Beyond the bottom line: should business put purpose before profit?

Author: FT, Published on: 16 January 2019

"Beyond the bottom line: should business put purpose before profit?", 4 January 2019

For 50 years, companies have been told to put shareholders first. Now even their largest investors are challenging that consensus.

...Most of the capitalists an FT journalist meets in 2019 sound more like the protesting shirtmakers of the 1970s than the Nobel-winning economist. Over the past year I have had business leaders lament to me that no Wall Street analyst ever asks them about their efforts to tackle climate change; I have seen companies such as Merck and Johnson & Johnson remind investors that their pre-Friedman founders believed profits would only flow if they attended to other priorities first; and I have heard Unilever's outgoing CEO Paul Polman ask provocatively: "Why should the citizens of this world keep companies around whose sole purpose is the enrichment of a few people?"

Strikingly, their arguments have been echoed by the world's biggest investors, the very people who seem most at risk in any shift from shareholders' interests...

...It is an attractive vision, but it already has its doubters. According to Anand Giridharadas, a former fellow of the Aspen Institute think-tank, corporate do-gooding is nothing more than "an elite charade" that allows plutocrats to feel better about themselves while dodging any real challenge to the system that made them rich. "The Aspen Consensus, in a nutshell, is this," he wrote in a 2015 speech that provided the spark for his 2018 book Winners Take All. "The winners of our age must be challenged to do more good. But never, ever tell them to do less harm."...

...Even those supporters of purposeful capitalism who would rather rebalance companies' priorities within the current system admit that hurdles stand in the path of reform. The biggest is the challenge of how to measure something as vague as purpose, which can encompass anything from treating suppliers fairly to cutting carbon emissions...

...In sum, the purpose-first movement is still far from ubiquitous and lacking in reliable data, but is the pursuit of something beyond profit worse than Friedman's singular focus on shareholder returns? Encouraging companies to have a clear mission, consider their communities and steer their innovative impulses to good ends may not add up to systemic change, but it is surely better than the alternative.

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