Aug 2019

‘What is the right level of profit for the corporation?’

Published September 2019

A year and a half before the 2008 financial crisis shook the foundations of the global economy, one major shareholder of a large multinational company asked his CEO a question that would have struck his peers as rather unusual to say the least: ‘What is the right level of profit for the corporation?’

The obvious answer was surely ‘As much as possible!’ However, the provocation offered by the then-Chairman of Mars, Incorporated questioned whether his company was taking too much profit in the belief that a corporation’s value chain is only as strong as its weakest link. His view was soon vindicated by the disastrous global events that unfolded thereafter following the collapse of the US subprime mortgage market.

In the decade+ since, challenges to Milton Friedman’s still dominant model of financial capitalism have built to a crescendo, recently leading the USA’s top CEOs to issue a joint statement that would have been unthinkable back when the ‘right level of profit’ question was posed at Mars.

These CEOs have given voice to the now more commonly held belief that maximising shareholder value can no longer serve as the primary goal of business. New forms of scarcity, the power of multinational corporations, a rising middle class of 4.5 billion people and the emerging knowledge digital economy have rendered the old orthodoxy unsuitable for the evolving economic and social context we find ourselves in a half-century after Friedman’s model was introduced and took root nearly everywhere.

The Economist has suggested that big business is beginning to accept broader social responsibilities, turning away from the view that ‘In a free market, pursuing shareholder value would in and of itself deliver the best goods and services to the public, optimise employment and create the most wealth — wealth which could then be put to all sorts of good uses.

How was Mars, Incorporated ahead of the curve? The core principle of Mutuality that has been at work in Mars for over 100 years goes a long way to explaining. In 1947, Forrest Mars Sr. described it as the ‘total purpose for which the company exists’.  Mars, which now employs more than 125,000 Associates in 80 countries with annual revenues approaching $38bn, has long understood that success results from sharing benefits within the context of durable, reciprocal relationships.

Mars CEO Grant Reid explains how the Mars family have always believed in the power of making business mutual: ‘…economics of mutuality, which is putting something back into the communities, the environment, the supply chain and the stakeholders – they were talking about that way back in the 40s, long before it was fashionable.’

When the Mars shareholder asked his remarkable question more than a decade ago, it had a profound impact on Bruno Roche, Mars Chief Economist and Managing Director of Catalyst – Mars’ internal think-tank. Bruno and his team began searching for an answer. Their research with other multinational companies and leading universities like Oxford culminated in a new school of thought that is now well positioned to begin to supplant Friedman’s Chicago School with a more complete form of capitalism more suited to today’s rules of the game.

The Economics of Mutuality is a new business model innovation being birthed at Mars that is redefining business performance through a model that solves the problems of people and planet profitably. Rooted in Mars’ long history of mutual business, but applicable to other like-purposed organisations across any sector of the global economy, it has been developed to grow beyond one company. Now an open movement, the Economics of Mutuality is ready to share with the world.

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