Being an electricity consumer has been rather frustrating this autumn. The challenges of the electricity market give rise to a discussion about what is ethical and what isn’t. How should companies succeed in delivering profit, while simultaneously tackling new market challenges and also staying on good terms with their stakeholder groups such as customers, employees, suppliers and society as a whole? There is, of course, no simple or right answer to that question, but we can hopefully become a little wiser by looking into different perspectives.

Without profit, no business

The prevailing mantra during my university studies in economics 2005-2011 was that the most important goal of a company’s existence is to maximize profit. According to this philosophy, a company’s absolute success is measured in how many euros there’s left. This goal makes sure the shareholders’ financial interests are served beautifully enough. A “healthy” company pays employees and suppliers and takes care of its other duties. As an entrepreneur, I fully support these principles. I agree that in the long run a company must make a profit in order to fulfil its legal obligations by paying salaries and bills etc. and at the same time financially reward the owners, which in many cases in corporate Finland means the founders. Our welfare society is basically financed by talented companies and entrepreneurs who ensure that the wheels keep spinning. In other words, there must also be financial incentives to start up and own businesses. In the long run, a company cannot create good foundations for growth without profit. And growth is something that our entire welfare society ultimately depends on for its existence. So far, I am agreeing with the textbooks in economics. However, the problems with the “maximizing profit” approach lie in the word maximize, in the needs of the other stakeholder groups and in the time perspective.

Long term vs short term

Let me start with the word maximize and with the needs of other stakeholders. It’s impossible to avoid or turn a blind eye to the fact that if profit maximization is the primary goal of a company, all decisions are also coloured by this ultimate goal. That’s how it works with goals in general (and that’s of course also why you set goals), but when it comes to money, there’s an extra incentive involved that is proven to have a big impact. This impact means that, in the worst case, we compromise our principles regarding ethics and sustainability. Because the fact remains; if the company’s primary goal is to maximize profit, sooner or later the company has to give up other things. The goal blinds us to make short-term decisions that may raise the profitability in the short term, but will lead to problems in other areas, at least in the long term. When the focus is exclusively on profit maximization, perhaps even more important stakeholders than the owners are forgotten.

The other problem with profit maximization is the time perspective, or lack thereof. A mature and well-established company should have the capacity to review the need for profit in the longer run. Can we handle a smaller profit this year or even a loss in order to act ethically and sustainably? Can we emerge strengthened from the challenge and make a profit tomorrow instead, even if we today have to swallow a bitter pill? This is of course a complicated question and each company and its owners must make their own decisions and set their own limits. Several regional companies showed strong examples of good ethics in this matter during the pandemic by not laying off staff but keeping layoffs to a minimum despite the market slowing down considerably. In the short term, they could certainly have saved more costs by letting people go, but instead they reduced the profit requirement and were also ready when the economy picked up again.

The profit maximization paradox

My point, ultimately, is that the raison d’être of a serious business must rest on grounds other than simply maximizing profits. If not for ethical reasons then for pure self-preservation reasons: few will want to work for a company that only thinks about profit maximization. Few will want to do business with a company that does not take responsibility for other stakeholders or the environment. “Profit maximization” may still be a legitimate and accepted approach in the corporate world, but I am convinced that we here in the Western world will sneer at that philosophy in the future and dismiss it as short-sighted and irresponsible thinking. Also capitalism is developing and it’s time to welcome that change. Let us in Ostrobothnia, Finland and the Nordic countries be at the forefront of this change.

Author: Ted Wallin, Head of Offering, Information Management, Atea Finland