By Katie Archdekin
A fundamental shift is taking place in business and society. The strictly profit-driven model for capitalism, epitomized by the work of Milton Friedman, and embraced for the past half century is being rejected. In its place new models are emerging that support social and environmental well-being and satisfy the desire people have for meaningful work. These new models treat profit not as an end in itself but as a means to achieve a purpose.
Leaders who are turning away from the relentless focus on profitability are putting business to work for social good. They are building organizations that are socially beneficial, environmentally sustainable and economically sound and we want to do everything we can to encourage and support their success!
There are still many people who believe that businesses will never be anything other than self-serving – that when push comes to shove, the bottom line rules all business decisions. This is a valid perspective, and I’m guessing we have all had experiences that could be used to support it.
But we are at a turning point. For every inpidual still mired in a model that is no longer serving us well, I believe there is another leader ready to step up and change the way business operates. And it is precisely because not everyone recognizes the shift taking place that the opportunity is so great right now for those who do. I’m convinced that those who lead this change will be the stewards of the most successful companies over the next 50 years.
What makes me so confident?
1. The earliest adopters have been operating this way for years. There are many well-known examples like Whole Foods, IBM, Patagonia and Chipotle. And there are many, many more small businesses and social entrepreneurs that have been quietly making a difference. They may not use the same language or terminology to express what they do but they are nonetheless operating great, sustainable companies. They do so because they believe it is in the best interest of their businesses, families and communities. Companies like my husband’s small sales agency come to mind. His business is built on the belief that when strong independent retail and larger commercial chains co-exist, it creates more choice, better service and stronger, more vibrant communities. He builds sustainable brands by focusing on his customers’ success first, investing in his employees, and truly partnering with his suppliers.
2. There is increasing evidence to suggest that these leaders are winning across all metrics, including profit. For example, in Firms of Endearment, Raj Sisodia, David Wolfe and Jag Sheth studied a set of ~70 companies that “endear” themselves to stakeholders by aligning the interests of customers, employees, partners, investors and society. These are companies that are exemplary because they have a purpose, which serves the needs of others. Of the companies studied, 28 were US publicly-traded and these 28 companies outperformed the S&P 500 by 14x over a 15-year period, 4x over a 10-year period, 2.5x over a 5 year period and 1.5x over a 3 year period. Comprehensive? Conclusive? Perhaps not yet, but at least compelling.
Other academics are taking a more rigorous approach to the economics of purpose. One illustration of this is the 2013 paper by Anjan Thakor and Robert Quinn, who use a Principle-Agent model to understand how the intersection of business goals and the pursuit of higher purpose affects economic outcomes. The researchers conclude there are positive economic benefits from pursuing higher purpose due to decreased labour costs, increased capital inputs and a diminishment of moral hazard. They say, “In a sense, our paper provides economic content to statements like the one by Howard Schultz, the founder of Starbucks, suggesting that social responsibility can enhance profits: ‘There needs to be a balance between commerce and social responsibility. The companies that are authentic about it will make more money.’”(1)
3. The change is beginning to gain mainstream acceptance. Five years ago when I talked about purpose and stakeholder value, I tended to get polite nods, blank stares, or even dismissal and angry opposition. Today, many people light up, engage, and share their own experiences and beliefs about how business is changing for the better.
4. The alternative is not an option. Paul Polman, CEO of Unilever recognizes this when in a recent interview he says, “The cost of not acting now on many of these issues has become higher than the cost of acting.” Or as Dianne Dillon-Ridgley, Board Director of Interface Inc. says, “Everyone keeps asking, ‘what’s the business case for sustainability?’ Turn it around, what is the business case for destroying life and ecosystems on earth?”
So, what can you do as a leader who wants to innovate toward and benefit from these new models of capitalism?
Step up and “take your turn.” Choose to make your business better today. Understand your company’s identity and why it exists. Then take one tangible step, no matter how small, every day to fulfill its purpose and positively impact society, the environment and the economy.
The returns will be there. People want businesses to work for social good.
(1) The Economics of Higher Purpose, Finance Working Paper No. 395/2013, December 2013, ©Anjan V. Thakor and Robert E. Quinn 2013