Get expert advice on every topic you need as a small business owner, from the ideation stage to your eventual exit. Our articles, quick tips, infographics and how-to guides can offer entrepreneurs the most up-to-date information they need to flourish.
The truth about companies that value profit over their people
Posted by Kanika Sinha
January 12, 2023
No company can survive without earning a profit. Yet profit-first leaders who look at employees as strictly an expense to be cut in the pursuit of making more money could be putting their businesses at risk.
That’s because the profit-first focus comes at a cost: It triggers ripple effects across the organization that jeopardize long-term success.
What happens when you put money over people?
We’ve put together six common consequences of the profit-over-people management approach, but this list is by no means exhaustive.
1. Employees’ perception of the organization suffers.
Companies that focus primarily on maximizing profit end up fostering a negative image of the organization among the staff. As a result, employees tend to shrink in their roles and a domino effect ensues, hampering productivity of the organization itself.
The risks to organizations that single-mindedly pursue profit were underscored in 2009 research published by Harvard Business Review. Survey data gathered from 520 businesses in 17 countries showed that CEOs whose primary focus is on profit maximization were perceived by staff as autocratic and myopic.
In turn, employees tended to develop negative feelings toward the organization and reported reluctance to sacrifice on behalf of the company, and the firm’s performance was found to be poorer, according to the research. On the other hand, CEOs who put stakeholders’ interests and concerns ahead of profits were perceived as visionary, generating higher workforce engagement and ultimately capable of delivering superior financial outcomes.
2. Creativity and collaboration dry up.
Profit-first businesses see people as a resource that only gets replenished by bringing fresh talent in the door while ignoring the potential of the employees already there.
In short, talent is deemed expendable in profit-first organizations. The absence of a culture of empathy, care and appreciation, along with a dearth of effective leadership, turns these workplaces into stodgy office spaces.
Employees may opt to do the bare minimum and lack the will to innovate, leaving the company at risk of a slump or even failure as work stagnates and more nimble competitors soar ahead.
Profit-driven corporations can make an organization’s management blind to ethics, according to a University of Washington study published in the Journal of Applied Psychology. UW professor of business ethics Scott J. Reynolds’ research found that leaders who focus primarily on the ends (defined as “consequences such as profits, happiness and harm”) tended to recognize ethical issues only when harm was done.
And in situations where allegedly no harm was done, such leaders seemed much less inclined to identify the issue as an ethical one, the research showed.
“Ends-based decision-makers might be very surprised to know what others call or treat as ethical issues,” said Reynolds. “You could say that ends-based decision-makers are ‘blind’ to those kinds of ethical issues.”
4. Retention suffers.
In a 2022 study by WorkHuman of more than 2,500 full-time employees across the U.S., U.K., Ireland and Canada, employees who felt unappreciated were twice as likely to quit. Some studies predict that every time a company replaces a salaried employee, it costs an average of six to nine months’ salary.
Additionally, 2017 Harvard Business Review research finds that the majority of higher-earning employees prioritize work culture and long-term concerns like leadership and career growth opportunities.
Retention is likely to take hit in a profit-first organization that doesn’t believe in valuing or appreciating its people. How many high performers do you know would be content to stay in a company with a poor culture, nonexistent recognition and no skill development opportunities?
5. Customer churn increases.
Research from Harvard Business Review indicates a strong statistical link between employee well-being and customer satisfaction. That is, a happy and engaged workforce improves firms’ ability to provide good customer service.
Additionally, nearly 61% of consumers prefer shopping with a company that treats its employees well, according to a 2021 study. These research findings sugges that with employees being largely disengaged and uninspired in a profit-first organization, customer loyalty can plunge.
6. Risk amplifies.
It’s a challenge to manage risk when your people are poorly trained, stressed and frustrated. But bringing in new employees through a revolving door compounds that risk. As a result, accidents become more probable, and work stoppages may become routine.
In short, when a company decides to forgo training and reasonable work conditions in its single-minded pursuit of profit, it can put the entire organization in jeopardy.
OK, now what?
Obviously, the bottom line matters. Business leaders have to think about profit and figure out a way to make more than they spend, but putting people over profit could be what matters most.
Tactics like cutting benefits and eliminating the little extras that make your workplace pleasant may lead a boost in profits in the short term. But successful business are built with satisfied employees.
Research clearly suggests that for most businesses, valuing money over people is not the best way to maximize the bottom line. The most successful companies tend to be purpose-driven, people-first and profit-fueled.
What’s more, most consumers find it morally reprehensible when businesses try to wring as much value as possible from employees while giving them the bare minimum in return.
The logic is simple: Great people practices lead to higher employee satisfaction and loyalty, which in turn leads to customer loyalty and ultimately improves the bottom line and sets the business up for long-term success.
Want more? Escalon has helped over 5,000 companies across a range of industries to optimize routine business functions, like HR and payroll, and to boost professionalism. Talk to an expert today.