Purpose Before Profit
7 years, 2 months, 21 days, 4 hours
1 May 2022
It is time for all businesses to re-evaluate WHY they exist, and transform to a purpose that makes them a force for good in the world.
Last week I talked about what we are trying to achieve, and this week I would like to extend that thought into the purpose of businesses generally. It flows naturally but was also inspired by reading the attached report from the British Academy, ‘Principles for a Purposeful Business’.
It was published a couple of years ago making it one of the earlier consolidations of thinking in the now prevalent belief that the age of shareholder capitalism is, or should be, coming to a rapid end. As a historian at university, I was particularly intrigued by the comment on page 11 that ‘it is only over the last 60 years that markets have emerged for corporate control, and the idea of profit-maximisation being the sole purpose of business has prevailed.’ It makes it easier to ditch something if you realise it is a relatively recent invention.
See also on page 12 their 4 reasons why change is required, one of which is the breakdown of trust between society and business.
In the last few years the World Economic Forum has put its shoulders firmly behind the idea of stakeholder capitalism, i.e. business for the benefit of all stakeholders, not just the shareholders. For example the WEF IBC Metrics was an exercise to reduce the plethora of ESG metrics to a basic set that it was felt all businesses could reasonably use as a starting point for disclosure. Over the next few years ESG regulations such as those recently released in draft by the SEC will make disclosure obligatory.
I believe that requirement to disclose, backed in all likelihood by a requirement for independent assurance of the veracity of those disclosures, will be a powerful force for change to help avert the worst trajectories of climate change in particular.
But disclosure doesn’t compel a business to change its primary focus away from the interests of shareholders. The British Academy report notes that in the UK and many other countries company law enshrines ‘enlightened shareholder value’, where the interests of other stakeholders must be considered but the interests of shareholders are paramount. Profit first, purpose second.
That is not good enough in my view. I agree with the report that ‘corporate purpose should be the reason for the corporation’s existence and its starting point. Profit should then be the product of a corporation’s purpose, but not the purpose of the corporation’.
We will come back to this theme as I expect shortly to see the release of the British Standards Institution’s Publicly Available Standard for Purpose-driven organisations.
It is time for all businesses to re-evaluate WHY they exist, and transform to a purpose that makes them a force for good in the world.