Socially Constructing a New Corporate Purpose
Imagine a sustainable world where humanity meets the needs of the present without compromising the ability of future generations to meet their own needs. Business provides the goods and services needed by consumers in a way beneficial to all stakeholders. The world’s vast wealth is equitably distributed to all people. We on Earth are working toward that future today.
This is a story of AI applied to corporate strategic planning with an examination into the tacit economic assumptions of business.
The SOAR (Strengths, Opportunities, Anticipations, Results) framework for strategic inquiry and decision-making is discussed. SOAR is a compatible framework for an AI approach to strategic planning. Next, we review the dominant mental model of purpose underlying strategic planning. and an alternate perspective, flowing into a reflection of what could be.
The dominant construct in business is the theory that the purpose of a business is to maximise shareholder wealth. This theory will be contrasted with an alternate view—the “triple bottom line.” The purpose is not to choose either perspective as correct, distinct from the other, or even good; it is to inquire and appreciatively reflect into how these theories are socially constructed with an eye towards creating the change we desire.
Strategic Inquiry – Appreciative Intent: An AI Model for Strategic Planning
A usual first step in the traditional approach to strategic management is environmental scanning. To begin, a centralized strategic planning team divides those forces that determine the future of the corporation into internal and external variables using a SWOT format to analyze strengths, weakness, opportunities, and threats. SWOT is a ubiquitous analytical tool that has served to maintain the status quo of business.
Stavros, Cooperrider and Kelley provide us language and a model for strategic planning from an AI orientation in this issue with the introduction of strategic inquiry with appreciative intent and the SOAR framework (Strengths, Opportunities, Aspirations, Results).1 AI applied to strategic planning can help liberate us from our self-imposed constraints to focus on what really matters: the future of our planet.
They have also modified the 4 D process to a language that better fits their concept of an AI strategic planning process.
Sutherland also presents a conceptually compatible “4P” framework.2 He explicitly calls for an examination of purpose in the organization’s first step of environmental scanning. Relating to that, Stavros et al. emphasize the need for a strategic inquiry with an appreciative intent. Their SOAR approach to strategy development starts with an inquiry into strengths and opportunities. The imagine phase is where strengths and opportunities are collectively explored among participants to discuss long-term goals and possible strategies. The innovation phase is a call for aspirations and to co-construct the most preferred future. Then, there is the inspiration phase where employees are inspired through authentic recognition and reward to achieve measurable results.
Their emerging framework engages strategic planners and stakeholders to embrace inquiry, imagination, innovation, and inspiration based on the foundation of executive and organizational integrity. An important consideration of integrity is awareness of the conflicting mental models and mixed messages of the underlying assumptions that drive corporate leaders. By building this phenomena into our own awareness, we can write more effective questions into our protocols to help clients authentically surface their real organizational purpose.
The SOAR framework is a search for life and what gives life and contains the whole. Imagine how evocative it is to look inside the organization and touch those times that give meaning to people’s lives and collective purpose. These are much different experiences than the traditional expert-led SWOT analysis.
Although AI appears to be a process methodology, the questions we ask and the protocols we write shape the direction of that process and inform the content. As we are aware of some of the underlying business assumptions, we become more effective supporting an emerging aspect of business—corporate social responsibility (CSR). CSR is about operating ethically and fairly balancing the rights and responsibilities of all stakeholders.
While CSR is becoming a major force in industry, the status quo is deeply entrenched. The exciting news is that the status quo is a system of people; people who care about future generations. In fact, we are all part of that system. We can change. Consumers drive the decisions of business. The executives of the automotive companies are not the only decision makers in the production of sport utility vehicles; consumers pull the production when they choose to buy them.
In order to continue the progress toward a dialogue on corporate social responsibility, we examine some of the present beliefs and assumptions of business leaders. Gaining awareness intohow ingrained these assumptions are will help us enter a more effective dialogue for social and environmental change.
Shareholder Wealth Maximization as The Purpose of the Firm
Maximizing shareholder wealth as the purpose of the firm is established in our laws, financial and economic theory, and management practices. It is a central tenet of agency theory that describes the basis for modern corporate governance practices. With the growth of mutual funds over the last few decades, even those not of the privileged class are invested with a perceived stake in this concept.
Taken literally, this means that management should run the business to maximize cash flow to shareholders. They should minimize cost. One way to do that is by externalizing it. Historically, one way to externalize cost is to pollute. The only thing in this system keeping companies from polluting freely is government intervention. Sport utility vehicles mentioned earlier are an example of this. One auto company will not unilaterally stop producing vehicles that are profitable, regardless of the environmental impact – if they did they would be violating their fiduciary responsibility unless it could be shown that this action would increase cash flow to shareholders.
Corporate securities and governance laws give preeminence to shareholders as owners of the resources of the firm. “…Delaware courts have stated the prevailing corporate common law inthis country: directors have fiduciary responsibilities to shareholders which, while allowing directors to give consideration to the interests of others, compel them to find some reasonable relationship to the long-term interests of shareholders”.3 However, a subtle positive shift is underway. Over half the states have enacted some form of stakeholder laws that allow or compel corporations to consider the likely consequences of their actions on all stakeholders, beyond just shareholders. Some of the stakeholder statutes were put in place to protect corporate management by warding off unfriendly acquisitions, but they still further open the door toward a sustainable future.
More than laws keep this system in tact. Dominant among financial theorists and practitioners is the view that business has one primary purpose and one owner. Financial analysts and executives find this theory useful and beneficial in strategic planning and execution, especially when recommending and selecting courses of action. These deeply held beliefs are backed by empirical science.
That business exists to maximize the interests of shareholders is so socially constructed into the financial community, many of us believe it to be an uncontestable truth. It begins in school, is proliferated in and reinforced in practice, and is legitimated through other sources from the U.S. Security and Exchange Commission to the Royal Swedish Academy of Sciences who award the Memorial Nobel Prize in Economics. The work of Nobel laureates in financial theory and economics has explicitly or implicitly accepted shareholder wealth maximization as a given assumption. Milton Friedman, recipient of the 1976 Nobel Memorial Prize for economic science, described corporate social responsibility as follows:
When I hear businessmen speak eloquently about the social responsibilities of business…The businessmen believe that they are defending free enterprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are—or would be if they or anyone else took them seriously—preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.
The language and relationship of shareholder value maximization is systematically embedded in our business schools. One of the more subtle, but effective ways of constructing a belief system is through education. The financial management textbooks used in MBA programs favor the shareholder maximization theory as the purpose of the firm.5 The following is a fairly standard expression in most financial textbooks: “Stock price maximization is the most important goal of most firms, and it is a reasonable operating objective upon which to build financial decision rules.”
Now we are ready for a spot quiz (quoted directly):
First and foremost, the appropriate goal for a firm in a capitalist society is _________________ (Critical Concept). This is probably one of the most important concepts you’ll learn in finance! The firm management is charged with taking actions consistent with the wishes of shareholders that will increase their stock price. Stockholder wealth maximization takes into account both timing of returns and risk. (ANSWER: Maximization of shareholder wealth).
This belief in shareholder value holds that the role of business in our community is business. Business adds value to the economy through the efficient delivery of goods and services. Social and environmental concerns are related to business only through the marketplace and governmental regulation. For example, many in business believe that having committed and talented employees leads to a competitive advantage. This belief suggests that business should invest in effective human resource practices to attract and retain talented employees for the benefit of generating more shareholder value, not out of a sense of social justice. Capital will flow to those companies who serve the public good and away from those who do not.
The Triple Bottom Line
In the previous section, we had one metaphorical bottom line—financial. In the United States, Generally Accepted Accounting Principles (GAAP) are standards and procedures for reporting financial information primarily for stock and bond holders. GAAP provides a measurement system for a model of economic enterprise that we have socially constructed. Neither the measurement system nor the economic model reflect an ultimate reality—they are something we made up.
The triottom line provides a framework for measuring progress toward a sustainable socio-enviro-economic model. It is another social construction of some who believe it will better serve the inhabitants of the Earth and those of future generations. It is a metaphor for a system measuring economic prosperity, environmental stewardship, and social equity or “profit, planet, people.”
Environmental stewardship refers to companies doing no harm to their environment and crepairing harm that has already been done. Companies will reap economic benefits by employing strategies that include changing in areas such as design, process, and technology to reduce materials consumed in production and delivery, to reduce and reuse waste, and to make work more efficient. McDonalds’ policy supporting preservation of tropical rainforests by not purchasing beef raised on rainforest or recently deforested rainforest land is an example of stewardship. There are many examples of the impact of this trend on profitability. General Motors saved $500,000 annually in just one facility by changing to energy efficient lighting.
Social equity includes the advanced human resource practices of investing in the development of employees, developing relationships in support of local communities and making charitable contributions, providing work environments worthy of employees, furthering human rights, supporting public health, and adhering to business ethics. The social component is often referred to as social justice that suggests an equitable redistribution of wealth. Beyond employee hiring, retention and development, this social concept is contentious. Stonyfield Farm of New Hampshire is a successful company committed to social and environmental responsibility. The company supports small family-run dairies. It supports “promoting a more just, humane, and sustainable society by changing the way the world does business and by supporting progressive solutions to social problems.” Another organization known for its contact with social equity is The Wilderness Leadership School of South Africa. It exists “to bring about a realization of the interdependence of all things, especially between the human and non-human elements of the Earth.” The school provides a window for decision makers from government and business, school children and others from the global community to directly experience nature from a perspective that fosters a shift in consciousness toward the natural environment. The school has helped to influence public opinion in South Africa and Europe.
The economic prosperity element is similar to what is currently measured, but it goes beyond just the economic health of the corporation. It is a holistic perspective of community and economic prosperity beyond the single firm. It includes the prosperity of all directly interdependent with the firm.
Despite this paradigm of purpose, many corporations are at least shifting their language to sustainability. Those with a broad, diverse stakeholder base such as McDonald’s and Coca Cola have extensive information regarding their efforts on their websites. This corporate good citizenship is initially driven by market demand. The voices from the community asking corporations to be more socially and environmentally responsible are being heard.
Admittedly, concepts such as the triple bottom line are important, but only incremental improvements over the present system. In a capitalist system, an effective approach may need to include showing the financial benefit of social and environmental responsibility. The inclusion of the three elements of sustainability—people, profit, planet—has become an imperative for many companies. Effective inquiry for strategic planning should include an explicit consideration of the purpose of the organization. This inquiry should help participants to examine, clarify and consciously evolve their truly desired purpose. Our positive assumption might be that all people want to operate in the best interests of the planet, they just need some assistance to overcome the old constructions.