So what is the purpose of business?

27 July 2015

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It was the hottest day of the year and temperatures rose even further during the heated debate at our Question Time event: ‘Maximising Shareholder Value - Responsible or Reckless?’

As a partner in PwC’s Assurance business, I’ve built my career around corporate reporting and auditing. But if the overriding purpose of business isn’t to maximise returns on shareholder equity, does that mean that today’s reporting and auditing model is flawed? Should we be reporting and auditing against a different business purpose? In the search for some answers, I convened a debate.

50 years ago, the question didn’t seem so difficult. Milton Friedman told us:“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.” Now, after the ‘Great Recession’ and with so much technological, environmental and demographic change, Friedman’s answer seems less obvious…..

So, on a sweltering July afternoon, Newsnight anchor, Emily Maitlis, put the question to an expert panel, carefully chosen to represent a diverse range of views. 

Early in the discussion I was struck by what panellist William Reeve had to say. The co-CEO of, founder of and serial entrepreneur spent his early career persuading friends and family to invest equity in his enterprises. He described his commitment to “maximise shareholder value” in order to deliver a return to those who’d trusted him with their savings. This brought a very personal perspective to what some see as the faceless selfishness of capitalism. 

No company is an island

But for Camila Batmanghelidjh – CEO and founder of the charity Kids Company – through an exclusive focus on shareholders, business is alienating whole communities, creating ghettos and a toxic vengefulness. Business, she believes, must be mindful of the wider system in which it operates. She illustrated the point by noting that a beautifully designed toilet is useless if the sewage system is blocked!

So, two polarised viewpoints, and it was difficult to see how the debate could move forward. Nick Anderson – a leading fund manager – illustrated the complexity of the trade-offs to be considered: “One of the biggest challenges we face…is climate change. Do we lock in a low growth economy to cut emissions?” This would mean, he explained, that millions of Chinese people would be stuck on low levels of income forever.

Can we have our cake and eat it?

Dr Michael Viehs, Research Fellow at the Smith School of Enterprise, offered us one route through the impasse. His research shows that shareholder and broader stakeholder interests may not be mutually exclusive – with those companies that include ‘ESG’ (environmental, social and governance) factors in their decision-making having a lower risk profile and a lower cost of capital. Michael also noted “you cannot prioritise every non-financial stakeholder, that’s simply not possible”. For me, this was a key insight. Businesses need to identify those stakeholder groups which are material to their business model, and focus on their interests. In this way they can deliver non-financial benefit to stakeholders and economic value to shareholders.

Michael’s words chimed with Camila as well. She cited her experience of ‘narcissistic philanthropy’ where big business offers charitable donations in order to improve their own image, whilst attempting to dictate the terms of their support.

In the words of Marilyn Monroe

But the quote of the day came from Leo Johnson, PwC partner leading our sustainability practice. He argued that in the words of Marilyn Monroe “sometimes good things fall apart so that better things can fall together.” Leo’s quite sure that yesterday’s capitalist models must make way for a new form of inclusive capitalism, where innovation is harnessed to make money and to change lives. 

He described a business called M-KOPA Solar which manufactures solar lights paid for by sim cards, bringing cheap, clean, power to millions in Africa. By addressing a basic social need, M-KOPA has unlocked a huge under-served market – M-KOPA makes money by changing lives. 

So, this seems to be the form of capitalism we should be aiming for. I went back to look at that quote from Milton Friedman and discovered that it continues: There is one and only one social responsibility of increase its profits so long as it stays within the rules of the game.” And our Question Time event got us one step closer to writing some rules which will mean that maximising shareholder value can be responsible, and not reckless.

Gilly Lord | Head of Regulatory Affairs
Profile | Email | +44 (0)20 7804 8123


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