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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