Why on Earth Does Your Company Even Exist?

Companies today must have compelling answers to the questions of why they exist, and for whose benefit.

May 2022 | Strategy

You have only to scan the day’s headlines or scroll through Twitter to see how many people are unhappy with the world of business. Investment banks are said to have wrecked the economy, oil giants polluted the seas and news publishers invaded citizens’ privacy. Customers grumble about high prices and poor service. Employees rail against their managers and lose sleep over how work affects their well-being.

It is hard to find an industry not in the press for one misdemeanour or another. What can boards and executives do to create better businesses and keep their names off the front page of the Daily Mail?

Profit motive under threat

With the Industrial Revolution came technologies and an economy that brought products, services and wealth to millions of people. For more than two centuries companies have satisfied our immediate needs. We have electricity to power our houses, bank cards to buy things with, and mobile phones to waste our time on.

Arguably, most businesses continue to satisfy the immediate needs of their customers. They also generate shareholder value, central to commerce since the Industrial Revolution. Still, alignment with what I call the ‘immediate product and profit motive’ is no longer enough.

The world is telling commerce to adopt a wider role in the development of society. Alongside wealth creation and shareholder value, society wants business to do more for people. Boards and executives are under pressure to make real change.

Business purpose – why does your company exist?

Leadership teams are invited to return to basics and answer the question What does our company exist for?  In other words, many firms will do well to re-think their purpose, to understand the value they might bring to a shifting world.

Still, there is, I believe, a more fundamental question: For whom does our company exist? The answer provides direction for the wider and crucial narrative of purpose.

For most businesses, a simple first step is to pay attention to four groups of beneficiaries, who equally are investors in an enterprise’s commercial future. These are (predictably) shareholders and customers, as before, alongside employees and wider society, previously somewhat neglected. Each constituency has evolving, interconnected needs.

Customers

Naturally, customers still buy core products – electricity, credit, telephones and so on. They also now demand reassurance that manufacturing does not harm the environment. They want to know that products and services are safe, that employees are protected by labour laws. Some ask questions about the behaviour and integrity of people running the firm.

Customers may be keen to learn about a company’s supply chain, where its raw materials come from and from whom. An early illustration of this trend is the Kimberley Process for certifying diamonds as not having come from a conflict zone.

Employees

Similarly, employees invest in the future of the company they work for. (For years Human Resources (HR) departments have championed the interests of this group, often with little success.) As work gets more complex, markets tougher and Artificial Intelligence (AI) less stupid, companies need people to be far more than cogs in their machine.

It will be necessary to discover new ways to support personal growth as well as physical, mental and emotional well-being. Organisations must offer their people more varied returns in exchange for their efforts. ‘Money for time’ is no longer a tenable contract. The Taylor Review of Modern Working Practices has compelling insights into these questions.

Shareholders

In their various forms, most shareholders and investors seek financial benefit. (Despite the bad press around ‘capitalism’, wealth creation remains a fair imperative.) But there are demands for other forms of return.

A recent letter sent by the CEO of BlackRock to public companies shows the trend: Larry Fink explained how this $6 trillion asset manager will assess businesses’ purpose and societal impact.

Society

Customers, employees and shareholders aside, each organisation also depends upon an ecosystem that comprises governments and laws, markets and economies, suppliers and infrastructure, media and technology, etc. These realms include many other people.

Easier and wider access to public forums means that everyone is now able to have his say on how a business is run. Organisations need to listen to these far-flung voices. This is a lesson that Mark Zuckerberg is learning the hard way, as Facebook faces public backlash for its privacy standards and actions of its executives.

Implications for boards and executives

The immediate product and profit motive will keep some firms afloat for a while, but the writing on the wall is clear. To pick up the gauntlet thrown down by an increasingly vocal society, boards and executives have to go far beyond the standards of the Industrial Revolution. Only by putting people at the centre of what they do will organisations prosper.

People-oriented purpose is more than glib rhetoric. A clear and integrated understanding of customers, employees, shareholders and society serves to unify day-to-day work activities. As systems and people become more aligned in pursuit of a meaningful purpose, so a powerful and efficient organisation better equipped to respond to complex, changing demands will emerge.

Image Brooke Bell | Unsplash

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