The social benefits of purpose-driven firms
The pursuit of a purpose-driven approach to business has gained steam in the past few years. This movement has been advancing steadily, motivated by intellectual currents that seek to optimise the effect of business in society. It is a response to a yearning expressed by civil society across the world to hold business to account for its effect on society.
Over the past five centuries, the rise of modern capitalism has been accompanied by periodic social, ecological and economic crises that can be traced to its development and global spread. These have been met with various responses from outright rejection, to advocacy for alternative systems, to reformist approaches seeking to limit its excesses and harness its fruit for human good. Others have argued that the flaws that are often pinned on capitalism are the result of excessive market power that distorts free and open markets, and/or excessive government intervention in the economy.
The purpose-driven business debate falls in the reformist camp, but can also be seen as an attempt to transcend the debate by redefining what privately owned business is and the means by which it seeks to attain profit. By foregrounding purpose, it seeks to identify positive socioeconomic outcomes as the raison d’être of business, not something that may follow from capitalist pursuit. Definitions of a purpose-driven business include a company with the sole mission to solve a social problem; and those who take on social causes; or those who seek to conduct their business by “doing no harm”.
Many firms have styled themselves as purpose-driven and have investors who frame themselves as impact investors. This can create the impression that this is a status available to certain companies which excludes others that may not have obvious claims to “worthiness”.
However, the purpose-driven principle is available to almost all companies. Take a hypothetical example — a luxury fashion label that makes $10,000 shoes for the rich might struggle to think of itself as purpose-driven. However, the way it brings the shoes to market can be imbued with a mission more significant than bedecking the feet of the global elite.
It can think carefully about its value chain to ensure that it empowers small suppliers, especially those in developing countries. It can insist on using healthy adult women as models for its promotions. It can choose to use sustainable materials. Very few businesses have distinguished themselves in this way of doing business.
There is one crucial stakeholder whose support is necessary to make this happen. In the literature on purpose-driven business (and its variants — conscious capitalism and sustainable business), there is often an implicit clash between shareholder and stakeholder interests, framed as an argument that there is more to business than the sole focus on shareholder value.
In a literal sense, this is true. Every business has a range of entities and individuals with a stake in its operations — be it suppliers, communities or workers. As much as stakeholders care about the financial resources that a business generates, they also have a stake in its socioeconomic and environmental impact.
Activism, policy and legal reforms need to be directed to aligning the interests of shareholders to the effect their businesses have on the “triple bottom line”. For as long shareholder value is treated as distinct from the interests of society, efforts to reform shareholder capitalism are doomed to remain superficial.