Can purpose-driven companies change capitalism?

Making a change in a complex world is often less about tackling an issue head on, but about changing the circumstances. By focusing upon the context in which we operate, we can create the conditions by which the solutions get traction and we can make an impact.

Over the last few years activist investors have succeeded in “changing the circumstances” around the direction that capitalism is taking. Ethical investing (or ESG in the parlance) and corporate purpose are the main alternative visions to respond to this. The problem is that these attempt to provide a solution but without changing the circumstances. In this post I will discuss purpose – I will come back to the investor angle in a subsequent post.

Let me say, before I start, that I believe in purpose: I have my own simple approach, which I find to be a useful guide. It’s just three words. I have however, never felt the need to write it down.

Values not just Value

Paul Polman has recently written a great article on Purpose.  The key phrase being “we need to embrace the power of purpose-driven businesses, in which pure profit alone is not the sole measure of success, but instead values become as important as value”.

So it’s interesting to look at how “purpose” is currently used by companies, and integrated into their approach and the narrative they provide about themselves.

Perhaps predictably, companies owned by activist investors do not seem to have purpose statements. Value is their key driver. More interestingly at the other end of the corporate scale, neither do social enterprises, though these companies ooze authenticity and provide far better evidence that values are as important as value.

Somewhere in the middle are the majority of companies, who approach the topic in a variety of ways. The more credible companies once had an innovative founder who’s ethos is still reflected in what they say about themselves and has clearly provided a guide through to the present. Sadly, however, most company purpose statements look more like a strap line than a raison d’être. Only a few are likely to explain to employees, investors and customers what the company stands for. They are unlikely to guide the company as it navigates capitalism’s whirlpools. Some are even positively unhelpful, explicitly separating financial performance from purpose. Meanwhile, most financial reports make little or no mention of values and impacts upon society.  Value is still more important than values.

Authenticity and Meaning

This is about more than words. Aileen Ionescu-Somers has been researching and writing about the authenticity of purpose for many years. More recently Fast Company featured an article on why meaning is more important for  younger generations. Perhaps well established companies have too much baggage to truly become purpose driven. But if they don’t they are unlikely to be well established for much longer.

It would be more credible if companies approached “purpose” not head on, but as an outcome that is achieved as a consequence of their actions. A “how” not a “what”. Like the best social businesses, no purpose statements would then be needed. Actions would speak louder than words – talk the walk, not walk the talk.

Companies do need to ensure that their purpose talks to investors, otherwise financial returns will still be the main way that investors judge them. And maybe that’s the key point.

Changing the Circumstances

If we want purpose driven companies to flourish, then we need to create the space for this to happen. We need to change the circumstances around capitalism. This means positioning activist investors for what they are – one extreme of the capitalist spectrum.

We can do this by having more of a discourse about the other extreme of the capitalist spectrum – social businesses. This will involve also creating the conditions for more companies to become B-Corporations. Investors, consumers and employees can then have real choices – between companies guided by activist mindsets or socially minded ones. This will also create the space in the middle for companies who are able to truly balance value and values. 

Into this space investors (thats you and me) then need to drive the change. More on that later.