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Purpose with a Soul
by Professor John Almandoz
Woke capitalism is on the rise. This term, coined by Ross Douthat of The New York Times, refers to business leaders becoming politically active on social and political issues, ceremonially supporting trendy causes. This may be a sign of the times, as companies are scrutinized more closely and fear the impact of social media. Woke capitalism is frequently no more than greenwashing, empty virtue-signaling and inexpensive talk: smokescreens to please, distract, or even buy noisy activists so companies are left alone, undisturbed, and ultimately attentive to the usual bottom line. For example, for all their talk about social and environmental good, fast-food companies are still junk food providers, contributing to obesity problems and healthcare costs often borne by taxpayers.
If incense tossing to progressive causes is all that the movement on purpose capitalism is about, it would be a sad state of affairs. The needs of society are as great and urgent as can be, and many governments are ill-equipped to address them. In her recent book Reimagining Capitalism in a World on Fire, Rebecca Henderson argues that businesses must play their part in addressing the world’s problems, which are many. Environmental degradation from the burning of fossil fuels, for example, is likely to “substantially reduce GDP, flood the great coastal cities and force millions of people to migrate in search of food.” Growing inequality is also a critical concern, especially as robotics and artificial intelligence, (and now the COVID-19 pandemic) are leaving so many unemployed. Capitalism has made the world richer but shareholder supremacy—the belief that a company’s focus should be only on its shareholders—has introduced a great deal of social inequality, environmental degradation, and systemic risks. Remember the financial crisis.
But how can businesses take on all these global challenges? Prof. Henderson offers as a solution that we change how we think about the purpose of firms and their role in society. Each individual company can have a social purpose to make a difference and become one more pebble “in an avalanche of change.” It all begins with finding their own purpose. Yours. The movement has acquired momentum with trailblazers like Paul Polman at Unilever, who have illuminated a new path into the soul of business, and now there are many companies with a purpose greater than simply maximizing profits. When the global movement takes off, Henderson argues, the social and political systems will follow. There are signs of hope that this revolution is already happening, driven by transparency and social media, by millennials truly caring about their impact in the world, and by the role of impact investing and “universal investors” such as Blackrock, who have thrown their hat on the side of purpose.
Yet, the success of the purpose revolution in changing the world could be undermined from within by cheap woke capitalism. The problem is that companies simply report the good things they do and hide the bad ones. This can give rise to skepticism. A solution to this problem of fake compliance may be what Colin Meyer argues in his book Prosperity. The legal system in different countries should be revised so that cheap talk is not permitted. Corporate law should be built around the purpose freely chosen by firms, rather than around profits alone. The law should facilitate “the adoption of ownership, governance, and measurement systems that lend credibility to the promises that it makes to other parties.” Meyer also argues that existing corporate accounting should be reformed to reflect the impact of the company on intangible, human, natural, and social capital. One particular solution he praises is the “benefit corporation” in the United States, by which a company freely enshrines a public purpose into the organization’s articles of association, and is thus legally required to act upon it. This is certainly much more than cheap talk.
Another part of the solution for greater transparency may be independent certification for meeting a high standard of transparency, accountability, sustainability, and performance. B Corp certification (“B” standing for Beneficial) is one of the more rigorous tests certifying that a company ultimately creates value in society. Interestingly, benefit corporations and B Corp certification have the same source: B Lab. Chris Marquis of Cornell University has recently documented in Better Business, How the B Corp Movement is Remaking Capitalism how this silent purpose revolution—privately certified— is transforming the extent to which companies are embracing corporate social responsibility, seriously. Of course, much will depend on the independence and trustworthiness of organizations like B Lab, or government agencies for that matter, doing the assessments.
But even if measurement and legal framework are certainly critical for this remaking of capitalism, for purpose to be compelling, authentic and impactful, it needs to be freely chosen and driven from within, rather than externally imposed.
IESE Center for Corporate Governance will host, together with ECGI, an online conference on October 28-30, 2020 to explore these topics alongside Rebecca Henderson, Colin Meyer, and Paul Polman, mentioned here, among others.
John Almandoz
Professor of Managing People in Organizations
IESE Center for Corporate Governance
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