Economist sees corporate future in purpose before profits

DAVOS - Anadolu Agency

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It is critical for the 21st century to redefine declarations of corporate purpose to produce solutions for the problems faced by both people and the planet, a distinguished British economist said.

"The future of corporate [purpose] will be based on the idea that profit should be a product of a corporation's purpose, but not the purpose of the corporation," said Colin Mayer CBE, professor at Peter Moores of Management Studies at the Said Business School at the University of Oxford.

He said the purpose of corporate purpose is an integral part of running a business, as to how a business can grapple with this presents a real opportunity for them to solve global problems.

Expanding on this, he cited the example of Microsoft, whose Indian-born CEO Satya Nadella told him at last week's 50th Davos World Economic Summit that one of Mayer's books inspired him to think differently about the role of businesses in society.

"Microsoft, the second-largest company in the world, announced [on Jan. 16] that it was going to be carbon zero" in its operations, Mayer said.

But Microsoft also decided to go even further, saying it would extend this through its supply chain to make it carbon zero by 2030, he added, lauding this “pretty ambitious target."

This is not only about avoiding problems, but also about how Microsoft technology can provide businesses and people with the know-how to improve their environmental performance.

Innovation up north

In terms of making businesses eco-friendly way, the most innovative firms are in Scandinavian countries, argued Mayer, saying those countries stress a more expansive view of business in society.

"In particular, in Denmark, there are forms of companies which are known as industrial foundations, which are companies that are in many cases listed on stock markets, but largely owned by foundations."According to Mayer, these foundations are predominantly responsible for ensuring that the companies have a real purpose that goes beyond financial goals.

He said companies such as Carlsberg and Novo Nordisk are essentially industrial foundations, considered good examples of companies that pursue values first rather than solely profit.

India promotes corporate responsibility

The developing world is very focused on how a company can promote economic prosperity irrespective of how it does so, he said, yet there is growing recognition that the costs of such a strategy can sometimes outweigh the benefits.

"A country that went through a very significant reform in this regard is India, where it introduced a law that said that 2% of the profits of companies in India have to go towards corporate social responsibility programs," he said.

Calling this move a start, he added that a lot more needs to be done to truly embed ethical concerns into businesses.

'Current GDP calculations need work'

Asked about the credibility of currents methods used to take a country's economic snapshot, he said: "There's a big body of work that's going on to move notions of national income measurement to an idea around national wealth that incorporates not just financial material capital, but also human social and natural capital."

To the extent that countries benefit from producing harm -- for example, gun sales in the U.S. -- rather than goods and benefits, there should be an adjustment to the accounts of countries' economic outlook, he argued.

So long as people evaluate the performance of countries concerning current GDP measures, failing to consider the costs associated with cleaning up messes, then economic and social well-being is being misstated, he said.

He said the idea of purposeful business is now gaining mainstream interest and support.

Investors, business leaders, and prominent commentators are competing to explain why businesses exist, what they are there to do, and what they aspire
to become – in a nutshell, the purpose of business.