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Bringing purpose to life

Exploring the difference between enlightened shareholder capitalism and purpose-led business

Some people can confuse being purpose-led with enlightened shareholder value (ESV) and it’s important to understand and recognise the similarities and differences.

ESV takes the view that the purpose of a company is to maximise profits, but it is described as enlightened because it recognises that doing so, in the long run, requires considering stakeholders. Its ultimate goal is to increase long-term profits and by doing so, it will create value for society as a by-product. Conversely, purpose-led business, in our view, is about creating value for society with profit as an outcome.

Is this difference fundamental? We think so. It is about why the company exists, and this drives daily decisions and what it should be held accountable for. Whilst ESV does encourage greater consideration of stakeholders beyond shareholders, pursuing a purpose to benefit society and treating stakeholders with respect and dignity is intrinsically important, not instrumental to making profit.

In creating a shared understanding of purpose-led business exploring people’s motivations is important.

The distinction between enlightened stakeholder capitalism and purpose-led business is discussed further in: Alex Edmans, Grow the pie