Written by Rolf Howard, Managing Partner
Last year the Banking Royal Commission was a catalyst for a discussion about the deep purpose of organisations and the focus of interest on any particular stakeholder.
Typically an organisation has competing interests of owners, employees and customers. This is often seen through a prism of competition. Lower prices are good for customers but less money for owners. Higher wages are good for employees but again bad for owners. Ultimately owners have control so let’s drive down wages and increase prices and pay better dividends to shareholders.
Historically this competitive view of the internal interrelationships within an organisation was accepted as healthy and appropriate in the 1970s by the economist Milton Friedman from the Chicago School of Economics. He said this merely reflected the invisible hand of the competitive market as envisaged by the 18th-century economist Adam Smith. Many leaders of modern organisations were a university when Friedman’s views were becoming accepted.
So the pre-eminence of the shareholder or owner has been largely accepted as normal and the interests of senior managers have often been aligned by remuneration with the owners. However, in the short term focusing on the interests of shareholders can lead to less than maximal outcomes for other stakeholders.
The Banking Royal Commission showed that customers, in particular, could be losers in circumstances where owners and employees focused predominantly on the interests of shareholders. Another good example where employees and the community as a stakeholder are losers is the enquiry into Crown Casino in Sydney, New South Wales. This enquiry has revealed that a total focus on the interests of owners by senior employees and directors of Crown has allowed substantial business risks including the imprisonment of employees in China and money laundering by criminals through Crown accounts in Melbourne and Perth.
It is important for a modern organisation such as Owen Hodge Lawyers to balance the interests of the stakeholders in the real belief that by maximising the interests of all stakeholders all parties will achieve the greatest utility from the resources available. That is, in simple terms, the competitive environment between stakeholders will lead to a less optimal outcome than a mutually beneficial engagement between stakeholders to maximise each other’s interests.
The leaders of the organisation control the shareholders and employees to a large degree. They control what the organisation says and does for customers and control in some regard the impact on society generally.
Therefore the “purpose” as expressed by leaders is critical. This is what all stakeholders can buy into. The above discussion highlights that an owner who says, “I’m just here for the money” sets him or herself up against the interests of employees, customers and possibly society. But an owner who says, “I am here for a higher purpose” invites those other stakeholders to buy into that higher purpose and share that purpose with the owner.
So this is not to say it is not appropriate for owners to be profit maximisers. They should be. They need to be in any competitive environment. It’s just that that discussion needs to be kept amongst owners. Employees, in particular, should be encouraged to align with the “greater” purpose as stated rather than purely maximising profit.
By aligning owners and employees around a higher purpose there can be a deeper engagement ultimately for the benefit of all stakeholders and as discussed above the long-term benefit of all. Owen Hodge Lawyers’ statement of purpose is as follows:
“We believe in being different. Our passion is to provide our clients with clarity, direction and security.”
This statement of purpose is important because it says a number of things to staff and customers.
Firstly at OHL are prepared to be creative, innovative and not constrained by tradition or limitations. We will think outside the box.
Secondly we want to tell you how we will make you feel. We understand that that’s what’s important to you. Not what we do. We will do what’s right and what’s necessary and that’s implied. But most important will take away your uncertainty, we will point you in the right direction and we will do what’s necessary to get you there.
That statement of purpose is completely client focused. Yet it is written for the primary benefit of owners and employees. Interestingly however it could be, and is in fact, a statement to the market. That’s where it began on our website.
By focusing the minds and behaviour of owners and employees on the interests of the client this can, and almost certainly will, lead to different behaviours by those stakeholders at the margin of engagement with clients. Those behaviours will be more attuned to the benefit of customers and clients. So customers will get better outcomes. In the longer run if customers are getting better outcomes then it is anticipated they will return and refer others to the organisation which is to the benefit of owners and ultimately employees.
The next part of the equation is to manage the hearts and minds of owners and employees through agreed values. By encouraging stakeholders to agree to behave according to an agreed set of values the organisation can push towards its stated purpose and by implication the achievement of maximum benefit for all stakeholders.
At Owen Hodge lawyers we agree to the following values:
Integrity in some way speaks for itself. It simply just means doing what we say we will do. It implies honesty and also consistency. When someone acts with integrity for somebody who has integrity there should be no surprises. It should say to those who live and operate on the margin of integrity that our lawyers will not push the bounds of the integrity of ethics and the law.
Empowerment comes from a shared purpose. Where employees and owners are inherently in competition there cannot be true empowerment. When they are striving in partnership for the same higher purpose it is in the interests of owners to do whatever is possible to encourage and motivate employees to be the best they can be. In this environment, the best employees, those who are empowered, will achieve the best outcomes and the agreed purpose of the organisation.
People acting with integrity and truly empowered should achieve excellence and the only appropriate outcome will be excellence. That’s the outcome that customers will want and through a shared purpose and all participants acting with integrity, excellence is achieved.