In the ever-evolving landscape of corporate philosophy, the question of a company’s raison d’être has surged into the spotlight, captivating minds and sparking debates worldwide. The notion of corporate purpose, once relegated to the periphery, now commands centre stage, evident in the exponential increase in Google searches over the past decade and the meticulous scrutiny it receives in annual CEO surveys. Purpose has become the lodestar guiding the trajectory of modern organisations.
Profit maximisation and shareholder primacy
Yet, the discourse on business purpose is not a novel phenomenon; its roots delve deep into history. More than a century ago, pioneers like Cadbury and Sunlight Soap imbued their enterprises with a sense of purpose that transcended mere profit-making, exemplified by their provision of housing for workers. Fast forward to the 20th century, where the Harvard Law Review served as the arena for debates on the purpose of corporations. On one side of the divide stood proponents of shareholder primacy, while the opposing camp championed a broader perspective encompassing employee welfare, product quality, and societal well-being.
“Purpose has become the lodestar guiding the trajectory of modern organisations.”
A necessary shift is needed to address systemic challenges
In 1954, the scales seemed to tip in favour of the broader conception of purpose, with organisations seen as engines not just of profit but of societal progress. However, the pendulum swung decisively in the opposite direction less than two decades later, propelled by the influential economist Milton Friedman, who advocated for shareholder primacy as the lodestar of corporate purpose. Since then, Friedman’s doctrine has held sway, shaping business paradigms, theories, and pedagogy.
In recent years, however, a resurgent chorus has emerged, challenging the hegemony of shareholder primacy and advocating for a more inclusive approach that considers the interests of all stakeholders. Voices like Larry Fink, the CEO of BlackRock, the Business Roundtable of America, and the World Economic Forum have called for a paradigm shift, emphasising the importance of delivering value to a broader spectrum of stakeholders. This shift reflects a growing recognition that businesses, as integral components of society, must embrace a holistic perspective to address the systemic challenges confronting our world.
State your purpose
Transitioning from historical narratives to theoretical underpinnings, the concept of corporate purpose emerges as the guiding philosophy, the North Star illuminating the path of organizational decision-making. It serves as a linguistic construct, shaping the mindset and actions of stakeholders, alongside other components of a company’s narrative framework such as vision, mission, and values. Therefore, crafting an effective purpose statement becomes paramount, with experts advocating for simplicity, longevity, and pro-social orientation.
A purpose statement should not only encapsulate the organization’s enduring reason for existence but also serve as a catalyst for decision-making, a unifying force for stakeholders, and a compass guiding long-term strategic endeavours. A framework for ensuring purpose statements resonate with all internal and external stakeholders of an organization is whether it; connects what the corporation does to what the world needs, is enduring. And how it shapes up relative to a key challenge question from the Future Normal approach; Does the purpose helps perpetuate a world you/we want to live in?
In essence, the purpose of an organisation transcends simplistic notions of profit maximisation; it embodies a commitment to societal well-being, stakeholder engagement, and sustainable value creation. As businesses navigate the complexities of the modern world, embracing a purpose-driven approach not only enhances financial performance but also fosters resilience, innovation, and societal impact. Thus, the journey towards defining and realising corporate purpose is not merely a philosophical exercise; it is a strategic imperative, shaping the destiny of organisations and the societies they serve.
To find out more, please reach out to Professor Nick Barter or download the reviews of purpose he has conducted with research partner Brandpie.
Author
Nick Barter is a Professor of Strategy and Sustainability in Griffith Business School. Nick helps executives and their organisations escape the myopia of conventional business thinking and embrace a Future Normal perspective. Future Normal organisations act meaningfully in their surroundings and purposefully to benefit society. For the last decade Nick has taught MBA students sustainability and systems thinking on Griffith’s world leading sustainability focused MBA.
