The community has always been a part of the creation and development of any business. We consider the community based on our potential target market, access to raw materials and suppliers, and the costs of operations. Sometimes, but rarely, we also consider the local talent pool and skills availability.
But the community is more intertwined with the business than we recognize. That is, each stakeholder is connected to the community in a larger way. For example, when we utilize local resources and suppliers, our business expansion or contraction is now directly impacting job creation and reduction for those businesses to meet our demand. Additionally, we impact the employee's partners/family when we create compensation policies, work schedules, and working climate. Compensation policies also impact the employee's disposable income and how much they will spend in their local community.
This level of intertwinement sometimes makes business leaders uncomfortable. We justify that we don't need to consider this breadth of the community because businesses are required only to provide profits to their shareholders. However, the community is a major stakeholder and are even usually shareholders themselves. For example, employees (insiders) in the U.S. can be up to 20% of shareholders, directly impacting their family, and the disposable income available in the local economy.
Too often when companies choose to enter or leave a market, we only look at the P&L statements. We think this factory is no longer viable because there are better tax incentives in another state or country. We don't consider the broader implications of what it means to leave that community. We see examples of this in towns where one business is the main employer.
For example, let's take Newton, Iowa as an example. A local member of the community, Frederick Louis Maytag founded the Maytag Corporation in 1893 and by 1925 it was primarily a washing machine company. Maytag was one of the very few companies during the 1930's Great Depression to be growing and making a profit. And Newton, Iowa's population grew by 74% because of it. Despite being profitable, Maytag decided they wanted to cut employee's wages by 10%. Reasonably, the workers went on strike. Even though this company was founded with a local leader, the company decided this strike was unacceptable and martial law was declared with tanks and machine guns being brought in against the workers. The workers were forced to go back to work with a 10% pay cut. Then, in 2001 the company decided it was cheaper to move the facility to Mexico and severed ties completely from the city by 2007. This resulted in 1,800 people losing their jobs, or 12% of the community. The city of Newton was forced to incentivize new companies to come to their town and diversify their economy to ensure mass relocation or poverty spikes didn't occur.
The impact of these types of choices has a detrimental effect, not just to the community, but to all stakeholders at large. Consider the spouses who may need to adjust their work. Or the suppliers who then also have to relocate. But even consider the negative publicity's impact of how shareholders will feel about these decisions. Sure, a few will be excited that their dividends will go up, but many will feel sour from the disloyalty and heartlessness. Divestiture of company's based on moral reasoning has long been a trend and shareholders are requiring more and more disclosure.
Small businesses typically understand this dynamic as they are members of the community themselves and see how they a cog in the larger wheel. However, as larger and larger corporations take over, the distance between CEO and the local community increases and the inevitable lack of empathy surrounding that community takes hold.
Company's need to be more mindful if they choose to enter a community, especially if they will be a majority employer. If it no longer makes sense for a company to operate within a community, adequate notice and planning should be required to allow for the community to adjust. Very rarely are you going to see your good news story in the headlines, but layoffs and divesting will be. Therefore, during these times, it's important to make decisions with respect, dignity, and while considering the larger implications. Overall, there is a larger obligation to that community not just morally, but potentially financially.
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