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Have you heard the new business buzzword?

It can give meaning to professional life

Kerby Meyers //February 15, 2016//

Have you heard the new business buzzword?

It can give meaning to professional life

Kerby Meyers //February 15, 2016//

From the recently released annual Global CEO Survey from international consulting firm PricewaterhouseCoopers (PwC) to the emergence of benefit corporations and Certified B Corps, including public benefit corporations (PBCs) here in Colorado, business owners, CEOs and executives are increasingly ringing the purpose bell.

The definition of purpose among corporations, however, is a moving target, leading to potential confusion for a company and its stakeholders.

Of course, interpretations will likely always vary, but much like companies tarnished by greenwashing—the overhyping of environmentally sensitive initiatives—executives who don’t fulfill publicly stated purposeful objectives run the risk of alienating many.

Shifting philosophies

For years, the sole purpose of corporations was to generate profits and create value for owners and shareholders. It turned out that this singular focus on the bottom line didn’t sit well with broader communities when it resulted in poor treatment of employees, practices that damaged the environment and hollow connections to local communities.

Disenchantment with such conditions contributed to the formation of B Lab, the nonprofit behind B Corps in 2006. The organization’s B Impact Assessment offered companies of any size the opportunity to gauge their social and environmental impact, and heightened transparency with all stakeholders.

The broader concept of businesses doing good moved into the legal arena in 2010, when Maryland became the first state to allow companies to incorporate as benefit corporations. Today, 30 states and Washington, DC, offer some sort of benefit corporation option to for-profit businesses.

Colorado has offered the PBC since April 2014. Key elements of being a PBC include the inclusion of a purpose in the articles of incorporation and the production of an annual benefit report to inform employees, investors and other stakeholders of the company’s impact beyond the bottom line.

A Rising Trend, but Some Muddy Waters

After a slow start due to some bureaucratic obstacles, there are now hundreds of companies that have adopted PBC status in Colorado. More broadly, B Lab reports that there are more than 3,000 benefit corporations in the U.S.

Involving more than 1,400 executives from 83 countries, the PwC survey results don’t likely overlap much with U.S.-based benefit corporations, which currently tend to be small- and mid-sized companies. Yet the study’s perspectives on how purpose is defined are illuminating.

For example, the majority of respondents stuck to classic lines when asked about the purpose of their business. The majority (53 percent) said it was to create value for customers, 26 percent said create value for their business and 16 percent said create value for their shareholders. Meanwhile, 31 percent said their business’ purpose was to create value for wider society and 14 percent said for their people (respondents were allowed to enter more than one response).

There was a sense of looming change, however, as 27 percent of the executives polled said customers “seek relationships with organizations that address wider stakeholder needs” today, but 44 percent see that being the case in five years.

Among Colorado PBCs, which adhere to legislation that instructs businesses to include a purpose in their articles of incorporation that reflects benefits for individuals and organizations “other than shareholders in their capacities as shareholders,” the results are similarly murky. Consider that select purpose statements for currently active PBCs include:

  • real estate investments
  • to manage, hold, acquire, sell or exchange real property, as well as other goods and services
  • sales and services
  • heating and air conditioning

Not exactly the holistic, feel-good visions that the promoters of the corporate purpose movement could have in mind.

Give purpose a sniff test

Clearly, there’s some work to be done on educating the business community on purpose, at the local and international level.

To that end, the next time you see a company touting its purpose, take a step back and ask who’s seeing the benefits. Then ask the question again. And if it’s your purpose-minded company you’re grilling, put yourself in the shoes of all of your stakeholders and ask even harder questions.

Ultimately, when a corporate purpose is oriented to business drivers such as customer value and shareholder value, it’s still rooted in profitability. Conversely, a stakeholder-driven purpose is oriented to a multifaceted audience, incorporating the interests of the community, employees and others in addition to customers and shareholders.

The emergence of purpose in the business world is a positive, as looking beyond the bottom line has the potential to benefit many. But if it’s not done right, the blow back could be significant and damaging to what you’re working to achieve.