try to discuss/manage/debate/think about this topic. It boggles my mind. BOGGLES.

  7. I’m not a fan of those massive and ever growing profit mongers, especially when the money stops at their own door. Buuuut… I can see the benefit of it amongst those companies that do have a social conscience and use large portions of their profits to fun social/health projects, etc. Those massive profits allow some of them to tackle massive problems that can’t realistically be fixed in a piecemeal way. Although I have issues with Microsoft, the Bill and Melinda Gates Foundation is tackling Malaria Eradication. Not just in one country or one continent, but the whole thing. They aim to eradicate the disease so no person or even mosquito carries it. That’s hard to do without a massive chunk of money and central organisation. We could do a little bit here and there in our own small way, but those super profiteers have the potential to really make a big dent in an issue of their choosing. I guess the key word there is “potential”.

  8. To money either goes to shareholders, or is reinvested in the business. In big, mature organisations, most of it goes to shareholders.

    I’m not sure if this is the same in the US, but in Australia most people rely on those dividends to fund their retirements. It’s not just the rich.

    1. Unfortunately things aren’t stable enough to depend on retirement here. Not even pensions are safe anymore. And I don’t think the average employee actually owns any stock in the company they work for.

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