4.072015

what is the purpose of business?

The recent “Race Together” initiative from Starbucks — and the criticism it generated — requires us to reflect on the purpose of business.

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Howard Schultz explained Race Together, saying its objective was “to stimulate conversation, empathy and compassion toward one another, and then to broaden that dialogue beyond just our Starbucks family to the greater American public by using our scale for good.” (emphasis mine)  Inherent in his explanation is the belief that his company can be used for the common good.

Although some critics questioned the sincerity of the campaign’s stated objective, others took on the more fundamental topic charging that Starbucks had overstepped its bounds.  They asserted that a coffee retailer shouldn’t be involved in a social issue.  One of the responses to my column in Seeking Alpha summed up the point of view:  “Why are folks–even Starbux [sic] –involved in these issues? MAKE COFFEE. SELL COFFEE. REAP THE PROFITS. SHUT UP (otherwise).” (emphasis not mine)

So, Starbucks’ effort seems inappropriate if you subscribe to the view that companies shouldn’t involve themselves in social issues.  But if you believe that businesses should be agents of positive social change, then Starbucks can only be found guilty of executing a worthy intention poorly.  So, which is it?  Should companies concern themselves with more than profits?  Should businesses be concerned with the communities they operate in, the issues their customers and employees care about, the non-monetary value they create?  Ultimately it comes down to this:  what is the purpose of business?

To discover an answer to this important question, we can look to perhaps the most influential thinker on management, Peter Drucker, who wrote:

“…The purpose must lie outside the business itself. In fact, it must lie in society, since a business enterprise is an organ of society.”  He went on to say, “Leaders…are responsible and accountable for the performance of their institutions, and that requires them and their institutions to be concentrated, focused, limited. They are responsible also, however, for the community as a whole.”

David Packard, one of HP‘s founders and a technology visionary, also sheds light on the topic.  In a speech he gave to his employees in 1960, he said:

“I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist…to make a contribution to society, a phrase which sounds trite but is fundamental.”

More recently, John Mackey, co-CEO of Whole Foods Market and co-author of the ground-breaking book Conscious Capitalism, put it this way:

“The purpose of business is to create sustainable value for all stakeholders…Free enterprise capitalism has been the most powerful creative system of social cooperation and human progress ever conceived…Operating under the conscious capitalism model will show that businesses are the true value creators that can push all of humanity upward for continuous improvement.”

From these luminaries, it’s clear that business can — and should — serve a higher purpose.  But even if their thought leadership isn’t a definitive or self-apparent enough argument for this, we have to look no further than the values of younger consumers who are influencing and driving brand preferences and purchases — not to mention starting to lead organizations and shaping today’s management practices.

According to many sources, including the Boston Consulting Group, Millennial consumers have a stronger affinity than other generations for brands that express themselves as socially relevant and responsible. BCG reports that 48% of young Millennials say they “try to use brands of companies that are active in supporting social causes.” When asked whether “brands should help those in need,” Millennials agreed at a greater rate than other groups that they are more likely to buy a product if they know that the company is “mindful of its social responsibilities.”  Businesses that effectively engage these people — as employees, customers, investors — do so through activism.

The argument can also be made by acknowledging the loss of faith in institutions that distinguishes our current culture.  In 2012, Gallup reported data that showed the amount of confidence people say they have in a variety of U.S. institutions has declined pretty consistently and unilaterally in the past 30 years.  From government to the media to organized religion, a lack of trust has invaded the collective consciousness.  And while “big businesses” were also on the list of distrusted organizations, we also know that some brands (Apple, as a prime example) manage to inspire intense loyalty and love.  It makes sense, then, for brands to seek to fill the role that was once the purview of venerable public institutions, advocating for and advancing social causes.

Once we’re ready to adopt this view of the purpose of business, we must re-consider what we as businesspeople do and how we do it.  A discrete, disconnected corporate social responsibility campaign is not the answer.

  • We must look at the way we design our businesses at their core, aligning our social efforts with our business strategies and operations and considering opportunities more holistically. Rosabeth Moss Kanter, author of SuperCorp, calls this approach “bringing society in.”  It’s a different way of thinking, she explained.  Bringing society in prompts people to say, “We have a purpose beyond today’s markets and products, and we should think about that. How is society changing? What are the big problem areas? What are our capabilities so that maybe we can find a commercial opportunity that also does good?
  • We should also seek to create value that can be shared among all our stakeholders — internal (executives, employees, and investors) and external ones, which include suppliers, agencies, strategic partners, industry influencers, local communities, and finally, customers.  We must recognize that, as John Mackey explains, “Business is not a zero sum game. It is actually the ultimate positive sum game. When businesses operate with purpose beyond profits and create value for all stakeholders, tradeoffs are largely eliminated, performance is elevated and the entire system flourishes.

So, what is the purpose of business?  At its core, a company exists to create value.  A narrow, short-term understanding limits that value to financial gain.  A more sustainable, meaningful, responsible view of creating value includes making a positive social impact.

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  • Robert Friedman

    It’s difficult to answer the question: “what is the purpose of business?” Each business can do the deep soul searching to determine “what is the purpose of our business.” Some consumers or clients will buy a commodity. Others will make their decision on what to buy based on how they connect to something deeper.

    If you’re a business thinking about your purpose, ask yourself: Who are “our people?” What do they care about? What do we stand for and care about?

    • deniseleeyohn

      great questions, robert — thanks for sharing!

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  • Sicily Dickenson

    Thank you for this, Denise. Very relevant for @NRGEnergy. We do believe doing good for the world at large ultimately does deliver value to all of our stakeholders. It is good for the health of our business as well as the health of our planet. I really like this part of Drucker’s quote “business enterprise is an organ of society”.

    • deniseleeyohn

      thanks for sharing about NRG, sicily — it just makes so much sense!

  • ambermcginty

    I agree that we (companies) have to exist for more than just earning a profit. My thought on this is pretty simplistic, but for me, I boil it down to the fact that we spend a huge part of our day at work, so I wouldn’t want my 40-50 hours a week to just be about making a living. I want to make a difference in my community, in the lives of my employees and for my clients. If I am not clear on what the social impact of my work is, then I feel like it detracts from the purpose of me as a person, too.

    No doubt that companies can execute good intentions poorly at times, but I do respect any brand that is willing to take a risk and intentionally work towards making a positive social impact.

    • deniseleeyohn

      your perspective is so valuable, amber — purpose isn’t important just for businesses at the organization level — as individuals who work at organizations, purpose can, and should be a very powerful motivator.

  • Michael Snow

    The blog entries below/above drive home the point that some people want to be involved through their companies. Some company owners want to use the force of their people and company money to push issues they care about. In fact, corporations/businesses are groups of people (note the etymology of CORP), and legally, corporations have been treated as people long before the Citizens United ruling. The Schumer 1993 religious freedom act allows private companies, but not public ones, to act on their “corporate” or their “owner’s” beliefs and be shielded. So, in law it appears that if corporations want to act on social issues they can–but you cant have it both ways (allowing action on some issues but not on other issues). I think it is risky for a company to do this since half of American consumers *may* disagree with the issue pushed. And for international companies issues can be greater–for example my company donates to a Christian organization that donates water purification systems to disaster areas–my jewish and muslim customers may or may not like my choice of charities.

    • deniseleeyohn

      you raise a great point, michael — especially in light of the “religious freedom” law in indiana and corporations’ support or criticism of it. it is indeed risky to take a stand, but it seems riskier for business leaders to think only of profits.

      • Michael Snow

        Even for small companies, you risk disenfranchising some of your customers and employees. Assuming 1/3 democrats, 1/3 independents, and 1/3 republicans in any company support for liberal causes or for conservative causes by The Company may anger at least 1/3 of your employees. Koch Industries supports Cancer research at MIT for example. What if they study prostate cancer, does this anger women? What if they support “energy independence”, does this anger people who want to cut down on the use of hydrocarbons? Companies and society are not homogeneous, so if company *management* chooses a cause for the company to support it is not likely to be welcomed by all.

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  • My opinion is Starbucks executed poorly.

    The best combinations of business and purpose seem to be those that clearly go together. A better example of clear purpose at Starbucks is their recent decision to provide their employees with more predictable schedules. That’s providing clear value to a stakeholder group (employees).

    • deniseleeyohn

      good point, jeff — thanks for sharing!

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