Casting one’s mind back to the days when companies used to follow the mantra laid down by economist Milton Friedman and focused their energies solely on maximising the returns for shareholders, and it seems an altogether different era.

Driven by the growing desire for young people to not only do work that excites them, but for their employer to make a positive impact on society, the trend for companies to embrace social purpose has reached fever pitch.

A new report from the British Academy outlines how purpose can drive the ‘future of the corporation’, and builds on a previous report from the Academy that argued for the Friedman’esq style of capitalism to be replaced.

“This report revisits the case for change and highlights that climate change, the urgency of delivering on the UN Sustainable Development Goals (SDGs), technological developments, the increasing dominance of companies without significant tangible assets, and negative perceptions of business make this agenda particularly urgent,” the authors say.

Reinventing capitalism

At the heart of their thesis are eight principles that guide corporate purpose and focus more on the way corporations interact socially, economically and environmentally with society as a whole.

1. Corporate law should place purpose at the heart of the corporation and require directors to state their purposes and demonstrate commitment to them.
2. Regulation should expect particularly high duties of engagement, loyalty and care on the part of directors of companies to public interests where they perform important public functions.
3. Ownership should recognize obligations of shareholders and engage them in supporting corporate purposes as well as in their rights to derive financial benefit.
4. Corporate governance should align managerial interests with companies’ purposes and establish accountability to a range of stakeholders through appropriate board structures. They should determine a set of values necessary to deliver purpose, embedded in their company culture.
5. Measurement should recognize impacts and investment by companies in their workers, societies and natural assets both within and outside the firm.
6. Performance should be measured against fulfillment of corporate purposes and profits measured net of the costs of achieving them.
7. Corporate financing should be of a form and duration that allows companies to fund more engaged and long-term investment in their purposes.
8. Corporate investment should be made in partnership with private, public and not-for-profit organisations that contribute towards the fulfillment of corporate purposes.

Some of these have considerably more merit than others.  For instance, while the creation of common standards and metrics for governance are wholly sensible, the notion that companies must be legally bound to have a societal purpose seems excessively heavy handed and liable to receive considerable backlash from the corporate world.

This is a shame, as the first report made an important point that not only do employees increasingly want their employers to do well, but society more broadly needs the private sector to be willing actors in making things better.

It’s hard to shake, however, the sense that the report portrays an overly simplistic perspective of things in order to make their recommendations seem plausible.  As such, none of the nuances and trade-offs that are inevitable in assessing the competing claims of various stakeholders are largely brushed aside.

There is already a strong sense that the corporate social responsibility policies created by firms are little more than greenwashed platitudes that allow them to portray themselves as good corporate citizens whilst not really changing their actions.  Coca-Cola, for instance, are part of numerous bodies, such as the Plastics Pact, whose aim is to reduce plastic waste, yet they remained the biggest corporate offender in a recent report into the matter.

A 360-degree corporation

Despite this, there is a growing desire for corporations to be better stakeholders, with Rotman’s Sarah Kaplan outlining as much in her latest book, The 360° Corporation.  In it, she outlines a rupture in the traditional career path that sees someone earn well before giving back through volunteering or charitable giving.

Whereas the British Academy report seems to wish away the hard choices and trade-offs companies must make, Kaplan’s book places them front and center.  Indeed, she urges managers to look at the stakeholders that surround their organization from all 360 degrees.

It’s only by doing this can companies concoct innovative ways around trade-offs that seem on the surface to be intractable.  Kaplan herself outlines a four-step process for the purpose-driven business to follow:

1. Know what your trade-offs are
2. Imagine ways you can rethink them
3. Use this fresh perspective to attempt to innovate around the trade-offs
4. Hopefully secure a way forward that allows you to thrive in the right way

Importantly though, Kaplan doesn’t treat companies in isolation, but also encourages us to treat all stakeholders, whether customers, governments, regulators or investors, seriously in our attempts to reinvent capitalism in a more wholesome way.

“This is why I have hope for the 360° Corporation,” she writes.  “It takes the interests and needs of different stakeholders seriously.  It doesn’t let anyone off the hook, not stakeholders, not companies.”

As such, it’s perhaps a more realistic roadmap for creating the corporation of the future than the one outlined by the British Academy.