Purpose: the new way to create profit
This ground breaking research must revolutionise leadership. It is already doing so after four years study by the Future of the Corporation project for the British Academy.
The outcome “exceeded anything we expected”. That is why we at TTU are publishing it.
The work involved “hundreds of academics, leading thinkers, business leaders, entrepreneurs, investors, lawyers, policymakers, regulators, and people from every walk of life around the world”. This is a lightly edited version of Professor Mayer’s presentation of the findings on 22 September 2021. They include what must be done next. No leader should ignore them. Indeed, they should be stimulated by them.
Colin Mayer is Peter Moores Professor of Management Studies at the Said Business School, Oxford University.
What emerges is a very clear and precise message. The best and most successful businesses in the world increasingly recognise the importance of purpose to their success.
The change that has occurred since we produced the first report on the future of the cooperation programme, in 2018, has exceeded anything we expected.
The idea we put forward there of the centrality of corporate purpose, the purpose of not just making money, but making money from solving problems has caught on in Britain, in Europe, the US and globally.
New path to business success
A YouGov survey that the British Academy recently commissioned records that has many business leaders 43% of them today believe that a corporate purpose of solving problems profitably is as critical to business success as increasing shareholder value. That is a remarkable transformation over just a few years.
Furthermore, a large proportion of businesses - around 50% - recognise the need for them to adopt new methods of operating and for their investors to adopt new ways of engaging with them to promote corporate purposes. A majority - around 60% - believe that there should be a change to law and or regulation to support the adoption of corporate purposes.
This is encouraging. But inequality, social exclusion, climate change, extinction of species and mistrust have intensified.
Business must solve not cause problems
There remains much cynicism and scepticism about the 2019 statement by the American business roundtable about adopting enlightened corporate purposes in place of shareholder primacy. And to many, environmental, social and governance reporting – ESG - is nothing other than greenwashing.
The final report of the Future of the Corporation Programme addresses these concerns head on. It emphasises the centrality of business in solving not causing problems. That derives from the fact that business is not only critical to our prosperity, but also to our well-being and survival. And that, in turn, derives from the centrality of business in society. - one of, if not the most important institutions in our lives.
Let me illustrate this. We are astounded by the expenditures to which governments around the world have committed themselves during the pandemic - hundreds of billions to several trillion dollars. But the asset managers that come to COP 26 in Glasgow in November of this year will bring $100 trillion of assets with them. The stock of accumulated private wealth dwarfs the flows that come from public borrowing and taxation.
So it’s vital we are clear why business exists. And the purpose to which that wealth will be put is not simply to accumulate more of it. It’s to create profit in the process of solving problems, problems that you and I face as individuals, communities, societies, and the natural world.
In other words, it’s to profit from producing solutions not problems.
That’s why we emphasise the existence of business as being to produce profitable solutions for the problems of people and planet, not profiting from creating problems.
Profitable solutions: the new aim of good business
It is critical to the functioning of our economies and markets as well as societies. Profiting from solving problems promotes entrepreneurship, innovation, and competitive markets in solving, not creating problems.
This report takes that simple insight and addresses the question: how does one design public policy and business practice to deliver it? And the answer is as straightforward as the observation. Make sure that every part of public policy and business practice is directed towards achieving purposeful business, whose purpose is to profit from producing solutions, not problems.
The second British Academy report published in 2019 identified four sets of principles that apply globally to all nations and economies to promote the adoption of purposeful businesses. Law and regulation. Ownership and governance. Measurement and performance. Finance and investment.
What this report does is to set out the specific policies and practices associated with each of these principles that deliver purposeful businesses. In other words: the purposeful laws regulation, ownership, governance, measurement, performance, finance and investment that promote business purposes of profitably solving problems.
Purpose must be the new driver
There are two key mechanisms that underpin this. The first is to make it easier for companies to implement corporate purposes. And the second is to hold them to account for doing it.
What we term implementation and accountability promote the entrepreneurship, innovation, ownership, finance, investment, competition, and incentives that implement corporate purposes. They ensure that the ownership, governance, stewardship, measurement and regulation are in place to hold businesses and their boards of directors to account for doing it. Without that implementation, companies lack the resources, drive and support to adopt corporate purposes of solving problems.
Without that accountability, corporate purpose statements lack conviction and fail to build trust. Companies’ commitments to fulfil their purposes must have consequences. But those with the responsibility for making them happen, namely the Board of Directors - if they are to be trusted, and believed.
What is missing in law and regulation
We take the UK as an example of a country that is particularly well placed to do this. It already has the policies that are needed: the Companies Act, the Corporate Governance Code and the Stewardship Code. But they lack the implementation and accountability to really deliver purposeful businesses.
What is required is an evolution and enhancement, not a revolution of current policies. But it’s an evolution that will have profoundly beneficial effects on the performance of business, as well as our environment and societies.
New targets for directors
Specifically, we suggest that the primary duty of directors should be to determine, implement, and deliver their company purposes. Owners of companies should use their rights of approval and removal of directors to ensure that the appropriate leadership and oversight is in place in companies. That directors should be accountable to their shareholders and stakeholders for fulfilment of their purposes. That they should measure and report to their shareholders and stakeholders on their company’s performance against their purpose.
That they should promote the values and cultures that empower everyone in their organisations to take responsibility for their part of their company purposes and align incentives throughout their organisations with them. Regulators, standard setters and auditors should ensure that companies do not profit from creating detriment. That financial institutions should provide funding at the scale, location, duration and form required that companies to resource their purposes. And that governments should partner with and procure from companies to promote their common purposes.
Purpose: the partnership to aim for
We demonstrate the profound effect these policies and practices will have in the context of the major national and global challenges that we currently face in the UK and globally. Climate change and biodiversity. Economic and social recovery from COVID. Inequalities. Social exclusion and regional disparities. And the impact of the technological revolution on the future of work.
We use these challenges to illustrate how purposeful business working in partnership with government, investors and regulators can become a powerful, credible and effective instrument for addressing. Only purposeful businesses can do that. Only purposeful businesses working in tandem with government can really deliver. Those 100 trillion dollars of assets under management in the private sector must be managed in tandem with the hundreds of billions of dollars of expenditure in the public sector if we are to solve the mounting crises we face.
Currently, the interests of the private and public sectors are not always well in line. The interests of business in making money often conflict with, not promote those, of government in delivering a public benefit. Contrast with businesses that exist to solve problems profitably. They align their private interests in making money with the public interests of governments in society and the environment.
We hope that this will be seen as a landmark report that lays the foundations for the most coherent and comprehensive programme of reform proposed to date that can be adopted by businesses, small and large around the world.
And we hope that it will provide a unifying message around which every one of us can rally not just as business leaders, investors, policymakers and regulators, but also as consumers, employees, communities, students, researchers, educators, and citizens of the world for the sake of all our wellbeing, flourishing and economic prosperity.
The full report can be downloaded at Policy & Practice for Purposeful Business | The British Academy