Thank you, Mr. Chouinard, for the reminder. 

Patagonia founder, Yvon Chouinard, announced that he is effectively giving away his company - transferring 100% of the company’s voting stock to the Patagonia Purpose Trust and 100% of the nonvoting stock to the Holdfast Collective, a nonprofit dedicated to fighting the environmental crisis and defending nature. He summed it up by saying, “instead of going public, you could say we’re going purpose.”  

His action is being called remarkable and unprecedented. I hope it will also serve as a reminder; a potent, head-snapping, mind-altering reminder to all the business leaders who champion “purpose” but have lost sight of what it actually means. That actual meaning is simple - a business that’s led by purpose, puts people and planet first, ahead of economic gain. Chouinard’s action is a perfect example.

There was a time when some business leaders - many of them in the field of corporate responsibility (CR), understood the actual meaning and engaged with the enormously difficult questions it raised about the role of business in a healthy society.  But, that was before the meaning of “purpose” was diluted and lost, due in large part, (I am sorry to say) to the emergence of a “CR industry” that co-opted the term and made it into a hollow buzzword. 

“Purpose” is now most often seen as a part of teaser headlines, conference themes, and agency pitches that proclaim it as the key to superior financial performance, career success, loyal consumers, engaged employees, and so much more. 

So, inspired by Mr. Chouinard, I’d like to add to his reminder of what purpose is - by reminding the CR industry of what it is not.  Each of the following is a response to specific claims made too often and too easily by CR “thought leaders”, practitioners, purpose brand strategists, consultants, and academics. 

• Purpose is not “just good business”.

• Purpose does not help brands command a premium in the marketplace. 

• A clear purpose is not a way to help businesses deliver higher financial returns than their peers.

• Purpose is not a competitive advantage when it’s authentic. 

• Purpose does not equal 13% of corporate reputation.

• Purpose and corporate philanthropy are not the same thing.

• It’s not even everyone’s favorite - a win-win.  

Despite the efforts of the CR industry, purpose does have a very specific meaning. The Natural Step illustrated it clearly almost 15 years ago using a graphic showing three interdependent spheres.

“The largest sphere represents the environment, or earth, upon which all economic and social progress ultimately depends. That’s our natural capital: it provides the ecosystem services and natural resources that we need to survive. The middle sphere represents society, or human capital. Our economy is the smallest circle because it is governed by the rules, regulations and structures of the other two spheres. The economy depends on human capital and natural capital to thrive. You can’t have one at the expense of another.”  (The Natural Step – Sustainability Primer)

I used this graphic in classes with graduate and undergraduate business school students. First, I’d ask, “Who thinks this is inaccurate? Who disagrees?”  No voices. It was a clear, irrefutable truth. Then I’d ask, “How many businesses operate according to this hierarchy?”  Again, no voices. That clear, irrefutable truth generated inadequate response from business leaders.

Being accurate about the meaning of purpose matters. Business for profit or business for purpose? It’s not some abstract, academic point. The difference is profound. Wendell Berry, essayist, poet, farmer, and voice for the natural world weighed in on the difference plainly and sharply when he wrote:

“How would you describe the difference between modern war and modern industry - between, say, bombing and strip mining, or between chemical warfare and chemical manufacturing? The difference seems to be only that in war the victimization of humans is directly intentional and in industry it is “accepted” as a ‘trade-off.’

Some will say Mr. Berry goes too far, condemns too broadly, and overlooks the many positive contributions of business. Yes, his writing is provocative. But he is simply rejecting the business model that puts economic gain ahead of people and the planet. Chouinard is rejecting the same and being rightly praised for advancing thinking and opening new possibilities for addressing problems like climate change and inequality. 

Business for profit or business for purpose? It’s critical we see the difference with unflinching honesty. Only then can we engage with the difficult questions it raises. That’s why the CR industry’s dilution of “purpose” is such a damaging failure. It distorts the reality we face, decreases the possibilities for creating change, and slows the progress we desperately need. 

I’m hopeful that Yvon Chouinard has reminded us that the bar for “purpose” is set at an extraordinarily high level. And inspired more of us not to lower it, but to meet it.

SEPTEMBER 2022

 This past week, CEOs from the Business Roundtable signed a new “Statement on the Purpose of a Corporation”. The statement establishes a new commitment to the multiple interests of all stakeholders, not just the financial interests of the shareholder. 181 CEOs signed, declaring that business will now operate with this new purpose.

They declare this with pride. They alert the media. They offer it as evidence of business leadership. In some places, this has been received positively and seen as progress. A sign of hope and reason for optimism.

Not here.

How low is our standard for what business should contribute to society, that we celebrate when leaders of some of the most powerful corporations on the planet come to the realization that their actions as businesspeople should include consideration for the impacts on the people they employ, the families that live next to their factories, and the earth’s resources they take for their profit?  

But even if we were more forgiving of the late arrival of this epiphany, there is a more important reason to skip the celebration.

In practice, this changes nothing.  

While the words chosen by the CEOs of the Business Roundtable may now say all stakeholders are equal - that the purpose of business is to serve them all -  the incentive system followed by those CEOs, still says otherwise. That incentive structure, the system of rewards and punishments that business follows, remains the same.

One measure, profitability, reigns supreme. And it’s not even close. The system is loud, clear, and brutally effective. 

The system that rewards Ford when its CEO chooses to stop building fuel-efficient cars in favor of more SUVs that use more fuel and resources but are more profitable. 

The system that rewards the CEOs of Amazon and Netflix whose companies earned billions in profits in 2018 but paid no federal income tax. In fact, the companies received a tax rebate of $4.3 billion.

The system that rewards Facebook, when its CEO offers algorithms that rely on conflict, anger, and toxicity - and erode our social fabric and capacity for self- government because those algorithms drive more user engagement and are more profitable.

The system that rewards the CEO who buys back shares with proceeds from a federal tax cut, further concentrating wealth and intensifying economic inequality, because it is more economically beneficial for the company.

And the system that will punish - swiftly and harshly - any well-intentioned CEO who might increase wages for factory workers and accept a lower margin on a product that is a key revenue source.

I bear no ill will toward the CEOs of the Business Roundtable. They are exceptionally capable people leading complex organizations. They don’t wake up in the morning seeking to harm any stakeholder group. I’m glad they are advancing the conversation about the purpose of business.  But they are playing by a set of rules that are in direct conflict with their newly stated purpose. In the context of this system, CEOs are making rational decisions that advance the interests of the one stakeholder that matters most. 

A commitment to delivering a new purpose for business, requires an equal commitment to delivering a new set of rules for measuring business success. Promising efforts to address this are already underway, most notably, the B Corp movement and many firms are engaged. The CEOs from the Business Roundtable would be welcome additions. 

AUGUST 2019