In recent years, businesses have faced growing criticism due to shareholder primacy being the dominant motivation behind corporate decision-making. This focus on profits above all else has led to negative consequences for society and the environment, raising skepticism about capitalism and eroding trust in companies to do the right thing.
Traditionally, corporate social responsibility (CSR) strategies have been implemented to address stakeholder concerns. However, as CSR is increasingly viewed as a marketing ploy rather than a genuine solution to social issues, stakeholders are urging companies to reevaluate their societal role. By embracing a commitment to social purpose, corporations can contribute to positive social outcomes and rebuild trust.
Evolving Role of Corporations
Interestingly, global trading corporations in the UK from the 17th to 19th centuries were required to balance economic prosperity with the provision of social services. Over time, this connection between corporations and social purpose has been severed, leading to a focus on profits that often neglect social and environmental responsibilities.
Many organizational theories and studies on the rise of industrial capitalism, including those by Karl Marx, view capitalism as a hierarchical system that often exploits workers. In their 2011 Harvard Business Review article, Porter and Kramer argue that the problem lies in businesses' narrow view of capitalism. They suggest that corporations should aim to create shared value, promoting economic well-being and addressing society's challenges simultaneously.
The Business Roundtable (BRT), comprising CEOs from America's most prominent companies, has echoed this sentiment in their Statement on the Purpose of a Corporation in 2019. They assert that corporations should create value for all stakeholders, not just shareholders. This viewpoint was also supported by Larry Fink, chairman and CEO of Blackrock, one of the world's largest institutional investors and asset managers.
Systemic Barriers to Purpose
Despite these endorsements, some academics argue that a systemic change to the socioeconomic ecosystem is necessary for businesses to balance social purpose with profit generation. This would involve transforming the factors that influence managerial decision-making, such as shareholder primacy, performance measurement, and the management of internal costs and externalities.
While the link between purpose and performance measures is unclear, it's crucial to understand the context in which corporations operate and are held accountable. This insight is vital for managing customer expectations about a company's commitment to social purpose. Companies might be hesitant to fully embrace social purpose due to barriers stemming from a lack of transformation in their operating ecosystem.
By shifting their focus from solely generating profits to also embracing social purpose, corporations can work towards restoring trust and creating positive change in society. To achieve this, a systemic change in how businesses operate is necessary and a commitment from all stakeholders to prioritize purpose and profits.