For the past 14 years, I have been a professor at a large Canadian business school. In that time, I have noted a striking change in the attitudes of our students. There is still the same high level of ambition and intelligence, but over the past five years or so, some students — and recent alumni, for that matter — are concerned about the future and wonder how to build a meaningful career in business.
Climate change and growing inequality loom large, as does the seeming inability of our institutions and organizations to move with urgency and conviction toward new operating models. Students are rightfully asking: If we want to be part of the solution and not the problem, how and where can we make a difference? What positive purpose can I bring to my working life?
Recent business school alumni — high potentials who sometimes feel disconnected from the activities they are asked to perform by their employers — are searching for answers to similar questions. Our collective and humbling experience with the COVID-19 pandemic only sharpens the angst many feel.
In addition to teaching, I also conduct scholarly management research that offers a window into organizational life. And what I see in today’s organizations is, in some ways, similar to what students are experiencing — a variation of the “crisis in meaning” storyline.
Searching for a Purpose
Organizations are navigating a new world of expectations. For as long as anyone can remember, businesses have been oriented toward meeting their investors’ expectations — notably, healthy and predictable short-term profits and minimal to no risk. If they were asked about corporate purpose, they likely would have pointed to Milton Friedman’s adage that the “one and only social responsibility of business” is to maximize its profits, certainly not to provide employment, eliminate discrimination, or mitigate pollution.
The expectation today, however, is that firms account for the interests of their many stakeholders rather than focus only on shareholders and other investors. The pandemic made apparent the interconnectedness between businesses and society. We have seen how businesses depend on a functioning society, including frontline workers in basic sectors such as food or healthcare, and we have also seen how businesses contribute to a functioning society by providing food, transportation, goods, and services.
“The expectation today, however, is that firms account for the interests of their many stakeholders rather than focus only on shareholders and other investors.”
These expectations are not just coming from progressive commentators or essays in business education outlets. They are coming from market regulators who are imposing ESG (Environmental, Social, and Governance) reporting requirements on publicly traded companies. They are coming from increasingly resourceful shareholder activists targeting laggard firms. They are coming from younger generations of consumers and investors making decisions based on the ethical behaviour of businesses. And they are coming from their own employees who are voting with their feet and from potential recruits who look elsewhere for opportunities.
Just as the next generation preparing to enter the workforce may have a crisis in meaning, so too are organizations struggling to understand their place in their communities. How do they meet these expectations, particularly when stakeholder interests can be in conflict?
The Importance of Corporate Purpose
Up to now, organizations have tried to meet this challenge by developing corporate social responsibility (CSR) initiatives. But CSR does not address the new expectations facing modern organizations. Such initiatives tend to be isolated nice-to-have activities, usually directed by the marketing department and not truly embedded in the DNA of the organization.
“Corporate purpose refers to a concrete goal or objective that is beyond profit maximization. It is a response to the question, “Why and for whom does our organization exist?””
This is where corporate purpose comes in. It may seem like an anodyne term but there is a lot packed into it: corporate purpose refers to a concrete goal or objective that is beyond profit maximization. It is a response to the question, “Why and for whom does our organization exist?”
Corporate purpose implies that the firm has a role to play to serve certain stakeholders rather than strictly shareholders. It does not necessarily have a pro-social dimension but often does. When it is well formulated and executed, corporate purpose is reflected across the enterprise in HR practices, supply chain management, marketing, finance, and elsewhere.
The same certainly cannot be said of CSR. For example, when Patagonia was one of the first large firms to register as a B Corporation, its founder and CEO Yvon Chouinard stated the goal was for the firm to “stay mission-driven through succession, capital raises, and even changes in ownership, by institutionalizing the values, culture, processes, and high standards put in place by founding entrepreneurs.”
“Research has linked corporate purpose to better financial performance, increased firm reputation and greater employee and customer loyalty, as well as reduced risk.”
A strongly and widely felt sense of corporate purpose creates meaning for employees, which in turn drives and sustains intrinsic motivation. When there is a clear alignment between corporate purpose and employees’ contributions, good things happen. Research has linked corporate purpose to better financial performance, increased firm reputation and greater employee and customer loyalty, as well as reduced risk.
Yet there is a paradox: while research suggests corporate purpose can lead to profits over the long term, pursuing profits through purpose is a bad idea. Employees and stakeholders will see through inauthentic efforts. When corporate purpose is used as a Band-Aid rather than a guiding light for the entire enterprise, it can trigger a backlash, disillusioning employees and turning off customers. And, inevitably, the conviction of every organization is tested when the pursuit of purpose comes at the expense of short-term profits, and there is nowhere to hide.
How Canadian Businesses Can Implement Corporate Purpose
Canadian organizations need managers and leaders who understand the implications arising from corporate purpose that is authentically pursued. This requires people who have the skills and latest management evidence to respond to challenges such as:
- Analyzing how social issues are entangled with the everyday activities of businesses.
- Embedding corporate purpose in various business functions, from marketing and operations to human resources and finance.
- Designing and leading social impact initiatives collaboratively, connecting them to broader corporate purpose and building support for them internally.
- Assessing and measuring social impact using frameworks.
- Working productively with stakeholders to co-create value, based on best practices.
- Handling tensions that inevitably arise when working with stakeholders whose interests are not always aligned with those of the organization.
Business schools are uniquely positioned to give students, managers, and leaders the skills and knowledge to meet new expectations around corporate purpose. The big challenges we face as a society — climate change, access to opportunities, public health, and more — are all too complex to be taken on by only one sector or discipline. We need meeting grounds where people with different sources of expertise and resources can work on complex challenges collaboratively. Business schools can become one such meeting ground.
Business school researchers can also contribute by developing the science behind effective and equitable collaboration so that people with diverse backgrounds can bring their unique perspectives to bear, productively and equitably.
“Business schools should aim to integrate social issues into the entire curriculum, and students should have opportunities to experience at a deep level how businesses can contribute to a healthy society.”
Some might question the legitimacy of business schools to teach corporate purpose or train social impact leaders. This is based on an outdated view of how modern business schools approach their mandate. Business schools should aim to integrate social issues into the entire curriculum, and students should have opportunities to experience at a deep level how businesses can contribute to a healthy society. The skills and expertise of business schools across Canada should be put in service of a broader agenda solidifying the contributions of business to society. This will require much research focus as well across the spectrum of business disciplines.
For example, at the school where I teach and research, accounting scholars are starting to examine how Western reporting principles affect Indigenous communities, finance scholars are shaping the future of green investing, and analytics scholars are teaming up with colleagues in medicine to improve how hospital emergency rooms operate.
Canadian business schools need to prepare students and organizational leaders for the world that is coming and not the world of the past.