Profit Versus Purpose: The Battle Continues

Best-selling author Daniel Goleman says purpose-focused businesses aren't just using money to fund a CEO's favorite causes, they're collaborating to solve problems.

Daniel Goleman, author of the bestseller “Emotional Intelligence,” is a regular contributor to Korn Ferry. His latest book, "Altered Traits: Science Reveals How Meditation Changes Your Mind, Brain, and Body," is available now. 

A company can’t survive without making a profit, of course. But looking ahead, how many organizations will survive without also turning their focus towards purpose?

It’s an old debate, still raging. There were a handful of executives who held back their signatures on the Business Roundtable’s new charter this August. That charter called for an end to the shareholder-led model, where the sole purpose of a corporation boils down to boosting its stock value.

A couple of these organizations said the document didn’t apply to them. Another claimed the timing was bad (they are about to communicate their own statement of purpose and didn’t want to confuse their shareholders). And still others have refrained from commenting.

Among the executives who did sign the charter is Larry Fink, the financier who founded BlackRock. In a recent letter to the companies it invests in, BlackRock said that it expects company directors to be able to show both how they will grow profits and how they will benefit society over the long term. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” the letter stated.

Fink’s tandem focus on purpose and profit is well-aligned with emerging research. A Korn Ferry study found that over four years, purpose-driven consumer-products firms grew their sales at an average annual rate that was 6.5% higher than their peers.

"I believe that the folks on the side of purpose yielding profits are right," says Kate Shattuck, co-founder and co-leader of Korn Ferry's Impact Investing Center of Expertise. "When you unlock the power of purpose, a company and its leadership are unleashing unlimited potential of their people." 

Another study found that 90% of employees at purpose-driven organizations are engaged—meaning they are committed and willing to go above and beyond. This is compared to just 32% of employees at conventional organizations.

Still, many thinkers place purpose and profit on opposing sides of the street. Almost 50 years after the Friedman Doctrine, which famously claimed that the sole social responsibility of business is to increase profits, many firms still believe the only way to survive is to focus on their shareholders. University of Chicago economist Milton Friedman argued that every time a corporation gives to a non-profit or community cause, they are, in effect, spending somebody else's money for an unjustifiable reason. Through the shareholder-only approach seems a straightforward approach to doing business, the ripple effect is complicated. This model puts the responsibility of advancing a better world solely into the hands of those with enough money, time and resources to do so.

There are numerous executives who stand as an example-- those who might not see purpose as a business priority, but on their own, are well-known philanthropists. Year after year, their own money supports education, the arts, technology, and is delivered in the form of major gifts to some of our most important public institutions.

So what’s the problem? Some might say there isn’t one. Others would argue that this model eliminates the opportunity for those without extravagant salaries to be a part of choosing where resources should go.

It used to be that most executives chose a cause and gave away company money based on their own interests. But more and more we see that purpose-focused businesses aren’t just donating money to a CEO’s favorite causes, they’re collaborating to solve problems. Businesses are connecting with one another, reaching out to non-profits, and engaging their employees and consumers in supporting causes that match their industry and interests.

Says Kevin Cashman, a Korn Ferry senior partner, “Purpose isn’t just a nice thing, it’s the source of value creation.”

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