Davos Discussions Must Centre on Why 'Profit as Purpose' No Longer Washes for Big Business

27/01/2012 21:22 GMT | Updated 28/03/2012 10:12 BST

As the world's most influential leaders gather this week in Davos it is clear that much of the world is looking on, whether from igloos immediately outside or further afield, with a certain degree of hostility towards business and, more specifically, big businesses.

Whether it's the Occupy movement railing against the excesses of capitalism, politicians threatening legislation to curb executive pay, or just the average person-in-the-street feeling let down by a crisis totally out of their control: business, it might seem, is inherently bad.

But whilst it is undisputedly true that some organisations have made big mistakes, the idea that mass-scale, collective human enterprise - for that's what business is - is wrong, just doesn't stack up.

Clearly, business is good. More than that, it is essential to the wellbeing and progress of society.

Without the corporations that make up the business world we would be unable to efficiently harness the diversity of skills and talent that are required to create and manage the things we want and need. The products, services, utilities and infrastructures that we rely on every day cannot be created by individuals, or even governments, working alone. They need big businesses to develop and run them. And, as I have written in these pages before, it is within the walls of such big businesses that the creativity and innovation that drives social progress gets conceived and commercialised to the benefit of all.

Business is not, as some would have us see it, a malevolent and manipulative force run by an alien, emotionless race; it is a fundamental feature of human society in which everyone has the opportunity to contribute to and share. The fact is, that business is society; without one the other cannot exist.

Nowhere is this better summarised than in Leonard Read's landmark essay of 1954, I Pencil, in which it is comprehensively (and poetically) demonstrated that the existence of even something so simple and useful as a pencil is predicated upon a global business economy of almost incredible scale. I challenge even the most ardent of anti-capitalists to read it and then argue that big business isn't fundamental to human needs.

Yet, there remains a problem because for all the theoretical principles of why big business is a good idea, too much discomfort with the concept remains. The anti-business sentiment in today's society is more than just a naïve reaction to hard times. It is a frustration with business that is fundamental to its relationship with society and is in need of urgent address.

The problem, I believe, is this: business has forgotten why it exists. Its leaders have forgotten. Its employees have forgotten. Its customers have forgotten. Although it remains undeniably true that the general concept of business has a core purpose that is linked to societal needs, most companies these days fail to acknowledge that and have become distracted by more selfish and tangential aims. They have become focused on a by-product of the fulfilment of their true purpose - making money - and have misinterpreted this into a core purpose itself. And the many businesses that have been labouring under this illusion are almost certainly on a dangerously wrong and unsustainable track.

Look a long way back in corporate history and there are examples galore of an inextricable link between business and social purpose - witness the big businesses that drove the Industrial Revolution; the great Victorian philanthropists; Cadbury's establishment of Bourneville Village and Lever's of Port Sunlight. This is more than just nostalgia: a century or so ago a successful business was defined by considerably more than just its wealth, not because it was obliged to but because it believed that ought to be the case. But the evolution of industry towards more financial and shareholder driven markets somehow led to a bifurcation of the lines between business and social purpose. Gradually, businesses came to manage and measure their success solely by the short-term changes in their financial performance and lost their perspective on the wider reasons for their existence.

This is, of course, not just a recent phenomenon and has been in evidence for decades now. Indeed for some considerable time the self-centred definition of 'profit as purpose' actually seemed to be paying off. Whilst the world's financial markets continued to boom, many businesses that were focused on this goal felt justified in claiming that their contribution to society was, as a consequence, significant and positive. They facilitated a flow of capital, created jobs, paid some tax, and produced products and services for which there was an apparent demand, and maybe even invested a small amount in support of charitable activities. "If we make good money, then we can do good work" the argument went, for a time.

I have sympathy for this point of view - of course a business must be profitable and financially sustainable if it is to achieve any kind of worthwhile goals, and the point here is certainly not that making money is a bad thing - as did most of society, which is why it was allowed to happen. But this is to confuse a condition for fulfilling a core purpose, with a core purpose itself. An organisation's core purpose most certainly is not "making money" (with the possible exception of the Bank of England or the US Department of the Treasury) nor, indeed, "creating value for shareholders", and no matter how repeatedly it is said it cannot be made true.

Core purpose is about the value that a business contributes to society, and it therefore follows that society must appreciate that as being of value to them. "Making money" simply doesn't reach the grade for that; it's not enough by itself. Worse still, its selfish, narrow-mindedness means that these businesses ultimately fail to focus on anything other than their own wellbeing, whether consciously or subconsciously, and that is not only to society's detriment but, eventually, their own.

Now, it may be too much to argue that this misdirected focus is the root cause of the current financial crisis (although in the case of certain financial services businesses it is clearly strongly linked) but it is certainly true to say that in recent times big business hasn't done anywhere near as much to advance the welfare of society to the extent that it could. And in the cold light of today's economy more and more people are waking up to that realisation and are starting to demand some change.

The problems that are arising for businesses in this new context are more than just ideological and are not confined to minority activists. They are tangible commercial issues that are heading rapidly towards the mainstream. As public demand for more purposeful and accountable business rises it is, inevitably, the case that those organisations that fall short of expectations will lose out in competitive market places to those that stand for something of value. Being a good business is a reason to choose, especially where other differentiating qualities are hard to find. And the inverse of that - the rejection of bad business - is perhaps an even more potent force.

But there's an even bigger issue at play here for businesses, especially big businesses, which fail to be clear about their purpose in appropriate terms. That is that they will soon cease to be capable of effectively pursuing any kind of goal, even the wrong one, because they will no longer have the essential resources, i.e. the best employees, that are necessary to success. Not only will prospective employees reject, on points of principle, the opportunity to work in such organisations but even those who do find themselves at work there will find themselves lacking the intrinsic motivation that is a key ingredient to an individual's productivity and creativity. Without an engaged and motivated workforce, at all levels in the hierarchy, it is doubtful that any organisation can prosper to sustained effect. Whilst financial rewards and booming economies once masked and compensated for these deeper considerations, today's workforce is not so easily led.

It doesn't end there. A wide range of influential parties - for example, government, regulators, the media, pressure groups, analysts - are now looking for evidence of genuine social responsibility at the heart of a business and are ready to make game-changing decisions if they don't find what they think they should. All in all, being clear about core purpose in business today could not be more important. Whilst it may have been an ignorable or peripheral topic for business leaders in the past it must be prioritised to the top of the to-do list today. Failure to address this will result in failure of the business in time. This is not wishful idealism, it is the biggest strategic business issue of our time.

Because the issue is so fundamental, the way in which it is addressed needs to be equally so. Defining core purpose in an organisation is not simply a case of writing glib mission statements or lists of generic corporate values, and it goes further than just lending support to good causes. It doesn't have to read like a worthy manifesto but it does need to have an idea of value to society at its heart. It needs to get granular and be directly related to what the organisation does, how it operates and behaves, and must be brought alive through tangible actions on a continual basis. It needs to shape the business proposition, product and service strategy, internal engagement, external relationships and communications. It requires a shift in the psyche of the organisation, its leaders and its people, from, "we're a business that's about making money that consequently does some good", to, "we're a business that does good and consequently makes money." There's a big, big difference between the two.

It is important to note that this cannot just be a marketing exercise. It is patently not about putting gloss on evil empires, it is about recalibrating organisations so that society appreciates their contribution as being something about which they care. It applies to every sector of industry, not just those whose social purpose is more readily discerned (indeed some of the less obvious, like investment banks, have some significant and meaningful stories that deserve to be properly told). There are many businesses in the world - even some of the most publicly vilified - that would no doubt argue that they already have this situation under control. A few do. But to most, I say they need to question whether the societal value they believe they are adding is really as evident and impactful as it could be. In most of these cases I am sure that there is much more, at a radical level, that could and should be achieved.

In many ways this is not a straightforward path to follow. Corporate structures, shareholder expectations, and the nature of corporate law, make a focus on anything other than short-term money-making a hard way to go. Many businesses, especially big business, have significant numbers of people who choose not to, or can't see the bigger picture and resist all efforts to engage them in anything beyond the specific, purely rational considerations of the job that they are employed to do. And big business is still largely led by a generation of people for whom a narrow focused, selfish approach is the only thing they have been taught, hence the only thing they know.

But all of this will change. I genuinely believe that we are at a turning point in corporate history, where the bifurcated lines of business and social purpose will now start to re-converge. Society demands it, and there is no greater force in business than that.

My call to business now is to acknowledge and take control of the issue; identify and make manifest your core purpose in thoroughly practical and socially meaningful terms. Do it because it makes you more competitive and compelling to your audiences. But, above all, do it because you care.