Prosperity

Imagine a world where businesses not only make profits but also actively contribute to the well-being of communities and the planet. How can corporations transform into forces for good?

1. The Current Business Model is Flawed

The corporate model, as it stands, revolves around the Friedman doctrine, which posits that a corporation's sole responsibility is to maximize profits for its shareholders. This principle has guided business education and policy for over five decades, positioning profit above all other considerations. While effective in stimulating economic growth and generating wealth for a few, the doctrine has also caused immense social and environmental harm.

Corporations have decimated natural resources, widened the gap between the rich and poor, and turned a blind eye to the consequences of their actions. Meanwhile, the narrow focus on financial success ignores the broader ecosystem their activities impact, including employees, local communities, and the environment. This fragmented lens on success has far-reaching implications that go unchecked.

For example, Western corporations often move operations to cheaper labor markets, disregarding the well-being of workers in sweatshops. Similarly, practices like large-scale deforestation and pollution, justified in the name of business goals, continue to escalate. Without accountability for this broader impact, corporations perpetuate damage that outweighs their financial gains.

Examples

• Sweatshop labor used by global fashion companies to cut costs.
• Environmental degradation caused by industries like oil extraction.
• Inequality resulting from profit-driven banking systems.

2. Corporations Were Once Anchored in Community

Historically, corporations were embedded within their communities. Before the rise of transnational businesses and shareholder dominance, family-owned companies had long-term local commitments. These corporations aimed to create wealth for future generations and provide jobs, fostering a sense of shared responsibility.

However, the introduction of external investors changed this dynamic. Investor priorities shifted focus from community welfare to the highest possible returns. Family-run corporations like Cadbury, which once supported local community development, ceded control to those with little interest in preserving these bonds. Over time, businesses became disconnected, disregarding community and environmental needs in favor of financial metrics.

Today, the loss of this community-centric ethos is evident in practices like resource exploitation and factory relocations that devastate local economies. Yet, the same potential for long-term commitment still exists, waiting to be harnessed for broader positive impact.

Examples

• The Cadbury family’s historical focus on community development.
• Factory closures in small towns to cut costs, harming local economies.
• Relocation of manufacturing to cheaper countries, creating job losses domestically.

3. Profit is a Byproduct, Not the Primary Goal

The purpose of a corporation is to solve problems for the community, not merely to line shareholders’ pockets. Whether it's facilitating transportation, providing internet access, or manufacturing essential goods, businesses exist to address societal needs. Profitability should result from fulfilling these purposes effectively – not serve as the ultimate aim.

Some corporate laws even acknowledge this broader purpose, requiring companies to engage in good practices like environmental protection or community education. However, shareholder pressures often marginalize these initiatives, reducing them to half-hearted efforts or public relations tactics. Companies that support shareholder profits at the expense of other obligations run the risk of long-term instability.

Realigning with this purpose requires changes in governance. Boards and management teams need to shift their focus from shareholder interests to affirming the company's true reason for existing. Successful examples show that ethical and purposeful business approaches can drive profitability while fostering long-lasting success.

Examples

• Companies like Patagonia focus on environmental activism alongside profits.
• Socially responsible corporations often achieve higher customer loyalty.
• Laws requiring corporations to consider environmental sustainability in some nations.

4. Governance Should Support True Purpose

Good governance plays a key role in maintaining a company's focus on its purpose. Typically, governance frameworks are designed to maximize shareholder value, but this approach often backfires during times of crisis. For instance, businesses adhering to traditional governance principles struggled during events like the Global Financial Crisis.

Governance should instead drive a company's purpose, ensuring its operations benefit all stakeholders. This includes reshaping board structures, appointing leaders with a clear sense of mission, and building mechanisms that prioritize long-term goals over short-term gains. Expanding the definition of "customers" to include all parties affected – such as employees, suppliers, and the environment – further solidifies this commitment.

Research increasingly indicates that socially responsible governance contributes to business success. Key metrics like lower operational risks and higher customer satisfaction demonstrate the tangible benefits of focusing on broader responsibilities.

Examples

• Reforming boards to prioritize sustainability, such as initiatives at Unilever.
• Studies linking corporate social values with higher returns and stability.
• Long-term benefits observed in companies with eco-focused policies.

5. Business Performance Beyond Financial Metrics

Traditional measures of corporate success rely heavily on financial metrics, like profits and liabilities, ignoring the broader capital resources they depend on. Yet, natural, social, and human resources – such as environmental health, community trust, and workforce well-being – are essential for sustainable performance.

To create a fuller picture, companies need to include these assets in their evaluations. For instance, the costs of environmental degradation caused by operations should be recorded as liabilities. Likewise, investments in these assets – like funding local education programs – should count as gains.

This shift in performance measurement ensures businesses can make informed decisions. It also addresses the disconnection between business activities and their societal impact, leading to fairer compensation structures and resource allocations.

Examples

• Environmental restoration programs added to corporate budgets.
• Social impact initiatives, such as funding skills training.
• Reports on workforce well-being influencing long-term profitability.

6. Accountability Through Policy and Law

Corporate law serves as a powerful tool for shaping corporate behavior. By establishing frameworks for structuring and operating businesses, the law can encourage companies to prioritize societal and environmental good alongside financial success.

Three new legal requirements could greatly enhance this balance: requiring corporations to maintain nonfinancial assets, refraining from activities that harm these assets, and restoring damage when it occurs. These measures would formalize many corporate commitments that are currently voluntary and unenforced, bridging the gap between intention and action.

Such legal accountability could lead to transformative changes. By rooting corporate operations in responsible practices, businesses would be empowered to contribute consistently and meaningfully to societal well-being.

Examples

• Laws mandating carbon offsets for polluting industries.
• Policies requiring gender and racial equity within the workforce.
• Legal enforcement of community restoration activities after business closures.

7. Balancing Stakeholder Needs

Corporations impact a variety of stakeholders, from shareholders and employees to local communities and ecosystems. Prioritizing one group at the expense of others creates imbalances that lead to long-term harm. Instead, businesses need a holistic approach, balancing all stakeholder needs.

Communities traditionally sustained by corporate presence have suffered from this imbalance. By broadening their understanding of stakeholders, companies can create goals that support mutual benefit – fostering trust, innovation, and success.

Organizing decision-making processes around stakeholders can also inspire innovative solutions to address societal challenges, preserving goodwill and profitability alike.

Examples

• Local development programs sponsored by businesses in rural areas.
• Employee-driven innovation spearheaded by inclusive workplaces.
• Customer loyalty to brands that actively support environmental sustainability.

8. Leadership Drives Transformation

Changing corporate objectives requires visionary leadership. Leaders who prioritize purpose over profits set a tone for the rest of the organization, challenging stakeholders to embrace a broader definition of success.

Such leaders also communicate the business benefits of ethical practices. By aligning employees with a common mission and convincing shareholders of long-term gains, purposeful leadership fosters collective buy-in.

Success stories demonstrate the value of strong leadership in driving meaningful change. Leaders who establish forward-thinking policies often find that these measures benefit both the organization and its stakeholders.

Examples

• Paul Polman’s leadership at Unilever driving sustainability.
• Leaders at Tesla advocating for renewable energy solutions.
• Patagonia’s CEO emphasizing environmental advocacy.

9. A New Vision for Global Prosperity

Businesses have the power to be more than economic machines. When aligned with ethical and sustainable goals, they become tools for solving global challenges like climate change, poverty, and inequality.

By addressing the root issues in corporate behavior and governance, the corporation can be reinvented as a force for positive global impact. This evolution demands commitment but promises broader prosperity for all.

The pathway is clear: redefine purpose, measure performance comprehensively, and hold corporations accountable through policy. Only then can we unlock the true potential of business to serve society.

Examples

• Corporate pledges to adopt sustainable practices.
• Partnerships between businesses and nonprofits addressing social issues.
• Investments in renewable energy by tech leaders like Google and Apple.

Takeaways

1. Reassess corporate success by including social, human, and environmental assets in performance metrics.
2. Advocate for legal frameworks that require corporations to practice sustainable and ethical operations.
3. Support businesses and leaders that prioritize purpose-driven innovation over short-term profits.