In business “purpose” is initially expressed in terms of making a profit or maximising shareholder value. Business is considered a purely financial entity. Is that right or should a business do more than that?
Maximising shareholder value was the defining objective for many business leaders and became very popular with top business executives in the 80’s and 90’s. Later it was then criticised for making businesses focus just on the short-term results demanded by Wall Street and The City.
There has also been much discussion about businesses having a purpose beyond money. Some people argue that business needs this. Paul Polman of Unilever talks about the idea that businesses must create long-term value. To do this Unilever has a 10-year sustainable living plan focused on environmental impact, removing gender bias, ensuring suppliers are sustainable, caring about public health and nutrition. Even though these initiatives may not maximise short-term returns, they will ensure Unilever creates long-term value. So, in the end, Paul Polman provides a financial justification.
Some brands convey they have a purpose beyond money. Disney defines itself as existing to “Create Happiness” Sony talks about “providing customers with “Kando” (i.e. to move them emotionally – and inspires and fulfils their curiosity). This influences everything they create and do. This kind of mission and purpose is designed to ensure their products and services will attract customers, that they can motivate and attract staff and the business creates real value for customers, staff and shareholders.
My friend Simon Tuckey talked to me yesterday about the fact that the reputation of corporate business with the wider public is at an all-time low. Business leaders need to address this and one way to do that is to demonstrate how the wealth they create and the activities they perform help to the wider community through finding another layer of purpose. This could be supporting charities or local community initiatives or new business initiatives that are seen to contribute (add value) rather than just take (extract value) from society.
I have struggled with much of this discussion about purpose. On the one hand, having a purpose that is not just financial makes sense and is intuitively attractive. I have long thought that businesses are like people. We all know as individuals, if we purely behave selfishly, we find it harder to achieve what we want. One aspect of this is that people with purpose are usually more attractive and are more likely to attract followers than people who seem to have no purpose and just drift.
For a business entity, similar rules apply, if they solely behave selfishly and purely financially then it defeats the goal to maximise financial returns. Then customers turn away, people do not want to work for them and this means investors find the investment less attractive. As a result all businesses, to differing degrees, invest in their reputation with customers, programmes to attract and reward and care for staff and programmes to manage and enhance their corporate reputation.
But businesses are selfish, financially motivated entities which have to perform financially to survive. So sometimes, this discussion of purpose can get out of control. I believe that businesses should not distract themselves with a purpose that is not connected to its financial purpose, nor one that is unrelated to the core activities.
Business must have a purpose that is financial. Paul Polman alluded to this when he says that he wants to create long-term value
My next post (part 2) will describe why this matters and how this works.