No Small Change

CHAPTER 9How Does Your Firm Define Its Purpose?

Time was when it wasn't difficult to grasp a company's core purpose – at least, the purpose of a public company with external shareholders. Such firms would invariably express their purpose in terms of their responsibility to those shareholders. Their primary responsibility, the management teams would say, was to deliver shareholder value.

Somewhere in their shareholder communications – perhaps most frequently in their Annual Report – most public companies still say this. And in terms of the formalities of corporate governance, it is of course still true. The first responsibility of a firm's management is to deliver value to shareholders: that is the basis on which the shareholders have agreed to put them, and keep them, in their posts.

Back in the proudly mercenary days of the 1980s, this was more or less all that a firm had to say about its purpose. In his book Capitalism and Freedom, economist Milton Friedman, favourite guru of the political right, wrote: ‘There is one and only one social responsibility of business: … to increase its profits’. In the climate of those days, saying anything else could sound feeble. In the heyday of privatisation, state-owned and mutual enterprises that were not driven by shareholder pressure seemed lazy and uncommercial. The introduction of private capital was widely perceived as a bracing, energy-giving development that could only improve performance.

(For some reason this widespread feeling ...