Business and capitalism are tremendous engines of prosperity and innovation. Organizations provide much-needed jobs and countless goods and services that undoubtedly make our lives better.
We're also living in an incredibly challenging time. Climate is in crisis. There's mounting inequality. Political polarization seems to be at a peak. Not to mention an ongoing pandemic that's shown us the power of business to urgently create a vaccine, but also raises important questions about the equitable distribution of it.
Recognizing the role of business in driving positive social change begins with acknowledging that there is no business without society. Too often, we think of markets as existing outside of people and the society that comprises them, but no market can exist without a society that sets the rules of the road, without a government that sets up things like property rights, or without an environment that provides natural resources that, if exploited, will threaten the ability of the market to function.
If we start by recognizing that business exists in society and that markets are designed for and in the interest of people, then, we can begin to think about how to reimagine business. This view will help us as we work to redesign markets to serve both more of society and the natural world. It's about recognizing business not just as economic actors, but as civic and environmental actors as well.
Stakeholder capitalism is messy. Primary stakeholders of a firm include employees, customers, investors, the firm itself, and the community in which the firm is located. That only scratches the surface. There's also government, the media, social movements, competitors, and the earth itself. So how do you make sense of this and which stakeholders matter the most? The classic professorial answer…it depends.
The History of Corporate Responsibility
Throughout history, there is a constant push and pull between business and society - from the expansion of the railroads, to the growth of U.S. steel, to the creation of the automobile.
In the post-World War Two period, there was this idea that companies would provide jobs, not just for a few years, but for an entire career. They would provide opportunities for mobility over the life course. They would give you pensions. They would employ not just you, but a lot of your friends. A handful of large corporations really shaped and defined not just business in America, but civic life as well.
As the years progressed, the U.S. began to see momentous social movements and transformative public policy that raised awareness of things like civil rights and environmental degradation. Investors began to look at the old way of companies and decided they were not very profitable. In the late 1970s and 1980s, investors decided it might be better to break up those companies. They identified managers as a problem because companies were trying to do too much. Organizational scholars called this the garbage can theory of decision-making - you throw a bunch of strategies at the wall with ill-defined goals. Some said, "Well, maybe managers should just focus on maximizing profit rather than getting involved in all these other distractions."
Very quickly, the idea of the company started to change. Employees started to spend less time at any one company, ownership became more centralized, companies began to invest more in financial markets and less on their own assets and R&D, and managers were compensated for maximizing profit. Companies began to view societal issues, like pollution, as externalities.
Purpose-Driven Organizations Today
Today, a number of organizations are embracing purpose as part of their culture and their brand.
's the obvious one that comes to mind. They have a deep commitment to sustainability in their supply chain. They work with industry partners to establish certifications that help verify that sustainability. They use their platform to take bold social and political stances that are aligned with their mission. In doing so, they make it easier for competitors to also be more sustainable.
Another example of a company with purpose embedded throughout the company is Ben & Jerry's
. They took, perhaps, one of the boldest stances on racial justice last summer by outlining specific steps that need to be taken to dismantle white supremacy. Chris Miller is their activism manager, which is not a position that you oftentimes see in a company's org chart. He previously worked at Greenpeace. Chris has described how the marketing department of Ben & Jerry’s gives him greater reach than an NGO ever could.
How Social Movements Drive Organizations
Accountability is key. It's one thing for a company to make a statement on a social issue, but many movements now want to know if these organizations really mean it. Are they putting resources toward that issue? Are they thinking about their own biases and practices that may have played a role in creating the very problem that these movements are concerned about?
How Purpose Impacts Purchasing Behavior
A recent Nielsen report
shows that 43% of consumers would prefer to spend more on products and services that support worthwhile causes. Millennials seem particularly interested in this idea, but aren't the ones actually buying these products. Instead, research suggests most sales are driven by older women. Despite the availability of options, a number of obstacles get in the way of shopping your values.
A big challenge is a lack of information. There's a lot of greenwashing or just bad marketing that misstates the environmental benefit of a product. Habit comes into play as well, particularly for cheap products. There's also research that suggests that when we make a moral decision on our purchasing, we're more likely to offset that decision by doing something immoral later. The classic study shows that shoppers who take their own grocery bags to the grocery store are more likely to fill it with junk food. The issue of identity and social class represents another complication tied to purchasing with purpose. Sustainable products are usually more expensive and they're not available to everyone.