Who decides the purpose of business?

Several posts ago I ranted wrote about modern-day Milton Friedmans who stoutly insist that the purpose of business is making money:   period, full stop, and that’s all there is to it.

This didn’t go down well with me; nor does it resonate with a large number of social innovators who are re-imagining the role business can and should play in a globalized, 21st century world–a world full of big opportunities, but big problems, too.   But it raises a good question:    Whose job is it to say what role business should play?

One person who has been thinking about that a lot is Whole Foods CEO John Mackey, whose talk with Darden (University of Virginia) School of Business professor R. Edward Freeman wanders a bit, but is still worth the listen. 

What particularly captured my attention was this “purpose” discussion.   I hope you listen to the video, but since it’s 41 minutes, I’ll paraphrase the central Q&A here:

Freeman:  There is a story in society, a narrative, that the only legitimate purpose of a company is to make money for its shareholders. You are a shareholder…what’s wrong with that story?

Mackey:   First you have to ask the question—where did that narrative come from?   Who has the right to define what the purpose of a business is?   I don’t think it’s economists.  Businesses are started by entrepreneurs…and they may want to make money, but that’s not really what is driving them.   What is driving them is some type of passion.   They were on fire about something…whether, like Bill Gates, it is do the software to fuel the PC revolution, or like me to sell natural foods.  The entrepreneur who creates the business is the first one who determines what the purpose of a business is.   Over time, it evolves with interactions with stakeholders…and changes with their inputs.   But I think it is a myth that the only legitimate function of a business is to make profits.

What’s interesting to me is not just what Mackey has to say about it, but that both Freeman and Mackey frame it in the context of narrative:    Evolved conventional wisdom. What everyone has come to expect. 

It’s amazing how we can live our life largely based on what we assume people expect of us–what we are born to do, what others like us do.   And Mackey is saying that the same goes for businesses.   On the one hand is the press of expectations to perform financially.   Business leaders feel the pull of that familiar narrative that they learned in business school, from those economists that Mackey is talking about, which tell them, “Those are distractions.  Your purpose is to make money.”    To be sure, some of the characters in that narrative are their shareholders, employees, partners—people who really matter. 

But there also are the pressures of social expectations.  Businesses today DO feel pressured, as never before, to make a positive difference.   They watch their peers saddle up on sustainability, or they watch them purloined for bad behavior and fear the same will happen to them.   Maybe governments are telling them:  “You may be here to make money, but we think your purpose is to help us develop and prosper.”    Or, new generations of talent won’t jump on board because they don’t feel the connection.  Those expectations can cause businesses to sign up to meet those expectations, willingly or grudgingly, so that a slightly warmer/fuzzier version of their narrative will play out than might otherwise have been the case. 

Usually both are in play, and thus businesses often appear to be talking from both sides of their mouths.  Today it’s doing good, tomorrow it’s doing well– and we should expect that, because it really ISN’T one or the other.   But it can be darned uncomfortable, because either way, you’re disappointing someone.         

My advice to entrepreneurs is to take a page from Mackey’s book:      

1. Embrace the tension.  No narrative that’s any good has been a straight path anyway.  

2. Go on offense.   Go back to first principles—just like Mackey has–and determine for yourself:    ”This is our business.    What do we say it’s here for?”

3. Engage and listen to people in both sections of the expectations chorus.   You won’t make everyone happy, but you can educate them—and learn from them.    Ultimately it might really REALLY matter, what they think.  Or not.   You have to decide.

4. Evolve and adapt.    The world is more complicated than ever. Everyone is making it up as they go along–and change is part of your narrative too.

5. And finally, recognize you have a story, regardless of whether you’re helping to define it or not.  So first:  BE it and then:  TELL it.    You are helping to build a new conventional wisdom along the way.

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