The Profit vs. Purpose Debate… in Real Time

It’s been the question on everyone’s minds for weeks now. Can tech companies still reap profits and make as much for investors while regaining the trust of many of their customers?

The leaders of those firms are getting mixed messages. This week Google, Facebook, and Twitter posted solid quarterly profits. But their stock prices have fallen considerably on worries that the firms are increasing their spending significantly on, in part, security to protect customer data. (Facebook's stock rallied after its earnings release but the stock is still down significantly since March, when reports about privacy lapses came out.) Experts say it puts in stark relief the debate raging across organizations worldwide: Which is more important, a company sticking to its purpose or maximizing its profits? “They’ve lost a lot of trust; now they have to reestablish their purpose and prove that they’re going to serve customers,” says Kevin Cashman, a Korn Ferry senior client partner and leadership coach.

There’s a growing body of research that says these purpose-driven firms—ones that place their top commitment to something other than generating profits—are more profitable for their investors in the long run. But theories and causes can get tossed when stock prices or profit outlooks tip the wrong way. “Most companies do not lack purpose or values, they lack the courage, clarity, and commitment to actually live them,” Cashman says.

According to Kari Browne, a Korn Ferry senior client partner and global co-head of the firm's Fintech, Payments, and Transaction Processing practice, it isn’t unheard of for firms to make changes to their business practices based on their stated purpose, or to change their purpose entirely. In March, Citigroup said people could no longer use its products to buy guns unless they passed a background check and were over the age of 21. “Banks serve a societal purpose. We believe our investors want us to do this and be responsible corporate citizens,” the firm’s CEO, Michael Corbat, said after announcing the change. A move like Citigroup's on any issue is "unprecedented," for a major bank, Browne says. It remains to be seen whether the bank’s change impacts its bottom line.

And two years ago, Nintendo, known for its video games and other entertainment products, altered its own articles of incorporation to allow it to sell medical devices, manage restaurants, and license its name to many more industries. The firm’s leaders said the changes reflected the company’s desire to improve people’s “quality of life,” not just provide entertainment. Its stock price has more than doubled since.

But experts say it may be particularly tricky for younger firms, many of which have stated their purpose is to be a pillar of good for the communities in which they serve. Google’s founders famously wrote “Don’t be evil” in the company’s prospectus (a statement that was modified to "Do the right thing" years later), but they were by no means alone. In 2012, before Facebook sold shares to the public, founder and CEO Mark Zuckerberg said Facebook’s purpose was to make the world more open and connected. However, openness and privacy may be difficult to reconcile. Zuckerberg has said the company is willing to modify its purpose, even at the expense of its bottom line. “Our business is doing well,” Zuckerberg said late last year. “But none of that matters if our services are used in ways that don’t bring people closer together. Protecting our community is more important than maximizing our profits.”

Authors

  • Kari Browne

    Global Co-Head, Fintech, Payments and Transaction Processing

    Bio >
  • Kevin Cashman

    Global Leader, CEO & Executive Development

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