How Blueprint thinks about the purpose of business
What is a business?
A business is people coming together to do something that they cannot do on their own: it is essentially a series of relationships, and the success of the business depends on the quality of these relationships.
How business shows up in society is of course conditioned by place and time, the stage of economic development and available resources, dominant cultural and economic ideas as well as legal and social norms.
Since the formation of the joint-stock company in the mid 19th century, great companies have come and gone, with capital deployed at scale to create extraordinary growth and prosperity, alleviating poverty and contributing to human development. At the same time, there have been examples of companies being astonishingly exploitative of people and planet. The recent past has exacerbated the gap between the actions of business and the expectations of society.
Social organisation or nexus of contracts?
John Kay’s essay on “The concept of the corporation” traces the evolution in the 20th century of what businesses exist to do. He points to the seminal work of Peter Drucker in the 1940s, and the gradual eclipse in the 1970s and 1980s of the idea that businesses are social organisations, and its replacement through a focus on profits and agency theory with the idea that a business is simply a collection of discrete individuals and groups bound by contracts:
The ‘nexus of contracts’ approach treats the corporation as an empty shell. The managers and employees are a group of individuals, who find it convenient to do business with each other, and with customers and suppliers. There is no collective interest (and, of course, no collective responsibility), only a coincidence of individual interests. The internal organisation of the corporation …is reduced to a matter of command and control, to be treated as a principal-agent problem in which any information asymmetry between manager and managed (or owner and manager) is to be handled by suitable targets and incentive systems…The external relationships of the company are defined by contract and circumscribed by corporate law. The concept of the corporation as a social organisation operating in a wider social context, which was so emphasised by Drucker, has disappeared.
Blueprint believes we need to recover the vital idea that in fact businesses are social organisations characterised by relationships not transactions, commitments rather than just contracts, and where the value created for society lies in part exactly in the capabilities and commitments which people bring to a shared endeavour.
How Blueprint thinks about business purpose
Purpose is why an enterprise exists. It is the answer to the question “How is the world a better place by your company being here?” A business should have a reason for being beyond simply making money: a purpose that explains why the enterprise exists, who it serves, its reason for being and the role it plays in the world, with profit as one outcome.
Since the 1980s, Milton Friedman’s credo that the sole purpose of a business is to increase its profits within the law and ethical custom has been dominant. In response to a series of corporate scandals and the lack of trust in business in the aftermath of the financial crisis there has been an increase in companies seeking to show that they are ‘responsible’ businesses and this has led to a growth in CSR, sustainability and an increased focus on ESG. Some businesses have started to go further and have sought to have a purpose beyond profit, but others still see discussions of purpose and the role business plays in society as virtue signalling.
In a speech in 1962 reflecting on his career building Hewlett Packard, David Packard said:
I want to discuss why a company exists in the first place…I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper to find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so they are able to accomplish something collectively that they could not accomplish separately. They are able to do something worthwhile – they make a contribution to society (a phrase which sounds trite but it is fundamental)
This is exactly how Blueprint thinks about business purpose – a reason for being in terms of the benefit to society, and where profit is one outcome but not the purpose.
A good purpose in Blueprint’s view is:
- Authentic – there is a clear link between the purpose and what the business actually does
- Inspiring – it is clear what the better world is that the business is helping to create
- Practical – it can be used to take decisions and direct what the business does and does not do
For more about purpose and what makes a good purpose see: Answering the question ‘what is our purpose?’