{"id":879,"date":"2019-08-30T11:33:39","date_gmt":"2019-08-30T16:33:39","guid":{"rendered":"https:\/\/lindagorchels.com\/blogs\/?p=879"},"modified":"2023-04-22T04:53:43","modified_gmt":"2023-04-22T09:53:43","slug":"what-is-the-purpose-of-a-business","status":"publish","type":"post","link":"https:\/\/lindagorchels.com\/blogs\/what-is-the-purpose-of-a-business\/","title":{"rendered":"What is the Purpose of a Business?"},"content":{"rendered":"\n
\"\"<\/figure><\/div>\n\n\n\n

This is a question likely to cause disagreement, if not\ndownright altercations.  Some believe the\nONLY reason a business exists is to make money. Others view money as an\nend-result. The question may boil down to whether profits and purpose are\ncontradictory or compatible.<\/p>\n\n\n\n

Make a Profit. Period.<\/strong><\/h2>\n\n\n\n

This spring I saw an article in Harvard Business Review\ntitled, Companies\nDon\u2019t Always Need a Purpose Beyond Profit<\/strong><\/a>. <\/strong>The gist of the\narticle was that businesses sometimes publish lofty mission statements that\nfeel \u201cempty,\u201d causing employees to feel cynical rather than inspired. Freek\nVermeulen, the author, suggested that making a profit was an admirable goal:<\/p>\n\n\n\n

In my view, organizations shouldn\u2019t be shy about stating profit as its explicit and ultimate purpose. In fact, in addition to helping us earn a living, profit may be the best way to do good in the world. Economic growth, for example, is an effective way to reduce poverty \u2013 likely more so than aid \u2013 because it benefits the lowest income brackets in a country significantly. Moreover, increases in wages and wealth have been shown to have positive effects on other critical societal problems, such as crime, malnutrition, infant mortality, mental health, and general feelings of happiness. Hence, many of the most important social issues in our world are closely tied to economic wealth.<\/em><\/p><\/blockquote>\n\n\n\n

Vermeulen\u2019s comments suggest these results MIGHT happen if companies have profit as their ultimate purpose. It doesn\u2019t mean they WILL happen. <\/p>\n\n\n\n

There\u2019s a difference between goal and purpose. Even if the goal of a (for-profit) business is to make money, the purpose is how<\/em> it does so. As Russ Ackoff, former organizational ethicist once said, \u201cProfit is to a corporation what oxygen is to a human being: necessary for its existence, not a reason for it.\u201d<\/p>\n\n\n\n

While it\u2019s true that some mission statements are\naspirational at best (and disingenuous at worst), it\u2019s worth exploring how\ncompanies provide value beyond stockholder earnings.<\/p>\n\n\n\n

Profit with Purpose<\/strong><\/h2>\n\n\n\n

The Business Roundtable, one of the preeminent business\nlobbies, published a revised statement\nof corporate purpose<\/a> earlier this month. Close to 200 CEOs of America\u2019s\nlargest corporations signed on to the update to move away from stockholder\nprimacy and to acknowledge all stakeholders. In effect, the organizations\ncommitted to customers, employees, suppliers, communities, and the environment,\nin addition to traditional stockholders.<\/p>\n\n\n\n

Some may argue that this is symbolic since mission\nstatements make these claims all the time. True. But this is a visible\ncommitment beyond the unread pages of an annual report or the obligatory\nwebpage broadcast.<\/p>\n\n\n\n

A Harvard\nBusiness Review follow-up article<\/a> discussed the history of stockholder\ncapitalism, and compared it with stakeholder capitalism. According to the\nauthors, purpose-focused firms outperformed the market. But there was a caveat.\nThis only happens when the purpose is diffused throughout the organization. It\nhas to be real. Authentic.<\/p>\n\n\n\n

On the other hand, an op-ed\nin the USA Today<\/a> by Steve H. Hanke presented an opposing view. Hanke said,\n\u201cThe Roundtable\u2019s new anti-capitalist mission statement promises to dilute and\nmuffle shareholders\u2019 voices and further politicize corporate governance.\u201d <\/p>\n\n\n\n

Hmm. Is recognizing multiple stakeholders anti-capitalistic? Not in my view.<\/p>\n\n\n\n

The Future<\/h2>\n\n\n\n
\"\"<\/figure><\/div>\n\n\n\n

I was encouraged by the Business Roundtable\u2019s revised statement. And I\u2019m hopeful it will trigger new performance metrics. Yes, it will be a challenge. And yes, there will continue to be diverging viewpoints. But it\u2019s not impossible.<\/p>\n\n\n\n

Profit is neither good nor evil. However, profit maximization at any cost can cause negative consequences. For the good of my children and grandchildren, for the good of society, and for the good of the planet, I hope we learn how to balance the goal of earning profit with the purpose of addressing broader interests and a longer-term perspective.<\/p>\n","protected":false},"excerpt":{"rendered":"

This is a question likely to cause disagreement, if not downright altercations.  Some believe the ONLY reason a business exists is to make money. Others view money as an end-result. 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