Newspaper article The Journal (Newcastle, England)

Corporate Folly to Chase Ever-Increasing Profits; IN THE Latest Feature in Our Reputation Matters Series, ANDREW HEBDEN Hears How "Profit at All Costs" Is Not Necessarily a Recipe for Good Business

Newspaper article The Journal (Newcastle, England)

Corporate Folly to Chase Ever-Increasing Profits; IN THE Latest Feature in Our Reputation Matters Series, ANDREW HEBDEN Hears How "Profit at All Costs" Is Not Necessarily a Recipe for Good Business

Article excerpt

Byline: ANDREW HEBDEN

IF "BONUS" has become a dirty word over the last two years, what has the financial crisis and consequent recession done to our understanding of "profit"? The word is derived from the Latin meaning "to make progress", but it could be argued that business managers' obsession with achieving ever larger profits has had an anything but progressive impact on the reputation of either themselves or their companies.

It is a feature most obviously pertinent to the banking sector, but CBI director general Richard Lambert has suggested the wider business world is not immune from such criticism either.

In a recent keynote speech in London, he analysed in detail the changing motives of big business over recent years and condemned some organisations for becoming blinkered by an obsession with delivering the maximum possible returns to shareholders.

He singles out two organisations with links to the North East to illustrate his point.

In the case of Northern Rock, for example, he describes how it decided to cash in the equity that it had built up over generations in order to maximise value for its new shareholders.

This strategy was also followed by the likes of Bradford & Bingley and Halifax, both of which were subsumed by the financial crisis once their funding models were proved flawed.

Secondly, he cites the change of strategy of ICI, which for many years had seen its ultimate goal as delivering services to customers through the "responsible application of chemistry".

Following a hostile takeover bid in 1991, however, it declared a new mission statement, which stated its intention to become the "industry leader in creating value for customers and shareholders".

The subsequent programme of mergers and acquisitions transformed the face of ICI and, by 2007, it had ceased to be an independent company, with the all-too-familiar consequences for areas such as Teesside.

He derides the behaviour of these organisations and others like them as examples of "corporate folly".

Now this may seem a brave topic for the head of Britain's "voice of business" to be tackling head-on.

But Mr Lambert told The Journal that the reason he chose to speak out in such terms was because concerns over the reputation of business have risen rapidly up the agenda of many of his member companies.

"Public trust in business matters to all companies, including those with the most impeccable records," he said in his speech.

"Reputation loss is contagious and there is plenty of evidence that the banking sector's troubles are affecting public perceptions of business more generally." He cites many examples of the consequences of businesses becoming too focused on the need to deliver ever larger profits.

For example, he says, it has been used to justify companies closing factories in the West in favour of shifting to cheaper facilities in the East. …

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