From Harvard Business Review on August 23:
On Monday, 181 CEOs — from top companies including Apple, Walmart, JPMorgan Chase, and Johnson & Johnson — acknowledged that firms do not exist only to serve shareholders. In a statement issued by the Business Roundtable, a corporate lobby group, they affirmed a commitment to “all of our stakeholders.” Those include customers, employees, suppliers, communities, and — last but still very much not least — shareholders.
It’s a welcome shift. In 1970 the economist Milton Friedman made the case in the New York Times that management’s sole obligation ought to be maximizing value for shareholders. Over the past few decades, that view became commonplace in many boardrooms and business schools and on Wall Street. But there have been dissenters, especially in recent years.
In a 2017 HBR article, Joseph Bower and Lynn Paine of Harvard Business School argue that the shareholder-centric view “is flawed in its assumptions, confused as a matter of law, and damaging in practice.” They write that “a better model would recognize the critical role of shareholders but also take seriously the idea that corporations are independent entities serving multiple purposes and endowed by law with the potential to endure over time.”
To which I say: It’s about time.
I love Milton Friedman, but he got this one wrong. The purpose of a corporation is not simply to make a profit but to make the world better. The best businesses have always understood this and seen their own companies in this way. Jim Collins’ excellent chapter “More than Profits” in his classic Built to Last, for example, brings together dozens of incredible quotes on this. For example:
We’ve also remained clear that profit — as important as it is — is not why the Hewlett-Packard Company exists; it exists for more fundamental reasons. — John Young, Former CEO, Hewlett-Packard
We are in the business of preserving and improving human life. All of our actions must be measured by our success in achieving the goal. — Merck & Company, Internal Management Guide, 1989
We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been. — George Merck, President and Chairman, Merck & Company, 1925 – 1957
We are workers in industry who are genuinely inspired by the ideals of advancement of medical science, and of service to humanity. — George Merck II (once again, because it’s so good)
Sony has a principle of respecting and encouraging one’s ability…and always tries to bring out the best in a person. This is the vital force of Sony. — Akio Morita, Co-founder, Sony
I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. … Our main task is to design, develop, and manufacture the infest electronic [equipment] for the advancement of science and the welfare of humanity. — David Packard, co-founder, Hewlett-Packard
Service to customers comes first … service to employees and management second, and … service to stockholders last. — Robert W. Johnson, Co-founder, Johnson & Johnson
Man’s objective should be opportunity for greater accomplishment and greater service. The greatest pleasure life has to offer is satisfaction that flows from…participating in a difficult and constructive undertaking. — Bill Allen, Former CEO, Boeing, 1945 – 1968
Putting profits after people and products was magical at Ford. — Don Petersen, Former CEO, Ford
Collins also shows that the companies in his study who saw their purpose as more than making money actually made more money than their competitors who didn’t.
This is in line with the biblical purpose of business, where every sector of society exists for the service of people.
However, if business exists to bring good into the world, then how does it differ from the non-profit sector?
The answer is that “more than profit” does not mean “other than profit.” The mandate of business is to bring good into the world in a way that is profitable for the long-term . So profit is essential to the nature of business. It is simply not the only, or even most ultimate, purpose.
In the Christian view, a corporation exists to do good for the world in a profitable way. In so doing, it must give appropriate attention to the needs and interests of all stakeholders, not just the shareholders.
For more on this, see also the excellent book A Sense of Mission, which brings together additional academic research showing that companies who have a purpose beyond making money perform better. [I can no longer find it at Amazon, but here is a short summary.]