Birth of a new era: Corporations search for purpose
We are living through a major historical event. No, I am not talking about the pandemic.
For the first time in modern (capitalist) history, people question why corporations exist and do not take profit maximisation as an answer. What is a corporation’s core reason for being? What is the change they want to create, and why does it matter? Now more than ever, corporations are expected to have answers to these questions. Their search for purpose has led to the blurring of boundaries among three sectors, creating a new avenue for civil society, philanthropy, and private sector partnerships.
For the last 51 years, we have seen the rise and fall of Milton Friedman’s doctrine suggesting that “there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits. In his book “Capitalism and Freedom”, he stated that “a corporation is an instrument of the stockholders who own it”. He argued that if the corporation makes charitable contributions, it should be made by individual stockholders, not by the corporation. The business world embraced this doctrine with great joy, accepting the shareholder primacy as their ultimate north star, leaving all other stakeholders’ benefits aside.
Today, only 7 percent of Fortune 500 CEOs believe their companies should “mainly focus on making profits and not be distracted by social goals”.1
The obsession with growth and profit has led to an existential crisis for corporations, and they started to suffer from confusion, distraction, and disorganization. According to Innosight’s biennial corporate longevity report, 30- to 35-year average tenure of S&P 500 companies in the late 1970s is forecast to shrink to 15-20 years this decade. 2 Like humans, corporations started looking for meaning and purpose to survive today’s paradigm shifts and disruptive forces of today.
Larry Fink, CEO of Black Rock, one of the biggest asset managers in the world, wrote a letter to global CEOs stating that “Without a sense of purpose, no company, either public or private, can achieve its full potential; it will ultimately lose the license to operate from key stakeholders.” The Business Roundtable has announced the release of a new statement on the purpose of a corporation signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders – worth noting that each version of the document issued before has endorsed principles of shareholder primacy. Also, employees’ demand for meaning and purpose at work increased exponentially; according to a 2021 study, 78% of people indicated that they would prefer to work for a purpose-driven company. 3 Pandemic has served as one of the biggest catalysts for this trend; nearly 7 out of 10 employees are reflecting on their purpose because of COVID-19.4
Evidence shows that purposeful transformation is not a passion storm after which the world of business will return to a comfortable normal; purpose is the new framework to reform business for the 21st century.
For the last four years, The British Academy has run a significant research and engagement programme called The Future of Corporation, examining the purpose of business and its role in society. Professor Colin Mayer, the Academic Lead for the programme, drew together the research and defined the purpose of business as:
“Producing profitable solutions from the problems of people and planet, and not profiting from creating problems”. According to a study conducted by YouGov in 2020, 44% of business leaders agreed with this definition.5
Where does this leave the third sector, and how would it affect the future of civil society – private sector partnerships?
The purpose-driven transformation of corporations will allow the third sector organizations to redefine their role as critical partners. No corporation can achieve this alone; collaboration with civil society, governments, and communities will be a must to deliver their promise to the stakeholders. The unspoken hierarchy between corporations and philanthropy will dissolve, the conflict of interest will become irrelevant, and the survival of the fittest will change into the survival of the most collaborative.
What does this mean for civil society and philanthropy?
For the third sector organisations and philanthropy, articulating a clear purpose statement would gain significant importance. In my experience working with non-profit organisations, in some cases, being inherently purposeful hinders making it visible to others. I would suggest third sector organisations revisit their organizational purpose statement from the lens of other stakeholders and make it even more inspiring, actionable and understandable for all.
This transformation would also require third sector organisations and foundations to revisit their strategies and means for collaboration. I would suggest creating a new ecosystem map with this new perspective, where corporations are part of a common purpose rather than being solely a funder or gift-in-kind provider. That might help the third sector redesign its relationship with corporations as a long-term and genuine partnership.
Last but not least, public scepticism about business ethics is here to stay, and suspicion is a healthy habit to some extent. However, collaboration requires trust and vulnerability. In a new world, where corporations’ reason for existence is redefined as solving people’s and planet’s problems, it will require some to adapt. Till then, some of the corporations will struggle with change, and most of them will resist leaving “good old habits”. Those who authentically commit to this transformation might need a helping hand from the third sector. No corporation is perfect, but I believe purposeful transformation will lead to a better tomorrow if we can find ways to let go of the past and build a new narrative starting from today.
1 Murray, A. (2019, May 16). The 2019 Fortune 500 CEO Survey Results Are In. Fortune.
2 2021 Corporate Longevity Forecast. (2021, July 12). Innosight.
3 Purpose Perception: 2021, Porter Novelli Implicit Association Study.
4 Dhingra, N., & Schaninger, B. (2021, June 10). The search for purpose at work. McKinsey & Company.
5 Policy & Practice for Purposeful Business. (2021). The British Academy.