Let’s Get Real About Purpose
For too long, the value of economic activity has been measured purely by its price. By recognizing that value is created collectively by business, government, and civil society, it is possible to create a more purposeful type of capitalism.
LONDON – One year ago, BlackRock chairman and CEO Larry Fink wrote a letter to 500 CEOs asking them to rethink their sense of purpose. “To prosper over time,” he wrote, “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Fink argued that companies’ excessive short-term focus was hurting their ability to create more value in the long run. Some prominent politicians – including US Senator Elizabeth Warren and (until Brexit torpedoed her policy agenda) British Prime Minister Theresa May – have also advocated a more inclusive and less predatory form of capitalism.
But despite these calls to action, little has changed. The financial sector remains self-obsessed and invests mostly in other parts of finance, insurance, and real estate. Companies also are overly financialized, spending more on share buybacks and dividends than on human capital, machinery, and research and development. And the buyback mania is getting worse, including at companies like Apple, where falling innovation is not unrelated to the failure to reinvest. Many businesses talk soothingly about corporate social responsibility, impact, and social purpose, but very few put these at the core of their operations.