What is the Purpose of a Corporation?

CEOs from the Business Roundtable, including the leaders of huge companies like JPMorgan Chase, Apple, and Amazon, made major headlines recently. They came together with the stated aim of redefining business’s role in society. Overturning decades of business-school orthodoxy that embraced economist Milton Friedman’s pronouncement that “the social responsibility of business is to increase its profits,” the nearly 200 CEOs signed off on a statement about the “purpose of a corporation.” This statement explicitly acknowledged what truly accountable leaders have known all along: companies have an obligation to do right by “stakeholders,” meaning employees, customers, suppliers, and society at large, not just their stockholders.

I had two responses when I read this news. The first was fairly straightforward. What took them so long? Every truly effective business leader I know of already has a commitment to grow and develop the employee base to its fullest potential…to deliver extraordinary value to customers…and to leave a lasting positive legacy for the world at large. These commitments, I believe, lie at the heart of accountable leadership. To pretend that the task of consistently delivering on shareholder value can exist outside of these commitments is delusional.

My second response to the Business Roundtable statement was a little more nuanced. On balance, I had to admit, this statement from prominent business leaders was a positive development. It generated massive amounts of media attention, and it got the business community talking about issues that connect in important ways to accountable relationships with all a company’s stakeholders. Perhaps most importantly, the statement provided a clear rationale for moving away from the unhealthy, unsustainable cycle of doing anything and everything to deliver attractive quarterly financial results to stockholders…even when this means acting irresponsibly toward employees, customers, the country, or the planet.

Having said that much, though, I have to point out that the statement the CEOs signed off on is suspect. Its motivations are dubious. It is hard for me to escape the conclusion that the current political climate, and in particular the speeches of various Democratic presidential candidates calling for action from Congress on a wide range of issues relating to corporate responsibility, has put significant heat on these high-profile business leaders. It is no coincidence that they chose the run-up period before a major election to come together on a statement that is clearly meant to portray them and their companies as being socially responsible. The timing here does make me wonder whether this is simply a public relations move. And I know I am not the only one wondering that.

The point is, you should not need a proclamation, or the threat of legislation from Congress, to do the right thing. You should not need any of that to act in accordance with the obvious business reality that you have a responsibility to people other than your stockholders. The right way to treat people is the right way to treat people. Period.

The way your company treats people has to flow from something that you as a leader truly believe in. If you do not already believe in taking good care of the people who work for you and the communities in which you operate, if you do not already hold to that as a personal commitment before there is a PR problem, you have put yourself and your organization at a long-term competitive disadvantage.

The purpose of a corporation is to solve a problem and to deliver sustainable value to all its stakeholders.

At too many companies that is not yet the way business is done. Why not? Because there is only a short-term focus on immediate financial results. Leaders at these companies are more concerned with building up their bank accounts then they are with building up their people. Such leaders are going to find, sooner or later, that their way of doing business is simply not sustainable. Leaders who embrace a deeper purpose for their organization, and who treat their people, their communities, and their planet with respect each and every working day, will hold a powerful competitive advantage. They will be rewarded with deep loyalty, astonishing levels of productivity, and profound goodwill in the twenty-first century marketplace.

If you would like to gain greater insight into the best ways to lead your organization to deliver sustainable value to all your stakeholders, download our free Values Worksheet here.


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