Bookshelf: A sense of purpose

What distinguishes one corporation from another? Perhaps altruism, discovery, excellence and heroism. One of the longest-running debates in business is about purpose. What is a company for? The conventional answer, derived from economics, is that the company exists to make as much money as possible for shareholders.

by Simon Caulkin, World Business
Last Updated: 18 May 2016

Unfortunately, what works in the artificial, assumption-bound world of economics very often translates badly into the messy, practical domain of management. This is quintessentially the case with purpose. As Nikos Mourkogiannis points out, the conventional description offers no guidance to behaviour or how to choose between the many ways of making money in the short term.

The disintegration of Enron is instructive here - "in the absence of Purpose (sic), ego and greed rule by default". Worse, profit-as-purpose leads managers into a vicious circle that runs from shareholder value to agency theory and hierarchy, executive pay, testing of the boundaries of legality, competing for value with customers, suppliers and employees, tighter regulation, ever intensifying work levels and delegitimisation.

While CEO pay has never been higher, the esteem in which business is held has sunk to an all-time low.

Can a different sense of purpose break the vicious circle and drive a benevolent one? Mourkogiannis believes the answer is yes, and his book explains why and how. His project is to make a space for moral purpose in current academic accounts of corporate success. He argues that strategy a la Porter and distinctive competencies a la Hamel on their own are not enough. By driving energy and commitment, moral purpose complements strategy and competencies and converts them into powerful action. It is thus at the heart of competitive advantage.

At first sight, Mourkogiannis appears to follow James Collins and Jerry Porras, whose influential 1994 book Built to Last also identifies purpose as an important component of success. Both note the apparent paradox that companies that don't put shareholders first benefit them a lot more than those that do. But there are subtle differences: while Collins and Porras make no attempt to analyse the nature of purpose, except that it goes beyond profit, Mourkogiannis is more prescriptive. He proposes discovery, excellence, altruism and heroism, each with its own philosophical roots, as the purposes available to businesses today. And where earlier authors suggest that profits are a by-product of pursuing an overarching purpose, Mourkogiannis argues that wealth and purpose are both ends, and that it is by pursuing them both simultaneously that companies gain enduring competitive advantage.

There is much that is attractive and challenging in what Mourkogiannis has to say. The book is thoughtful and well-written. He writes convincingly of reward and morale, and of the link between purpose, social capital and innovation. He has a particularly good chapter on leadership that scores a number of important points. He refuses to join the chorus of despair over today's supposed dearth of leadership, arguing that the 'crisis' exists only "because the job has been mis-specified". He explains the difference between purpose and corporate social responsibility, and persuasively underlines the perils of the "entirely artificial" separation of economics from ethics.

Yet for all its virtues, this is not the last word on purpose. Surprisingly, at the end of the book, the idea of purpose remains somewhat elusive, defined more by what it is not than what it is. Mourkogiannis' case studies - Henry Ford, Tom Watson, Sam Walton, Siegmund Warburg and Warren Buffett - are interesting and no one would deny that they powerfully embodied purpose, yet the suggestion that purpose is a property only of outstanding individuals seems to fall into the 'great leaders' trap. What about Toyota, whose system and purpose are so strongly aligned that changing largely anonymous leaders makes no more difference to performance than changing a lightbulb? Toyota also seems to counter the idea that operational excellence cannot provide the strong purpose that cements competitive advantage over time.

There's another step to take: purpose is also the quality that distinguishes companies, and organisations in general, from the markets in which they operate. Markets are blind and impersonal, and ruthlessly allocate resources to the most efficient - that is their strength. But if markets dispose, companies propose. As purposive entities by definition, they express intention, strategise, take one step back in order to move two steps forward. To do what? To do something that markets can't: create new value from fresh combinations of resources.

Purpose: the starting point of great companies, Nikos Mourkogiannis, Palgrave Macmillan, $27.95, ISBN: 1-40397-581-7.

Simon Caulkin is a freelance business journalist

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