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Unrealized Potential: Misconceptions About Corporate Purpose and New Opportunities for Business Education
Abstract
The dominant conception of the corporation today is that firms exist to maximize value for shareholders. Unfortunately, a narrow understanding of this paradigm causes many business leaders to believe that they are legally and morally obligated to maximize stock price for their investors. This conventional wisdom unnecessarily constrains thinking about the role of corporations in the long-term health of society. In doing so, it may also be an impediment to building the skills that companies, investors, and society are demanding from corporate leaders. We clarify the widespread assumption that shareholders own the corporation, then explore the implications for what is being taught to business students about value creation, risk, accountability, good management, and good governance. Business education is uniquely positioned to develop business leaders and investors who exercise sound judgment, resist the allure of the short term, and thus help realize the full potential of the corporate form.
... As stated by Padro (2014): "While corporations are arguably the world's most influential institutions, this influence is accompanied by deep public skepticism about the nature of the corporation, the motivations of its leadership, and its ability to advance the public good. CEOs are among the least trusted leaders in society." ...
... Henry Ford believed that "a business that makes nothing but money is a poor business," and even Jack Welch, former CEO of General Electric heralded as an exemplar of shareholder value theory, has recently come to be a strong critic of shareholder value calling the pursuit of short-term profits in the absence of a view of long-term value for a company "the dumbest idea in the world" (Denning, 2013). This duality of corporate purpose is nicely captured by Padro (2014): ...
... They have vacuumed up a good part of what we have always thought of as society, and made organizations, once a part of society, into a surrogate of society (Perrow, 1991 p. 726). By examining a present day environmental issue with urgent significance and policy implications given the contribution of industry to climate change, this study responds to calls for organization theory to address contemporary societal issues, and to link such studies to policy and education (Gladwin, 1993;Padro, 2014;Stern & Barley, 1996). ...
The focus of this dissertation is on corporate responses to climate change. Using three empirical studies, I examine the gap in corporate words and actions when it comes to addressing climate change through three empirical studies. The first study uses critical theory to analyze how firms decouple climate change discourse and actions through an examination of Environmental Protection Agency Climate Leaders participants. The second study uses textual analysis of sustainability reports to examine the underlying logics of corporations addressing climate change. Finally, I present an ethnographic and historical case study of Ford Motor Company and their journey from symbolic to substantive climate change response to better understand the mechanisms and tensions underlying such change. Throughout the three chapters, the themes of opportunity and belief in the science of climate change stand out as important motivating factors driving substantive corporate response to the issue.
Since the financial crisis, many business leaders and organizational researchers have begun in earnest to ponder the question of “corporate purpose.” This re-evaluation of the raison d’être of companies has culminated in the question of whether companies have any other purpose than to generate money for their owners. Although the debate is not new in management research and literature, it is certainly enjoying a renaissance. In fact, pondering the purpose of a company could be much more relevant in terms of its reputation and success than previously thought. When a company communicates its purpose well and systematically, it also helps the company to stand out from the competition while reducing reputation risks and ultimately creating better financial performance. If a company’s raison d’être is clear in the minds of its stakeholders, it simultaneously legitimizes the company’s activities.
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