“Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity.”
—The Business Roundtable
What is the purpose of your company? Is it to turn a profit? After all, if your company is not profitable, it would most likely dissolve.
This idea of “shareholder capitalism” was introduced in 1970 by Milton Friedman, an economics professor at the University of Chicago. And from that point on, profit has been the prevailing framework for most companies.
But the Business Roundtable, a lobbying group that represents 181 CEOs of leading U.S. companies such as Apple and Walmart, recently issued a statement signed by all its members. The statement included the following sentences: “Each of our stakeholders is essential. We commit to deliver value to all of them for the future success of our companies, our communities and our country.”
This statement broadens Friedman’s assertion with the premise companies now are accountable not only to shareholders or company owners but also stakeholders, which include customers, employees, suppliers and communities.
Claudine Gartenberg, assistant professor of management at Wharton School of Business at the University of Pennsylvania, and George Serafeim, professor of business administration at Harvard Business School, have been conducting ongoing research regarding whether profits and purpose can work together or are at odds with one another.
They write: “We quantified purpose as the aggregate sense of meaning and impact felt by employees of a corporation. If the company has a strong corporate purpose … employees will feel greater meaning and impact in their jobs.”
In fact, Gartenberg and Serafeim’s research shows companies with high levels of purpose outperform competitors 5–7%.
But they note: “The link between purpose and profitability is present only if senior management has been successful in diffusing that sense of purpose further down in the organization, especially in middle management, and in providing strategic clarity … .”