What is The Role of Business in Society?

Whenever we think about the concepts of business, finance, markets, competition, and trade, they often seem disconnected from the rest of society. Successful businesses are believed to be purely driven by profit, separating them from societal views and interests. 
 
In reality, however, social institutions can exercise a profound amount of influence on businesses. Different politics and perspectives exist within every industry due to the customers, suppliers, employees, regulators, and financiers that comprise the organization. “Individuals within each stakeholder group have ideas about how they want their lives to matter in the world...[T]hose connections to the world outside of business are often strong motivators for decision-making.” 
 
Understanding the role that businesses play in society is critical. Today, the “decreasing public popularity of business leaders and the now familiar erosion of trust in business and government institutions” has led to the belief that “democratic and civil society institutions and democratic ideals are under attack.”  Societal freedoms and business are not irreconcilable; economic freedom is directly related to economic growth, and “democratic freedom provide[s] the basis for capitalism and sustained economic growth.” Historically, most businesses only engage in politics for their own gain, lobbying the government and cultivating relationships with policy-makers in order to protect their own interests. To the younger generation, “this seems inadequate at best and corrupt at worst,” widening the dissonance between business and society. Businesses should preserve democratic institutions not only when it is convenient, but for their own sake as well, as “democratic institutions ensure the basis for the development of capitalism and a healthy system of business.” By preserving the societal rights inherent to democracy, including the right to privacy, labour force participation, and the pursuit of economic opportunity, communities and businesses are allowed to “freely communicate and collaborate, and thereby flourish together.” 
 
Businesses must move beyond shareholder profit and focus on the creation of value for all stakeholders. Solely maximizing profits has had a toxic impact on society, leading to “growing inequality, periodic massive financial crashes, declining corporate life expectancy, slowing productivity, declining rates of return on assets and overall, a widening distrust in business.” As we have discussed in a previous issue of Sagacious, the purpose of business should be “not only to provide needed products to a market, but to make a difference in their communities and for their employees, too.” This has already begun as 181 CEOs of different corporations across several industries signed the “Statement on the Purpose of a Corporation” earlier this month in an effort to refocus on inclusive social and economic prosperity. Included in these 181 are names like Amazon, Apple, BlackRock, Chevron, EY, Pepsi, and Xerox.
 
By retiring the old model of shareholder profit and moving forward with shareholder value, businesses can begin to repair their reputation in the eyes of the younger generation. “Business is about how customers, suppliers, employees, financiers, communities, and managers interact to create value,” and is an important part of societal institutions. “No business is perfect, and every business can improve, but it is time to end the myth that Wall Street is disconnected from Main Street.”

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Author

Stephanie Law, Viewpoint Research Team

Is Organizational Purpose Just a Buzzword?

Over the last few years, there has been a growing interest in organizational purpose, which can be partially attributed to the increasing emphasis on sustainable business practices and efforts to curb climate change, declining trust in organizations, as well as younger workers searching for meaningfulness at work. With this increased focus on purpose, some organizations have been quick to incorporate it into their tagline or mission statements. But is purpose just a buzzword? And what is the difference between the seemingly similar terms of purpose, vision, or mission?

We know that purpose is important at both employee and organizational levels. On average, people spend over 90,000 hours at work over the course of their life, so it’s not a surprise that many are searching for meaning in their work. Consequently, purpose has been found to have a tangible impact on key employee outcomes. Research finds that those who perceive their work as higher in significance (job purpose) also tend to demonstrate higher performance. At the organizational level, having a clearly defined purpose can lead to a stronger firm financial performance, specifically in shareholder returns over a 10 year period, or in venture growth.

So, what exactly defines organizational purpose?

Organizational purpose has many definitions, including being “a concrete goal or objective for the firm that reaches beyond profit maximization”, or simply as “a company’s core reason for being.” However, all of the definitions point to an emphasis on the creation of value for all stakeholders, including shareholders, customers, and society in general. While some use the terms mission or vision somewhat interchangeably with organizational purpose, there is a distinct difference. Organizational purpose helps to guide and inform a company’s mission or vision. In other words, while a company’s mission statement or vision might shed light on what the organization is trying to accomplish, its organizational purpose explains the why.

If you are looking for a starting point for fostering organizational purpose, a recent article in Harvard Business Review has a few tips for how you can build in purpose to align your organization. First, consider your employees; with modern workplaces having unique compositions of full-time and part-time employees and contractors, it’s important to think of how each employee experiences their work. Second, consider how your organizational purpose is communicated and embodied in actions throughout the organization. Finally, consider the bigger picture when thinking of a purpose. In the modern workplace, broader societal impacts and sustainability are things that need to be considered.

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Author

Viewpoint Research Team

Of Purpose and Profit

This month in Davos, Switzerland, CEOs from around the world were talking about one thing: a letter sent by Larry Fink, CEO of BlackRock. It stirred controversy among many attendants at the World Economic Forum, proselytizing that pursuing purpose over profits is the key to unlocking the full potential of any business. Why should businesses need to worry about anything other than profit? Many would argue that financial growth is all that should drive a business. What could be more important?

It’s a question that’s been asked many times by our founder, Mac Van Wielingen, most notably in his 2017 speech at the Fraser Institute, where he proposes that long-term success depends on much more than just profit. “We are not maximizing one variable, we are combining, making choices, trading off and optimizing among four variables: profit, risk, time, and human experience.”

In a recent study by Deloitte, 40 percent of millennials “believe the goal of businesses should be to ‘improve society’.” As millennials will soon make up about 40 percent of all consumers, it is imperative that organizations examine how long-term sustainability, purpose-driven business decisions, and community investment fit into the bigger picture. Nothing states this louder than the fact that “64% of people globally expect CEOs to lead on social change rather than waiting for government intervention.”

Society needs corporate champions to lead the way down this untested, unfamiliar path. In his letter to CEOs, Larry Fink talks about the intimate relationship between purpose and profit in business. “Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.”  He then encourages CEOs to lead the charge on making a positive impact on society. “One thing, however, is certain: the world needs your leadership. As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity.” More and more leaders are realizing the interdependency of purpose and profit. If you need proof, read Baupost’s Davos letter orSeth Klarman’s interview regarding the leaders at Davos.

How can your organization prepare itself for a world that increasingly scrutinizes purpose? As Mac Van Wielingen proposes, corporate strategy is the key driver. At every turn in the strategy, ask if unnecessary short-term risk, social value, and environmental sustainability have been taken into account. By infusing the core of your organization with a culture of long-term thinking and social awareness, purpose-driven decisions will be made unconsciously, and social license will come naturally to your business.

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Author

Viewpoint Research Team