For much of the 20th century, the purpose of business was to generate as much profit as possible for its shareholders. When I was growing up, this sentiment was popularized by economist Milton Friedman in the 1970s, and again by Gordon Gecko in the 1980’s. While this perspective fueled unprecedented economic growth and industrial expansion, it became increasingly clear that it could also result in environmental degradation, financial collapse, and widespread societal harm. As these problems became more frequent, distrust in corporate motives increased.
Fast forward to today, and the prevalent view of what constitutes a successful business has shifted dramatically. The contemporary view recognizes that profitability, while essential, is not the sole purpose of an organization; today, businesses are seen as “holistic entities” with responsibilities that extend beyond financial performance to include social, environmental, and ethical considerations.
The Limitations of Profit-Centric Thinking
The “profit-first” model in the US reverberated in short-term decision-making on Wall Street that ignored long-term consequences. US businesses focused on cost-cutting measures like layoffs and neglected investments in sustainable practices, which caused increasing harm to employees, communities, and the planet. As we neared the 21st century, we reached a tipping point, resulting in a greater emphasis on stakeholder interests.
The Shift to a Stakeholder-Centric Approach
This new “holistic” view of business – referred to as “stakeholder capitalism” – puts the interests of stakeholders (employees, customers, communities, investors, and the environment) first, because it recognizes that a company’s long-term success depends on creating value for everyone it touches.
More specifically, the shift to “stakeholder capitalism” has been driven by several factors:
1. Social Awareness: Consumers and employees are more informed and vocal about societal and environmental issues today, demanding that businesses align with their values.
2. Global Challenges: Climate change, income inequality, and resource scarcity require collective action, with businesses playing a pivotal role.
3. Business Case for Sustainability: Evidence shows that companies that embrace sustainable practices and invest in their communities often perform better financially in the long term.
The Modern “Purpose-Driven” Organization
Today, many of the world’s most successful organizations are redefining their purpose to balance profitability with positive societal impact. Companies like Patagonia and Unilever, for example, have made purpose central to their operations, focusing on environmental sustainability, ethical sourcing, and social equity. Technology has contributed to this transformation, as digital transparency makes it harder for companies to operate without scrutiny, encouraging ethical behavior and social responsibility. Similarly, the rise of “B Corporations” (a certification for businesses meeting high social and environmental standards) illustrates the growing importance of this movement.
Balancing Profit with Purpose
While this shift toward a more holistic strategy is commendable, businesses still face the challenge of balancing purpose with profit. Achieving this balance requires:
1. Leadership Commitment: Leaders must set a clear vision that integrates purpose into their business strategy.
2. Stakeholder Engagement: Businesses must engage in regular dialogue with employees, customers, and communities to help align business goals with societal expectations.
3. Measurement and Accountability: Companies must track their impact using frameworks like ESG (Environmental, Social, and Governance) metrics or the United Nations’ Sustainable Development Goals (SDGs).
In conclusion, the evolution from “profit-centered” to “purpose-driven” organizations marks a profound transformation in business thinking. This shift reflects a fundamental truth: the purpose of an organization is no longer just about making money — it’s about making a difference !
Companies that embrace this new model are not only better positioned to address global challenges, but also to build stronger, more resilient organizations. By creating shared value for all stakeholders, businesses can achieve long-term success while contributing to a better world.
