The problem and promise of purpose 1

For years I’ve been writing in this newsletter that the future of capitalism should be about more than profit maximization. It should be imbued with purpose, meaning, a growing sense of community and culture. Of course, culture is important for organizational success, but what kind of culture to create and how to create it—especially among 20 employees or 20,000—is impossible to know.

After considering these questions for a long time, I may be saying goodbye to all that.

Call it stakeholder or compassionate capitalism, or subsume it with growing trends like corporate social responsibility (CSR) or impact investing, or initiatives surrounding environmental, social, and governance (ESG) practices, or others on diversity, equity, and inclusion (DEI). I tend to call it “new” capitalism.

New capitalism seeks to replace old capitalism’s focus on costs and profits with culture and purpose. Imbuing an organization with a grand purpose, however, may be a symptom rather than a solution. As religiosity declines in America, employers and employees alike fill the void of community and culture with commercialism. Without theology, work takes on an almost spiritual character.

The challenge to organizations is that the spiritual character of a church or mosque has been honed by thousands of years of trial and error, hordes of theologians parsing the ancient and guiding texts to help us understand our purpose. This trial and error has often led to war.

Perhaps, as faith has come to mean so many different things to so many people, even within the same faith tradition, the faith of new capitalism can have a similar plurality and division.

My fear, however, is that what may be one person’s social good may be someone else’s social bad. And I fear that we won’t have a shared language, as religions do, to navigate what purpose means for each individual within an organization.

I’m growing skeptical that definitions and guidance on these principles are clear in the first place, which are often based on unclear comparisons. Unclear definitions can cause distraction and strife. What do you mean by CSR, ESG, or DEI, exactly? What is the goal? How do we implement the solutions? What is the true cost? These questions have very fuzzy answers.

I’m also skeptical that many business leaders actually believe the content of what they claim. And I’m beginning to believe that these principles could have harmful results, including increasing burnout and inner turmoil.

What’s so wrong with creating a great product at a low cost, and letting people define their own purpose for their work, whatever it means to them? We’d all have a lot fewer headaches over whether we’re fulfilling our life’s purpose.

Let’s look first at definitions.

Unclear definitions

What is the chief end of man? What is our purpose as human beings, apart from the purpose of an organization?

The first line of the shorter Westminster catechism attempted to answer this question way back in 1648. “Man’s chief end,” theologians wrote, “is to glorify God, and to enjoy him for ever.”

Questions of meaning and purpose are moral, ethical, philosophical, or theological in nature. Answers to these questions differ wildly based on our beliefs about the world, whether those beliefs are religious, political, or commercial.

The business world asks fundamentally different questions than the moral questions of purpose: What does the market need? How can I produce that thing at a sufficiently low cost? What’s the best method for marketing this thing? How can I increase the productivity of my labor? And so on.

Many of these questions can be quantified: What the market needs can be estimated by market sizing models or growth in funding. Manufacturers use unit economics and operations models. And so on.

Yet what gives someone meaning in their work or for their family can’t be quantified as easily, if at all. It rests on layers of assumptions about the world and individual sources of happiness, an often-contradictory network of beliefs extrapolated from experience, history, culture, and more.

Forcing this infinitely complex, subjective goal into a business’s responsibility can lead to contradiction and authoritarianism.

A business, as Milton Friedman famously pointed out, does not have a responsibility; only people can have a responsibility. He went on to say that a business leader is merely an agent of the owners of a business, namely the shareholders. He lists several social responsibility goals that were popular in the 1960s, goals that are similar to those of today.

In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.

The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct “social responsibility,” rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.

But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.

Suppose, however, the business leader does intend to spend other people’s money for a socially desirable goal. Friedman continues:

How is he to know how to spend it? He is told that he must contribute to fighting inflation. How is he to know what action of his will contribute to that end? He is presumably an expert in running his company—in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his holding down the price of his product reduce inflationary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could answer these questions, how much cost is he justified in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropriate share of others?

Conversations surrounding these social responsibilities “are notable for their analytical looseness and lack of rigor.” The point, he concludes, is that a business should focus on increasing its profits, since that is a clear goal that a business can achieve.

Defining meaning and purpose are like defining art or beauty or justice. The same with equality. Equality of what? And how do we make things more equal? Should we? In what way? Why? What will it cost?

In an attempt to answer these questions, many leaders point to charts, making comparisons about how much worse the world is today than it either was in the past or could be in the future. We’re not even clear on the world that exists today. These comparisons are often as unclear as the definitions that go into them.

We’ll talk about that next time. Thanks for reading.