Purpose drives performance, helps retain talent and creates long term value for your customers. But what’s yours? Do you have one? And why does it matter?
Milton Friedman’s iconic essay, “The Social Responsibility of Business Is To Increase Its Profits,” was published over 50 years ago and remains just as polarizing today as it was five decades ago. Friedman introduced the theory in 1970 in an essay for The New York Times. He argued that a company has no social responsibility to the public or society; its only responsibility is to its shareholders. He goes on to justify his views by considering to whom a company and its executives are obligated.
Whilst “Shareholder theory” has undeniably had a significant impact on the corporate world, there is a contrary declaration that’s moving away from such an exclusively shareholder-focused perspective. It suggests that the purpose of business is to deliver value to all company stakeholders, spanning beyond the narrow shareholders’ circle; that it is now time to redefine what it means to be a successful company in the 21st century.
As business faces an accelerated change of pace, they are at the same time experiencing increasing consumer expectations that are reshaping the responsibilities of organisations. Demands from a new generation of employees for purpose in their work is bringing about wider debate concerning the role business should play in society.
The goal of all businesses is of course to make money, but could it possibly be true that those that have a purpose beyond profit tend to do better?
In a study titled “The Business Case for Purpose”, a team from Harvard Business Review together with EY’s Beacon Institute reported that “in those organizations where purpose had become a driver of strategy and decision-making, executives reported a greater ability to deliver revenue growth and drive successful innovation and ongoing transformation.” And, “Those companies able to harness the power of purpose to drive performance and profitability enjoy a distinct competitive advantage”.
The study defines purpose as “an aspirational reason for being which inspires and provides a call to action for an organisation and its partners and stakeholders, and provides benefit to local and global society”.
A declaration of this kind signals a welcome shift in mindset in doing business in general and highlights a change in corporate culture. Could much of the corporate world be starting to unite under this common principle? Are we ever going to row in the same direction?
For meaningful transformation, it’s critical that purpose be embedded in the heart of the business. Establishing clarity about purpose, values, and the business model makes it work in practice. This may mean putting a social or environmental purpose as the core driver of the business. For others, it may mean delivering social impact alongside commercial goals.
Whichever direction, it needs to be deeply embedded, so that businesses have a legal commitment to social purpose and in turn can reap the benefits of a more sustainable approach in the long term.