Rethinking the purpose of companies

Last month around 180 CEOs of some of the most powerful American corporations, including Walmart, JP Morgan Chase, IBM and many more, issued a new “Statement on the Purpose of a Corporation”, which pledges that their firm’s purpose was no longer to serve their owners alone, but customers, staff, suppliers and communities too. CEOs committed to lead their companies for the benefit of all stakeholders.

The Statement affirms that companies play a vital role in society as engines of creativity, innovation and economic opportunity. Therefore, having a shift in the businesses approach to provide true value to all stakeholders could be a great platform for social change. It draws a new model that includes:

  • Delivering value to their customers
  • Investing in their employees
  • Dealing fairly and ethically with their suppliers
  • Supporting the communities in which they work
  • Generating long-term value for shareholders

This proposed model may provide us with a glance of how businesses can flourish and grow within a more holistic framework, pursuing a higher purpose and not only as mere generators of profit as their sole responsibility.

This shift may obey many causes, but undoubtedly it seems to be a response to the turmoil toward businesses that have operated for too long under the belief that getting the profit at any cost was the name of the game. This approach has not only caused high levels of inequality, an irreversible damage to our planet, but also has led to unfair and unethical practices scheme that we have ignored so far.

Some experts claim that this new form of collective capitalism sounds nice but it may end not working at all, indicating that it may deteriorate companies’ accountability to compete and boost productivity.

However, whether that may result true or not, what is clear to me is that the current model is not working that well; and a more cooperative and conscious model appears to be needed. Integrating in a conscious way the interests of all major stakeholders in a company does not minimize profit-seeking but rather can encourage trust, collaboration, and hence value creation.