ASPEN INSTITUTE just came out with a new report entitled Unpacking Corporate Purpose: A Report on the Beliefs of Executives, Investors and Scholars. It’s an interesting read, especially for those who are thinking about how investors change the landscape of their company’s purpose.
You’d think that traditional wisdom holds that the purpose of a corporation is to serve its shareholders. But is it? Many also think that the primary purpose is to serve customers. Or employees. Or the business owner.
When you can’t even clearly answer this fundamental question, how could we possibly agree on how to go about doing it?
I’m not going to delve into philosophy here; I want to be practical. Fortunately, in a specific case, the purpose can be identified – and it’s a very useful decision to make.
Yes, decision. When you’re designing your company, you get to decide. Just because the Big World Out There thinks a certain way doesn’t mean you have to follow along.
Let’s say you’re running a small-town newspaper. You decide that your primary purpose is to serve the local community with useful, relevant and accurate information, and to act as a means to build and sustain the community. Does that mean serving yourself or employees is unimportant? Of course not – if you lose interest in the company, it won’t be sustainable.
Many readers of this blog might be grateful that they’re not large corporations, traded publicly, with many shareholders. But most of us do indeed have obligations to people who have an investment in our businesses – even if that’s just ourselves and family.
And it doesn’t have to be purely a monetary interest, either. If you’ve invested all this time and effort into your company because you expect a return of freedom and exciting work, you’re going to be quite disappointed if you don’t get that return.
This is where I like the concept of “stakeholders.” A shareholder usually just means a monetary return and investment, whereas a stakeholder can be expecting all kinds of different returns.
Let’s go back to my example of the small-town newspaper. Why does it make sense to focus first on the end customer, then secondarily on all the other stakeholders with this company?
Because the customers are the primary ones injecting new lifeblood, revenue, into the business. If you make everyone else happy but lose your customers, you’ve lost the business.
Fortunately, there’s a surprising amount of flexibility around identifying your customers. Sometimes, as with a charity, the people receiving direct value are different than those who are giving you money. But in most businesses, there’s a strong link between the two. The person deciding to spend the money is directly connected to who’s receiving the value you provide.
If you want to design your company so that your investors and shareholders are the primary customers, fine. Just watch out that you’re creating a constant flow of new income so you’ll be sustainable over the long haul.