The single-minded drive for profits in modern shareholder capitalism exacts a heavy toll on society. Accelerating climate change, mounting biodiversity loss, widening inequality, and eroding public trust are among the most damaging consequences of this economic paradigm. Its focus on profit as the primary purpose of business is a threat to human and planetary well-being.
As business educators know, this singular profit focus is a mainstay in business schools and is reinforced by political and financial systems, the leaders of which were also taught the profit-first paradigm.
Nevertheless, it can be reversed. The economy can be rebuilt to foster long-term well-being for people and the planet. And fortunately, this transformation is under way.
What is the Purpose Economy, and How Did It Start?
Accelerated by the global pandemic, leading businesses are challenging the orthodoxy that a business exists to create profit and instead defining a business purpose to create a better world. These businesses are bringing the purpose economy to life.
There is no universal definition of a “social purpose” business, but most describe it as a business that improves society:
A social purpose business is a business whose reason for being is to create a better world. Its purpose is to profitably solve the problems of people and planet and not profit from creating problems. It is the company’s optimal strategic contribution to long-term well-being for all people and planet. (References: United Way BC Social Purpose Institute, Colin Mayer, British Academy, PAS 808)
Not all discussants use the language of “social” purpose. Indeed, the International Standards Organization guideline for the governance of organizations defines the purpose of an organization as its “meaningful reason to exist.”
Regardless of terminology, a business that defines its purpose as improving societal conditions (whether social conditions, environmental ones, or both) channels its enterprise capabilities, talents, resources, partnerships, and influence toward its purpose. The purpose becomes the company’s North Star, guiding it through turbulent times and mobilizing employees and stakeholders around it.
These businesses differentiate their purpose from their vision (where the company is headed in pursuit of its purpose) and their mission (which is what the company does to realize its purpose every day). They also differentiate their purpose from their environmental, social and governance (ESG) or sustainability objectives, which is how the company identifies and manages its material social and environmental risks and opportunities. A social purpose company continues these sustainability efforts, but it also directs its business toward fulfilling the higher purpose it has identified for itself.
These businesses seek to transform the ecosystems in which they operate to realize their purpose and bring all their assets and roles in pursuit of it. Whether it’s reducing income inequality, accelerating the low-carbon economy, or improving public health, this becomes the ongoing quest that gets built into the company’s governance, culture, operations, and relationships.
This is also a global movement.
