Beyond “Homo economicus”, or “simply human”

We’re certainly driven by the economic principle, but this is not always the case. The economic profit maximization is far from being a principle applicable to absolutely all acts of human beings.

There was a situation at the Cross competition in Navarre which called my attention. Anaya, an athlete who was in the second place in the race, was way behind the Kenyan Mutai, and with little chance to beat him. The victory for the Kenyan seemed to be definite. The dedication, training and self-imposed challenge make athlete competitors whose goal is to win, cross the line, be the best.

To the astonishment of the crowd, a few meters before the finish line, Mutai got confused and slowed his pace thinking he had crossed the line already. Anaya, who was still at full speed, quickly reached Mutai, but instead of crossing the line himself, he decreased his pace and signalled the real finish line to the Kenyan. Thus, Anaya let Mutai cross first and win the race.

Some may think of it as a lovely, idealistic gesture, others might consider it stupid to have wasted the opportunity to cross first, get the prize money and the coveted  prestige of winning a race. Anaya’s coach praised his trainee, but also noted: “this gesture has made a better person out of him, but he’s not necessarily a better athlete.”

There’s no doubt that the purpose of a business is to make money. If the business does not make profit, why have a company in the first place? An entrepreneur has to pursue profit maximization. Innovative ideas must be compensated financially but there is also a risk in starting a business, an invested capital, time spent in it … Adam Smith says that “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Nevertheless, the way in which many employers take care of their interests is far from what one might expect from the rationalist approach, which maximizes profit. From the moment members of the entrepreneurs’ family are involved in the business project, the objectives of the firm change. These objectives can be classified into economic-oriented and non-economic-oriented as well as business-oriented and family-oriented.

 Figure 1: Classification of family business objectives

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Business-economic oriented objectives are, for example, profitability and firm revenue, while business-non-economic oriented objectives are customer satisfaction or innovative aspiration. On the other hand, family-economic oriented objectives are related to the money available to the family and its impact on their quality of life, while family-non-economic oriented objectives are more related to customer loyalty to family name and the family name prestige in society.

Anaya will continue training for the next competition, which he is very likely to win. But this example has shown us that there are several motivations behind our objectives, implying that there are many paths that lead to multiple objectives. And here is where the family business paradox lies. There is no a trade-off between objectives, but there are different way to combine them (degree of intensity). In the next posts we will analyze the paradox of the family business goals in detail and its impact on decision-making.

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