Profit or Purpose? Some New Thoughts.
- August 24, 2015
Many economists and most CEOs view the primary job of a for-profit business as providing the goods and services that people need or want in a way that maximizes shareholder value. Yet, there are a growing number of voices claiming that businesses have a moral obligation to push past their relentless pursuit of profit to operate on behalf of a higher purpose with an aim to elevate humanity. Is one answer right and the other wrong?
I recently read a book, Firms of Endearment, wherein authors Sisodia, Sheth, and Wolfe argue that not only are both answers correct, they coexist nicely with each other with the performance of one fueling performance of the other. After a great deal of thought and, quite frankly, soul searching, I am generally in agreement with the principles of this book. At a very minimum, it’s easy to agree that a company with a compelling purpose greater than just sales and profitability has an easier time attracting the best people. The best people, fueled by a shared belief in something of meaning, perform at superior levels which can deliver higher sales and profit growth… and, therefore, shareholder value. In fact, the book claims that higher purpose firms outperform the S&P 500 by eight times and Good to Great companies by three times in terms of shareholder return.
But Firms of Endearment argues that higher purpose companies don’t just focus on employees and shareholders. They focus on all stakeholders: customers, employees, vendors, shareholders and society at large and, by doing so, deliver superior results. This idea of “concinnity,” the skillful blending of parts to achieve elegant harmony, the complex solution that delivers on everyone’s needs, has been attractive to me for a long time. We should be replacing notions of “either/or” with “both/and.” This is what Covey was referring to when he first introduced the notion of “Think Win-Win.”
Certainly, no one can argue that a strong focus on customers delivers superior results. And as both a supplier and a buyer, I know that true partnerships can yield higher quality and greater efficiencies.
Society may be the toughest one to wrap your head around, because this focus doesn’t necessarily create short-term business results. But I could make the case that as people seek to find meaning in their work lives, being a good and caring corporate citizen can play a huge role in attracting the best talent, which definitely pays dividends.
We’re having a robust dialogue here about what this means for us as a company and as individuals. As Chairman and CEO, it’s my duty to understand, explain, and embody LRW’s higher purpose to guide us along our path. I’ve built a career and a business helping other companies deliver superior financial results by aligning with their stakeholders, primarily focusing on customers, but also helping them engage and retain employees and build strong relationships with their channel partners. In many ways, it’s not such a stretch for us to help our clients connect with and live out their higher purpose.
But to do this, I realize we (including and especially me) must avoid platitudes. These ideas aren’t just some “do good” way of looking at the world. Becoming a higher purpose company isn’t a strategy and it’s definitely not about cause marketing; it’s actually a way of being. As said in Firms of Endearment, “Firms of Endearment (FOEs) operate with a human heart and moral compass, but are extremely well managed. Intentions to ‘do good’ can only be achieved when their companies do well.’”
I’m excited to challenge all of us at LRW as well as our clients to examine our work lives in service of our purpose. We’ll all profit from it.
Editor’s Note: This is the second of a three-part series.