Business, More Than the Quarterly Earnings – Part II

Today we live on three secluded acres where we can barely see our neighbors through distant trees. After two years, we have yet to even meet most of them. This is a place where our kids are free to roam in the woods and we’re not worried about what might be happening on the street in front of our house. Our six-year old helps dad carry logs for firewood. Our twelve-year old practices her archery in the backyard. The girls have a business selling farm-fresh eggs from their five new chickens. It’s a place where they feel safe and free, but where they don’t have to be stretched by welcoming people into their personal space who are much different from them. 

There isn’t usually a black and white to the morality of different products and services, but there are moral implications. Products don’t just respond to buyers’ interests, they also affect customers’ character. 90-proof Everclear alcohol or Schlitz beer; an Escalade or a Prius; a canvas tote made in Thailand or Kenya; Organic fair-trade coffee or not; Oreo cookies or carrot sticks; Whole milk or Skim; male breast reduction plastic surgery versus traumatic hand reconstruction surgery; overseas tax haven creation and immigrant visa facilitation; wedding photography services for gay marriages or heterosexual marriages; high density urban infill residential construction or low density rural residential construction. Some of these are clearly no more or less moral than the other. Some lean toward or away from what is good. Others certainly seem more virtuous.

As a homebuilder and land developer, I create neighborhoods that lead customers to consider others more or less than they consider themselves. Houses with front porches lead us to engage our neighbors. Homes with fewer oversized personal spaces and more family spaces encourage more relationship. There is almost no cost to designating land for a community garden. Homeowners Association By-laws could incent neighborhood clean-up and neighborhood watch activities.

Community

Each year Google.org donates $100 million in grants, 80,000 hours and $1 billion in products to make the world a better place. In 2015, Margrethe Vestager, the European Union’s competition commissioner, officially brought antitrust charges against Google for illegally manipulating search results to disadvantage its rivals. If proven accurate, these charges could carry a fine of up to $6 billion Euro. 

Archer Daniels Midland (ADM) is one of the world’s largest agricultural processors and food ingredient providers with more than 33,000 employees. Today ADM helps 700 poor sunflower growers in Maharashtra, India to increase their yields, funds bridge and well construction in 24 villages throughout Cote d’Ivoire, and promotes soybean farming in Alianca da Terra, Brazil to help prevent farming expansion into ecologically sensitive regions. In 1996 ADM paid a $100 million (the largest at that time) fine for manipulating prices that cost farmers, consumers and other agriprocessors untold millions of dollars. 

There are contrasts to the seemingly endless list of corporate altruistic contradictions. George W. Merck, president of Merck Corporation from 1925 to 1950, integrated service into the DNA of his business. He declared that “medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered that, the larger they have been.” Merck leveraged its core business to inspire innovations that would change the world. In 1978, Merck discovered the drug Invermectin while doing research for other purposes. It was clear to the researchers that this drug could be used to treat river blindness, a scourge on millions in the developing world. However, there was no clear benefit to Merck as it was simultaneously obvious the target market would not be able to afford the drug. After successful clinical trials, in October 1987, Merck made the decision to donate Mectizan to all who need it for as long as it takes to eliminate the disease as a public health problem. Merck continues this commitment 28 years later with hundreds of millions already having received treatment, but still hundreds of millions more to go to completely eradicate the disease.

Archer Daniels Midland funding bridges and wells in Cote d’Ivoire is a nice gesture and it has real impact for a small number of direct beneficiaries. Google’s owners giving away $100 million is nothing to shake a stick at. But there’s a reason the European Union could fine Google up to $6 billion and there’s a reason ADM’s fine was the largest at the time. The impacts of the way firms do their business day-to-day are much farther reaching than their philanthropic initiatives. Colluding with agriprocessing competitors to set prices artificially high defrauds consumers of billions of dollars in value. Monopolistic competition by a leading search firm destroys billions of dollars in economic value for search engine users. Changing the world for good is the ADMs and Googles of the world considering others’ interests ahead of their own, not just as limited by the law but as demanded by the whole of virtue.

Foster and Kaplan’s 2001 book, Creative Destruction, showed over the previous 50 years, the life expectancy of firms in the Fortune 500 had declined from 75 to 15 years. Those firms that do remain have only done so by adapting so drastically that they barely resemble the firms they were 15 years prior. General Electric has been around for 123 years. By 2001, the financial arm of GE accounted for 41% of its profits. Under twenty years of Jack Welch’s leadership, the behemoth of industrial manufacturing had become almost as much a financial institution as a manufacturing concern. Because of the 2008 financial crisis and GE’s Lehman Brothers-level of financial risk, Welch’s successor is on a trajectory to reduce financial services to only 10% of GE’s overall business. 

The GE of 123 years ago has changed drastically, but the team members, customers and community still carry the weight of its values, for better or worse. Our family construction company doesn’t exist anymore, but Jose and Doug, hundreds of homeowners and the community in which we worked value each other differently for having interacted with that business.