One of the last great mysteries of the commercial world is why companies confuse their vision statements with their primary purpose. It remains an uncomfortable truth for many company boardrooms, but there is only one primary purpose that a company can have – that is maximising ROI. An enterprise serves to make the best return it can on its shareholders’ investments. It is not creating better jobs, nor providing government revenues, nor serving the community – these are but subsidiary aims and a luxury only achieved once profit can be generated. For without significant profits a company cannot be sustained, cannot exist.
To some this will seem a self-evident statement, but for the vast majority of companies it appears practically hidden from all those who run them. Companies spend an inordinate amount of money and energy on improving productivity, expanding operations, worrying about corporate social responsibility and adjusting such things as their company car policies, but far too little on minimizing two of the costs that can raise profits exponentially.
The first of these costs is people. Employment is generally not a necessity so much as a habit and a self-generating phenomenon. Because most employees are far from competent, rational or trustworthy, vast management structures and systems have to be superimposed on organisations to control them. People also need ambient and lit environments to work, more pay for overtime and unsocial hours, they take paid holidays and may even decide to go on strike. In such a world IT becomes the slave of organizational size and complexity – rather than the driving force for removing human players from the process. Even before the digital revolution it was possible to cut staff levels significantly in service functions – whilst watching for drops in service levels. If handled well, the cuts would often reach over 20% before any visible drop in delivery took place (especially in the public sector), absence levels climbed and customer complaints increased. Now the scope exists for cutting staff even more – by often over 40% if management had the courage to revolutionise their service delivery. This transformation has already improved manufacturing, but labour intensity persists elsewhere.
The biggest gains are also the most obvious – in the corporate tax arena. Many large companies have, in the past, set up offshore structures in order to try to escape corporation tax altogether. But now this game is well and truly called time. The OECD has been spearheading a transparency drive and the old tax havens are having to close up shop and fall into line. Today the opportunity is to exploit low-tax regimes and minimize the corporate presence in high cost regimes. Curiously, the biggest corporation taxes are also in many of the biggest and/or richest economies – with the USA (40%) India (34.6%), Brazil (34%), France (33.3%) and Japan (29. 97) all coming in above the global average (24%). Yet there are numerous tax-lean countries and territories which are not zero-tax regimes and therefore come under the radar of the OECD. These include Bulgaria (10%), Cyprus (12.5%), Macau.(12%), The Irish Republic (10%) and Hungary (9%).
I’m not speaking here of personal values. In fact, if it was a case of personal values then mine would certainly by for maximizing job preservation and taking a conservative tax stance. But ours is an economic system that does not allow for such precepts – and in a capitalist economy capital has to be King.
If a major company’s top executives in a country such as the USA or France threw out half their profits as cash through an open window it would amaze and, no doubt, amuse all the world (other than their loyal shareholders). But that is what the majority of companies are effectively doing at this moment, and will continue to do until they accept that automation finally exists to sort out both their production and service problems in a far more economic way. They must also face the fact that governments will continue to expropriate the wealth that has been so hard won and give them very little in return – except for more laws and more taxes to contend with.