Comment by nostrademons | Hacker News Reader

Comment by nostrademons | Hacker News Reader

Peter Drucker said much the same thing: profit is the cost of doing business, not the purpose. The true purpose of a business is to provide goods & services to its customers. The "profit motive" is essentially a check on the resources consumed by the business, to ensure that it's not spending resources inefficiently, much as PG mentions in the 2nd footnote.

Up until the 1970s, it was common for corporations to be managed "to balance the interests of all stakeholders - employees, customers, shareholders, and the community." You can blame Milton Friedman for changing that: he popularized the notion of a corporation existing purely to maximize shareholder value, enshrining it so deeply in American culture that it's become law, and corporate directors can now be sued if they consider anything other than the interests of shareholders. It is important that companies pay attention to shareholder value, but it was a huge mistake to make that the only mission of a corporation. Score one for market fundamentalism...

The idea that a corporation should be managed for the benefit of its shareholders, also known as "fiduciary duty", arose as a reaction to snake-oil salesmen of the 19th century who would sell interests in phantom companies and run off with the money. The advantage of such a principle is that it tends to be fairly clean cut and easy to judge when someone has violated it. If we allow managers to work by some other standard, such as balancing the interests of all stakeholders, it becomes very easy for them to find some weak justification for any wrongdoing or defrauding of their shareholders.

How is it better to leave them some weak justification, even to legally require them, to do just anything for shareholer value, even defrauding or doing wrong to the community as a whole?

Yes, and looking at purpose another way: if something is worth doing it's worth doing at a profit, because non-profit enterprises are always underfunded.

A better way of looking at it, is if it can't earn a profit it isn't worth doing - because it isn't useful enough for people to pay for.

Recommendations for good Drucker books, particularly those with appeal for the Startup and/or Hacker mentality?

Start with "The Essential Drucker" - it's a collection of chapters from all his books, and then you can pick out what seems most interesting from that. I'm currently reading "The Post-capitalistic society", which is fascinating, and I recall really enjoying "Innovation and Entrepreneurship" as well. I don't remember where the bit about profits came from - I think it was in The Essential Drucker.

(To be honest, all the business books I read kinda run together in my head, and I'm lucky if I can even remember who said what, let alone where they said it.)

"The Essential Drucker" has the best excerpts form "Innovation and Entrepreneurship" in a tidy 3-4 chapters. It's highly recommended if you like reading "The Art of the Start" and those types of books.

Thanks.

The Effective Executive is fantastic -- not just for C-level execs, but anyone who has to "execute" every day using only their own intelligence and experience (read: anyone working in software or business).

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