When Profits are a Loss

Recently my country of Jamaica was hit by a category 4 storm which devastated a section of the country. As in the wake of every tragedy, people want to help and one major institution pledged that it would match funds contributed by the public. Generous right? Apparently not - I was unprepared for the tirade of ridicule and abuse from some individuals on Twitter. Specifically they wondered at the logic of ordinary citizens giving money when the owner of the institution as a billionaire. I was stunned because while the owner is a majority shareholder, this is a public company with hundreds of shareholders who depend on dividends. The owner cannot simply give away money without accountability. Then I reflected on an incident that my sister had had when running her small company. It started slowly as all businesses do, but when it took off she was happy to be able to contribute to the livelihood of many smaller operators. That was until the day when one of those small operators ripped into her for making so much money off of HIS efforts and told her that he would not be supplying her any more. Based on the conversation it was clear to her that he assumed that all that she made in the business was profit which she was refusing to share. He failed to understand that there were costs associated with the business including taxes, rent, staffing and so on.

Many people are like this. They do not recognise that profits have to be shared with those who invest in the business and they do not understand that earnings are not equal to profit. It seems simple to those of us in the business or with business training but there are many people who truly do not understand this. The difficulty is that when they don't understand they can jump to conclusions about the business and assume that they are being ripped off. Here a few of the comments on Twitter:

• Plenty billionaires you can ask why ask poor people?
• Just donate the money if you're donating. Poor people can't bother wid di gimmicks right now

Sadly comments like these impact others and may reduce the likelihood that they will give. Moreover as the word 'gimmicks' suggests the brand may be dragged into disrepute. Many of the comments stem from a lack of understanding about who profits accrue to - in a publicly held company they do not automatically accrue to the owners! In the instance with my sister the supplier appeared to believe that he was being ripped off because once he subtracted his costs from her selling price he saw a big sum of money. Of course there were numerous other costs that he did not account for.

In a developing economy, businesses often find high levels of resentment because they are deemed to be 'The big man' who automatically takes advantage of 'The small man'. This is not by chance. In the case of Jamaica for example, we are a former plantation economy where indeed people were exploited terribly. The belief systems and resentment are still present with us. Combine that with vast disparities of income and limited opportunities and you have a recipe for resentment of businesses and the people who run them.

So what do we do?

1. Acknowledge these feelings. There is a legacy of exploitation and it is important for businesses to recognise that they have to take these feelings into account. They therefore may have a bigger burden in developing countries than they do in more developed ones
2. Be transparent. Nature abhors a vacuum and where there is an absence of information people will fill it in and they will often do so from their perspective.
3. Create feedback loops. All organizations need to be listening organizatons. Encourage stakeholders to ask questions when they have them and respond quickly. In the instance of this organization offering to match funds I have not seen any responses from the organization which is a pity
4. Spend time establishing trust. Trust is made up of credibility, reliability, intimacy and self-orientation. Self-orientation is the most important and it means that the firm is not just focused on its own self-interest, but also cares about the customers' needs. This takes time and it may mean overcoming barriers of distrust that were created by others. It means managing your brand reputation so that the public sees you as trustworthy.
5. Educate! Years ago I worked with a hotel where employees went into an uproar because they thought that the hotel was stealing from them. It turned out that the staff was calculating the expected gratuity on the number of rooms sold, but they were not aware that the hotel did not collect revenue from all of those rooms. Indeed, many were 'comped' to travel agents and others. The discussion was tedious and long but it resulted in shifting perceptions. Currently I am on the board of another organization where great care is taken to explain to shareholders the financial decisions that are made. Additionally, there are educational sessions for the wider public. Absent this education the suspicious public may make their own assumptions about your financial dealings.