Commentary

What is a Corporation Actually For?

Jul 10, 2017

What is the purpose of a corporation? That’s a question we explore frequently in CEO Daily. And now our friends at EY have offered up some interesting data on the answer.

They went to 1,470 top executives in ten different industries and 12 different countries, and asked a simple question: “Which of these best characterizes your organization’s purpose?” Respondents were given the following options to choose one answer from:

-Maximizing shareholder value

-Bringing value to customers

-Creating value for employees

-Creating value for a broad set of stakeholders, including society and the environment

-An aspirational reason for being that is grounded in humanity and that inspires a call to action

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Let’s leave aside that last option for a moment. While it sounds lofty, I’m not entirely sure what it means, and I wonder how well it traveled across cultural borders. It seemed to resonate most in the U.S. (where 12% chose it), Japan (10%) and South Africa (11%), and scored worst in China (less than 1%). But in every country, it was an also-ran.

The stakeholder approach, on the other hand, was the hands-down favorite in China (67%) and Brazil (60%), and did reasonably well in Japan (37%). In the U.S., it was chosen by 27% of respondents.

At the other end of the capitalist spectrum, shareholder value came out strongest, not in the U.S. (16%), but in Singapore (28%), Hong Kong (25%), the U.K. (21%), and, surprisingly, France (21%). Who knew?

Employees fared best in Australia (25%), Hong Kong (22%), and India (22%). They fared dismally in the U.S. (4%).

So what do American executives see as the main purpose of their organizations? Bringing value to customers, which was chosen by 41% of U.S. respondents, more than in any other country except South Africa (45%) and India (41%).

These “forced choice” survey questions are a bit artificial, since every company must at some level satisfy shareholders, customers, employees and society, or risk going out of business. But it’s an interesting exercise in priorities. And it’s worth pointing out that the Milton Friedman view of shareholder primacy came out on top in only one country: Singapore. The current system may be tilted toward shareholders, but if so, the people running businesses don’t acknowledge it.

How would you answer the question? I’m eager to hear from CEO Daily readers on this one.

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