Having a purpose is fundamental to our greatest individual achievements in life. It is the source of our self-belief which generates the emotional power to do the hard yards, face our fears, and reach those big goals that we set for ourselves. Likewise, the purpose is the foundation of teams and organizations. This can be seen in the emergence of purpose-driven business and purposeful corporations.
The rise of purpose driven business
The ideology of shareholder capitalism is under great pressure to reform. We must change the way we think about business else we risk society wide collapse under the pressure of environmental pollution, economic inequality and climate change.
The Business Roundtable is an association of the largest companies in the United States of America. They recently signed an updated statement on the Purpose of the Corporation. Here, the worlds of corporate leaders are changing their approach. They are shifting their thinking towards more purpose driven business. With a change of focus from the short-term interests of shareholders to the long-term interest of all stakeholders.
For example,
- “Deliver Value to our customers”
- “Invest in our employees”
- “Deal fairly and ethically with our suppliers”
- “Support the communities in which we work”
- “Generate long-term value for shareholders”
Likewise, the British Academy, a collection of the world’s top academic institutions have also entered the debate. Their future of the corporation program recently released a study that offered a new purpose of business:
The purpose of busines is to solve the problem of people and planet profitably, and not profit from causing problems.
Profit as purpose
Purpose driven business aligns with other terms such as corporate social responsibility and stakeholder capitalism. In a nutshell this is about companies who are thinking beyond the short term interest of shareholders. Instead, they seek to balance the interests of all people will determine a company’s success in the long run.
This new way of thinking about business is in stark contrast to common thinking. When asked about the purpose of business, most people are likely to respond, ‘to create jobs and profits’. This belief comes from the theories of Nobel Laurent Economist Milton Friedman, the father of shareholder capitalism. In his 1962 book Capitalism and Freedom put forward this big idea:
The one and only social responsibility of business is to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game
This idea went on to form modern-day thinking political-economic philosophy of neoliberalism. His philosophy empowered corporate America and has dominated the western world for past 60 years. Purpose driven business is now changing this.
New problems require new thinking
Friedman’s belief places the shareholder and self-interest at the heart of wealth. In doing so, this thinking incentivises individual greed and short-term benefit. Therefore they undermine the long-term interests of the society, communities, and the environment that make all business possible.
Our world is facing big problems. The COVID19 Pandemic has impacted every national economy throughout the world. The climate change crisis represents an existential threat to the lives and homes of billions of people across the world.
Business and shareholder capitalism lie at the heart of both these problems. The COVID19 pandemic has spread across the world because of our global systems of trade and travel. Likewise, the root cause of climate change are the billions of tons of greenhouse gases pumped into the Earth’s atmosphere, all for ‘jobs and growth’. As a result, the rising temperatures in the oceans and on land, threaten the natural systems that give us life.
The challenge ahead is that the systems and culture of business have been built on the mentality of profit-making for shareholders. Changing these systems is not going to happen overnight. However, purpose driven business will be an essential part of the solution.
Purpose driven does not mean not-for-profit
If your organisation is on a mission to serve others and create a better world, then you are likely to be a purpose driven business. Often, this will include not-for-profit or member-driven organisations, but this is not actually an indicator of purpose. Indeed, the specific ownership structure isn’t important. What really matters is the intent and behaviours of the people who make up the company.
The key thing about a purpose-driven company is that decisions about strategy and service are made, from a framework of what is best for others, beyond the organisation. A purpose-driven organisation will seek to balance different stakeholder interests.
It is very unlikely that you will find a purpose-driven company listed on the stock exchange. The very nature of public float is predicated on the idea of ‘for shareholder interest’. A business that by design, does not seek to pay out dividends to passive shareholders, isn’t likely to do well so far as their share price is concerned.
In the end, it is how you live your purpose as an organisation that underpins your claim to being purpose driven. This is seen in the decisions you make and the actions you take.
Transforming into a purpose driven business
Transforming into a purpose driven business is not a scary or difficult thing to do. It simply means to act with clear intention for making your world a better place. Fact is that most small businesses will already be most of the way there. That’s because the people who make decisions in the business are directly connected to their customers and community.
Creating a better world for your community begins with a having a clear, coordinated and purpose-driven business strategy. This will set your intention. Your strategy should give you the confident and clarity you need to get on with the work of creating and transformation your business to increase the sustainability and resilience of your business over time.
