What is Purpose?
Duane Fernandes
Builds, scales and supports purpose-driven creativity to solve wicked problems.
On September 13, 1970, economist Milton Friedman asked and answered a fundamental question: What is the role of business in society? His stance:
“The social responsibility of business is to increase its profits.†- Milton Friedman
In the 50 years since, businesses have grappled with this singular focus. First, taking it as gospel and ending up in a quagmire of quarterly profit guidance/delivery becoming the be all and end all driving company value.?
More recently, swinging the other way; ridiculous amounts of value being assigned to empty shell companies with a purpose to acquire something (SPACs), or tremendous future value residing in the founders and companies like Tesla which had a P/E ratio over 1000 as recently as March this year.?
In 2019, Business Roundtable released a new 'Statement on the purpose of a corporation' signed by 181 CEOs who committed to lead their companies
"...for the benefit of all stakeholders—customers, employees, suppliers, communities, and shareholders."
The statement outlined a modern standard for corporate responsibility which elevated stakeholder interests to the same level as shareholders’ interests. It represents both a reappraisal of purpose and a reflection of tensions that have been boiling over. A 2020 McKinsey survey of 1200 senior managers found 75% agreed that purpose should receive more weight than profit.
领英推è
So it's settled then - it seems we have officially distanced ourselves from Milton Friedman's view.
However, there is significantly less alignment on what exactly purpose is, how it drives value, how it gets embedded etc. There is a risk that ‘Purpose' is just the latest manifestation of previous business jargon incarnations such as CSR, ESG, BHAG, Mission Statement etc.
The definition I will use attempts to mitigate this risk: a company’s purpose is its core reason for being and its impact on the world.?This definition requires that purpose moves from the periphery of strategy to its core—where, with committed leadership and financial investment, organisations use it to generate sustained profitable growth, stay relevant in a rapidly changing world, and deepen ties with stakeholders.
This process requires a deep reflection on your corporate identity—what you really stand for—which may well lead to material changes in your strategy and even your governance (such as your status as a public company, a private company, or a public-benefit corporation).
But how do you pull this off? What are the mechanics of getting it done and making it real? How do you embrace challenging trade-offs and uncomfortable truths that, if unaddressed, are likely to perpetuate the purpose gap and give rise to rhetoric that’s not accompanied by credible action?
These are the questions we will explore in a series of posts. ??
Mijikenda people's "Mweria and Dhome" | Hydrogen | H2O | Hydrocarbons | #Humanizing | Risk-as-a-Lens | Community Service Infrastructure | Industry-Academia Relations | Entrepreneurial Ecosystems | Author |
3 年"a company’s purpose is its core reason for being and its impact on the world." Orgs like people have confirmation bias. As long as the purpose is aligned to "creating agency in community", I am fine with it. This is where, even institutions such as WB go wrong. For a startup , a well-defined purpose is an internal and external guide post. Internally, it governs our mindset and externally how we relate to team, customer and community and to the second order on product, viability and metrics.
Mijikenda people's "Mweria and Dhome" | Hydrogen | H2O | Hydrocarbons | #Humanizing | Risk-as-a-Lens | Community Service Infrastructure | Industry-Academia Relations | Entrepreneurial Ecosystems | Author |
3 年The social responsibility of business is to increase its profits.†- Milton Friedman What's social about this type of responsibility?
Purpose - Leave no individual behind....
3 å¹´Nice write-up. The additional thing I would like to include is the DuPont analysis and financial leverage that corporate world adopted since 1950s... The Business Roundtable reverses that!
Exponential Thinker | Learner | Doer
3 年Succinctly expressed Duane Fernandes every person and organization MUST ask themselves this question… as the French say what’s your raison d’etre or ‘reason for being’
Co-Founder and Managing Partner at Maker Partners
3 å¹´Well, as we both know Duane Fernandes, organisations with a clear Purpose or MTP are outperforming those without them. As the saying goes "Purpose trumps strategy and execution overrides planning".