Have You Done Enough on Purpose?

These days, talk about corporate purpose and the purpose-driven corporation have become commonplace. Although many people find discussion of corporate purpose new and perhaps even surprising, it has been a longstanding and perennial theme among business scholars. Here I trace some of the contours of this idea, and then turn to what I see as some of the key questions confronting today’s leaders seeking to take seriously calls for becoming a purpose-driven corporation.

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                                                Plato was big on purpose. 
                   Photo credit: maraki_2311, CC BY-SA 4.0, via Wikimedia Commons

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First Principles

Where did purpose come from? One proximate impetus seems to have been the annual letter that Larry Fink, CEO of BlackRock, wrote in January 2019 to the CEOs of companies in which BlackRock invests. Titled “Purpose & Profits,” the letter proclaims: “Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being—what it does every day to create value for its stakeholders.” By the time the letter closed, Fink had mentioned purpose more than 20 times, becoming something of a shot heard round the corporate world.

This was followed by another inflection point, in August 2019, when Business Roundtable released a new “Statement on the Purpose of a Corporation.” In place of shareholder primacy—Business Roundtable’s explicit and exclusive priority since its founding in 1972—the CEOs of 181 of America’s largest corporations pledged to lead their companies for the benefit of all stakeholders: customers, employees, suppliers, communities, and shareholders.

A few months later, in the United Kingdom, the Institute of Directors published a Corporate Governance “manifesto” calling, among other things, for the creation of a “framework through which companies can project their business purpose,” as well as the establishment of a new corporate form, which it dubbed the Public Service Corporation. Shortly thereafter, the British Academy published “Principles for Purposeful Business,” declaring “the purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems.”

Not to be outdone, in December 2019, the World Economic Forum issued its Davos Manifesto: The Universal Purpose of a Company in the Fourth Industrial Revolution, contending that: “A company is more than an economic unit generating wealth. It fulfills human and societal aspirations as part of the broader social system.”

Since then, corporate purpose has gained further momentum. There have been articles in Harvard Business Review, McKinsey Quarterly, and Sloan Management Review, to name just a few. The Conference Board now hosts a “corporate purpose council.” Corporate consultants, such as Deloitte and PWC, are standing by to help companies find and implement their purpose. Purpose is everywhere it seems.

But Purpose Is Hardly a Recent Idea

Although it may appear corporate purpose has only just burst onto the business scene, as any serious student of business knows, the concept of corporate purpose has a long history. For instance, in 1994, Jim Collins and Jerry Porras stressed the critical importance of purpose in their bestselling book, Built to Last. In their telling, “Companies that enjoy enduring success have core values and a core purpose that remain fixed while their business strategies and practices endlessly adapt to a changing world.” Lynn Stout’s 2012 book, The Shareholder Value Myth, dismantled the common arguments—some bad and some less so—for shareholder primacy, which, the introduction declared, “was the dumbest idea in the world.” Instead, in her telling, corporations had “many purposes: to provide equity investors with solid returns, but also to build great products, to provide decent livelihoods for employees, and to contribute to the community and the nation.”

But the concept of purpose—and the debate around whose interests’ corporations should prioritize—goes back much farther. Some trace the debate to a 1932 exchange in the Harvard Law Review between Adolf Berle and Merrick Dodd. Writing in the aftermath of the 1929 Stock Market Crash and early days of the Great Depression, Berle and Dodd were deeply concerned with the question of “for whom are corporate managers trustees?” Milton Friedman’s frequently invoked 1970 article, “The Social Responsibility of Business Is to Increase Its Profits,” emblematic of the so-called Chicago School, is another important touchstone in this debate. On the other side is Ed Freeman’s now ubiquitous stakeholder theory, “a new story of business,” in which organizations are not driven solely by profits, but instead by purpose, values and ethics.

I could go much farther back. I could investigate the chartering of early corporations, going back to at least the 17th and 18th centuries, where we would learn that social purposes were integral to the earliest corporate foundings. I also might turn to Max Weber’s The Protestant Work Ethic and the Spirit of Capitalism, a formative statement in economic sociology, which propounded on the Calvinist ideas and values driving modern capitalism. But, alas, these investigations will have to wait for another day…

The Purpose-Driven Road Ahead

In lieu of more history, I will close with a bit of policy. My research has focused especially on three pressing and pesky problems for would-be purpose-driven leaders.

First, and most basically, how does one formulate a corporate purpose? Like any strategic question, this entails tradeoffs, but in this case, there is no single bottom line to rule them all. Instead, there is a tension between specialist and generalist strategies for accruing value in multiple, plural registers of value, a topic I have written about with colleagues from the University of Cambridge and Vanderbilt University.

Second, is the problem of authenticity, or its corollary, the problem of purpose-washing. Once made, pronouncements of purpose set in motion expectations for the future which can have performative effects (for better or ill). This raises real conundrums about the relative benefits and risks of going boldly versus hiding your light. For instance, as I was finishing this article, the Financial Times and CNBC reported that Larry Fink and BlackRock were being accused by an activist investor of ESG “hypocrisy” and not doing enough to actually put their many pronouncements into practice.

Third, is the question of impact measurement. How does a company know if it is fulfilling its purpose? In addition to the usual problems of short-term versus long term horizons, purpose driven goals have an added complication: they seek to address complex, societal-level outcomes. In work with colleagues from IESE Business School and McGill University, we have framed such problems as grand challenges—in academese: “matters of concern that entail complexity, evoke uncertainty, and provoke evaluativity.” By their nature such problems are not readily decomposed, tackled, or assessed piecemeal.

© 2022 Joel Gehman

Joel Gehman distills principles for today’s leaders from the latest academic research, some but not all touching upon his main research foci: “grand challenges” like climate change, and “remaking capitalism.” The author of more than 50 peer-reviewed journal articles and book chapters, and more than a dozen business school teaching case studies, he is Professor of Strategic Management & Public Policy, and the Lindner-Gambal Professor of Business Ethics at The George Washington University School of Business. Joel lives in Northern Virginia.