The profit paradox: time to rethink who you really serve?

• land (rents)
• labour (employee costs)
• capital (interest and dividends)

These three jostled to increase their returns while still keeping the enterprise alive.

Many companies today are quite different. Service industries no longer need significant amounts of land—and in fact many web-based companies do not need a fixed place of business at all.

The capital most of us now think about is no longer the initial equity and loans provided to finance the company; they are stocks and shares traded on stock markets, with the price determined by willing buyers and sellers.

The one thing which has remained constant is labour. In fact, not only has it remained constant, it has increased its overall interest in a company's performance. This is partly because the share of the pie paid to land has reduced, but it is also because most employees have their own Super funds (which in turn invest in companies).

In fact, Super funds are one of the largest investors in the market and even in bad times, they are receiving regular amounts to invest. This means that a large and increasing proportion of the stock market is controlled by Super funds, funds that are, in turn, investing on behalf of their members: employees.

This means that once the direct costs and taxes are paid by companies, the remainder of the cash ends up benefitting employees either as salaries, super contributions or as dividends (which in many cases are paid to a Super fund). The prime difference is whether the employee can dispose of the cash earlier or later.

Given that this is increasingly the position, we can expect some changes. Companies will need to start making decisions based on the trade-off of current salaries versus later employee consumption. The idea that shareholder value can be increased (when employees are the ultimate beneficiaries) at the cost of jobs will increasingly be questioned.

Until now employees in Australia have not sought to use their position as the new owners of the business, but there are other countries, such as Germany, where employees have recognised their power and sit on boards. But times change—and if significant jobs are at risk, employees might start to take an interest in how their Super funds are invested. Indeed, they may be interested in ensuring that their Super funds start to use employment stability as one of the investment criteria. We may see Super funds collectively acting to change the management style of companies when it affects their members.

Who knows, the revolution might be closer than we think! The old phrase ‘our employees are our greatest asset' might become ‘our employees own the greatest asset!'

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