There is a growing movement that says businesses—and in particular major corporations and unicorns—should be taking their social responsibility more seriously. They should be supporting employees and communities, protecting the environment, and fueling the local economy. In fact, the argument is that these should be the biggest priorities for businesses—ahead of profit.
This idea doesn’t sit well with everyone. “Without profit, the company dies! People starve!” But the discussion is about putting purpose before profit—not in place of it.
So the first natural question is: what should a company’s “purpose” be? And the crucial follow-up: can a business really thrive and grow without a profit-first mentality? What about the effects on employees, customers, shareholders, investors, and the broader economy?
We believe that businesses can thrive, making healthy profits while also putting their social purpose first. Let’s look at how.
How did “profit-first” become the status quo?
There is a somewhat famous quote which perfectly summarizes the mindset of business owners in the 1960s and 1970s eras. Made by the CEO of an large textiles company and published by Forbes, it goes:
“The objective of our company is to increase the intrinsic value of our common stock. We are not in business to grow bigger for the sake of size, not to become more diversified, not to make the most or best of anything, not to provide jobs, have the most modern plants, the happiest customers, lead in new product development, or to achieve any other status which has no relation to the economic use of capital.
Any or all of these may be, from time to time, a means to our objective, but means and ends must never be confused. We are in business solely to improve the inherent value of the common stockholders’ equity in the company.”
Famed Nobel-winning economist Milton Friedman worked hard to solidify the notion that for a company to pursue anything other than legal profit would be “pure and unadulterated socialism.” His view was, quite simply, that businesses have no social responsibility to the public or society at large.
The opinion, back in 1970s capitalist America, was a popular one. Or we should say, popular among the wealthy investors and business owners that became immensely rich and influential as a result of a profit-first ideology.
But we’re no longer in the 1970s and businesses—and their dogged pursuit of ever-higher profits—are under more scrutiny than ever. Social responsibility is no longer a laughable idea—it’s being demanded by consumers. Business must now be designed to create positive contributions to society, benefiting customers and communities as well as shareholders.
That is the definition of a purpose-led business.
What could their purpose be, if not profit?
The point isn’t that there’s one single “purpose” that should replace profit. It’s that companies need to engage more directly and forcefully in social issues across the board. Things like:
- The environment
- The local or broader community
- Employee wellness
- Important societal issues (e.g. workplace equality)
- Customer experience
The idea is that when making important decisions, the first questions aren’t about how the bottom line will be affected, but the effects on the points listed above.
Distinction between goals and purpose
Management expert Peter Drucker said that there is only one purpose of any business: to create a customer.
I would alter and expand this statement to say that the goal of any business is to create enough customers…to enable its purpose.
Like generating profit, purpose is something that’s fulfilled only by running a successful business. Companies still need to nail their product design, have creative marketing, understand their audiences, recruit well—all of this is essential to allow businesses to fulfill their purpose.
And in much the same way, fulfilling that purpose usually leads to profits anyway!
The benefits of purpose before profit
We aren’t dealing with a naive or hypothetical concept here: purpose-driven businesses have been shown to be more successful than those chasing profit. That success takes many forms—yes, including profit itself—and we’re going to look at a few of them here.
Happier and more engaged employees
Today’s employees—and especially younger workers—need to work for organizations that give their lives meaning. For both companies and employees, a sense of belonging has become essential for success.
Companies driven by higher purposes than profit create more value for employees. They become more invested in the company’s success, they have better mental and physical health, and they’re more driven to deliver high-quality work.
Meaningful work is now a stronger motivator than salary. And there’s no more meaningful work than contributing to a company whose purpose is beyond profit.
More loyal customers
A recent global study found that consumers are four to six times more likely to buy from, protect, and “champion” purpose-driven companies. Part of this is the mindset of today’s customers: 83% of those surveyed said that companies should only earn a profit if they also deliver a positive social impact.
And the customer is always right. People still want to spend money and have amazing products and services. The difference is that, especially in an era of unprecedented choice, they are also willing to forgo brands which don’t deliver perceived societal value.
It’s purpose before profit—not instead of profit. Today’s companies are increasingly dependent on knowledge workers and focused on customer experience. If employees are forced to work in poor conditions (low pay, long hours, impersonal management, etc.) then their return to your business will be lower.
Their motivation, productivity, ambition, willingness to go the extra mile…how can any of this be sustained if you’re not investing properly in them? Part of every business’s purpose should be the financial and mental wellbeing of its employees. Arguably this should be their first objective.
There is a misconception that putting purpose before profit will make beggars of us all—this couldn’t be further from the truth.
Would shareholders tolerate this new philosophy?
While most corporations believe their purpose is to deliver results for shareholders, it doesn’t need to be that way. As we’ve seen, dedication to a clear purpose can improve a business’s growth, innovation and even profit. As we look towards the future of more sustainable businesses and the vital importance of happy knowledge workers, a purpose-first philosophy is something that major investors and shareholders will get behind.
The pebble that starts the avalanche
Research from HBR says that if a CEO focuses primarily on maximizing profit, employees’ view of the organization will suffer. Conversely, putting stakeholders’ interests (environmental impact, customer & employee concerns, community initiatives) ahead of profits leads to greater workforce engagement and, therefore, superior financial results.
It’s what employees want, it’s what customers demand, and it’s shown to create a stimulated and profitable environment. It feels like we’re on the edge of a precipice: once a few more companies take note and enjoy soaring success with a purpose-first philosophy, it might not be long until there’s a fundamental attitude shift across the capitalist world.
How do your employees view your organization? What do your customers think? If you’re not totally sure, it’s hard to make decisions — at least good decisions! Learn how Sogolytics can help you get the data you need to inform your next move.