The debate around the role of modern corporations in society is ongoing. Many people have become skeptical of capitalism and have lost trust in businesses to do what is right when addressing societal issues, such as income inequality, social injustice and climate change.
While capitalism has proven to be a powerful force for improving efficiency, creating jobs, and building wealth, its full potential has often been overlooked. A narrow conception of capitalism, solely focused on maximizing profit and shareholder primacy, has prevented businesses from effectively seizing opportunities that have always been there.
Creation of Shared Value
Redefining the corporation's purpose means shifting the focus from solely pursuing profit to creating shared value. It's an opportunity to rebuild trust, engage stakeholders, and demonstrate that businesses can be a force for good.
Shared value was explored by Michael Porter and Mark Kramer as part of their work on capitalism reimagined. It assumes that businesses have the potential to address society's challenges while still driving economic growth. Shared value is a more holistic approach where companies integrate societal needs into their core business strategies.
Creating shared value for all stakeholders — investors, customers, employees, and suppliers — is crucial to being a purpose-driven corporation. While some experts believe companies should prioritize purpose over profit, others argue that balancing social purpose and profit generation is the way forward.
Path to Purpose
In a letter that predates the 2019 Business Roundtable statement, Larry Fink, chairman and CEO of Blackrock, signaled his company's recognition of purpose as a social license to operate and the intersectionality of financial performance and potential of business to make positive social contributions. Three years later, Fink’s investor letter reiterated the importance of purpose, suggesting that customers increasingly look to do business with companies that share their values.
Customers, employees, and the younger generation are demanding more from corporations. They want businesses to step up and take responsibility for shaping a better future. The 2018 Accenture Global Consumer Pulse Research revealed that half of the respondents base their brand purchase preferences on a company's support for social causes that matter to them.
According to the 2021 Edelman Trust Barometer, 86% of people expect CEOs to lead on societal issues publicly. In a world where the government might often fall short, 68% of respondents believe that businesses should step in and tackle significant social problems that governments cannot address effectively. This highlights the growing demand for purpose-driven companies that are committed to making a positive impact on society.
While companies might be hesitant to commit to social purpose, they must consider their social and environmental commitments to rebuild stakeholder trust. By aligning business goals with societal needs, companies can drive innovation, boost productivity and reshape the role of corporations in addressing social issues.