The Purpose of Business
What is the purpose of business?
Sounds like a rhetorical question, right? It doesn’t take a degree in the subject to understand that you’re supposed to create and market a product or service that people are willing to buy, do a better job of it than your competition, and do so profitably. In the case of a publicly-traded company, that profitability is expected to be passed along to shareholders in some form or fashion.
Over the past few decades, however, it appears that shareholder value maximization has become so much of the focus that many businesses have lost sight of the rest of the purpose equation. In fact, that “purpose” described earlier is really more of the practice.
In 1970, Milton Friedman wrote a now famous New York Times piece, “The Social Responsibility of Business is to Increase Its Profits.” Six years later, an influential academic paper by two University of Rochester professors appeared in the Journal of Financial Economics. They argued that senior executives should be given large stock options so that their economic interest in increasing share price would win out over other competing interests. Wall Street leaders understood what this could mean for them in terms of both money and influence and jumped at the idea. Now, the widely understood and accepted purpose and practice of business is serving shareholder, not customer.
This notion of business, however, is contrary to God’s design, not to mention unhealthy. Shareholder value maximization is supposed to work by increasing efficiencies and therefore profits. However, in reality, it does the exact opposite. When businesses focus solely on the almighty bottom line, they start to slowly lose their vitality; profitability, growth, and innovation all suffer in a downward spiral.
What about the stakeholders – the customers, employees, communities, and environment? They are all impacted in some way, whether good or bad, by the decisions of these companies. When tied together, they actually play a significant role in helping the business prosper (or not). In fact, they are MORE influential than shareholders. Aren’t you going to buy something because your friend is a satisfied customer, not because she owns stock in the company? Consider how quickly a complaint posted online goes viral and how far-reaching and long-lasting the fallout usually is.
Ultimately, it is the business that looks out first and foremost for its STAKE holders that prospers. SHAREholder benefit will follow as a natural outpouring of that prosperity, and good will be done for all parties involved – God’s intent. That is precisely why we seek out companies based on principles, not just profits. Profits and stock prices are not the heart and soul of a company – people are – and we want to serve God by using our (His) resources to support those entities that honor him in this way. If you’re concerned that you may be unknowingly profiting from and supporting businesses that have it backwards, request a meeting with a Beacon Wealth Consultants Advisor today. We’d love to help you on your Stewardship Journey.