2) The Evolution of the Purpose of the Corporation

how this concept differentiates from charitable giving or corporate social responsibility. This is the key distinction between charitable giving and social purpose. With social purpose, the growth of the business itself is inherently meant to lead to greater social good.”

A challenge regarding a business utilizing a CSR and/or a philanthropic model numerous Survey Participants note is that the efforts to do ‘good’ are often on the side and not a part of the core of the organization. This model and mindset can essentially lead to a business producing profits in whichever way best suits the shareholders, owners, or investors - even if it has an overall negative impact on society - as long as a percentage of its profits are donated to a philanthropic cause.

Furthermore, this model and mindset mean that strategic decisions of the business can be made without consideration to the organization’s efforts to do ‘good’. It is noted by some Survey Participants that the influence of those working on CSR and/or philanthropy can exercise within large organizations is limited. Kate White provides a helpful reminder that they are not the ones “bringing in the revenue for the business.”

Allyson Hewitt, Vice President of Impact at MaRS Discovery District is of the view that the mindset that says the role of business is “to make money and then give back through philanthropy” is the old mentality. The new approach is realizing and capitalizing on the fact that people - through the work they do and the businesses they work for - want to live their values.

There is no doubt that business leaders are proud to donate to causes valued by them and their organizations. To the same effect, the organizations and causes who receive this financial support are certainly thankful. That said, times are changing, and businesses are being asked to help - more so than ever before - to secure a sustainable and inclusive future on top of a prosperous one. Creating this alternative future is no small feat which is yet another reason why businesses are being drafted to assist in this collective project.

The significance and complexities of the challenges of the day call for a concerted effort from all leaders, including business leaders. During the response to the COVID-19 pandemic, when the world voiced a need for help to overcome a massive global challenge, a remarkable number of businesses stepped up in more and different ways. It was certainly noted by many that they had an immense positive societal impact in doing so.12

2) The Evolution of the Purpose of the Corporation

“I don’t think a corporation’s purpose is about making profit. It’s about changing people’s lives for the better with what you deliver and how you go about delivering that.” – Upkar Arora, CEO of Rally Assets

As of late, the ‘purpose of the corporation’ seems to be the prevailing topic within the larger discussion of what is the purpose of business. The dynamics and elements of the conversation with respect to the ‘purpose of the corporation’ are very relevant to the larger discussion concerning the evolving role of business in society. In fact, the clarification of the legal responsibilities and fiduciary duties of corporate leaders is an evident subset of the larger movement to have businesses of all legal structures more positively contribute to society.

Consequently, exploring the history and state of the legal framework influencing the decisions of corporate leaders helps determine the systemic challenges facing the transition from the status quo to a world in which all businesses’ core purpose is to link profit with the creation and sharing of value with stakeholders.

Over the last few decades, there is no question that profit generation for shareholders has been synonymous with the ‘purpose of the corporation’. Many would argue that shareholder primacy stems from what is known today as the ‘Chicago School’ of economics.13 It was made to be widely known and utilized by Milton Friedman in the second half of the 20th century. Eric Posner, writing for The Atlantic, explained that Friedman submitted in a 1970 New York Times article the idea that the CEO of a corporation is an employee of the shareholders and consequently, must act in the interest of the shareholders which means to generate and provide them with the “highest returns possible”.14

The concept pushed by Friedman can date its origins to at least the early part of the 1900s.15

The idea that corporate leaders must solely focus on providing profits to shareholders was refuted as early as in the start of the second half of the 20th century and more frequently in the latter part of the 20th century.

Thus, there has been a debate raging on for decades; is the purpose of the corporation to generate profits for shareholders or is it to contribute to the betterment of a broader range of stakeholders?

The 20th century can arguably be pegged as the “golden age” for the ‘Chicago School’ of thought. Even so, near the start of the 21st century, things would start to change.16

As a matter of fact, several Survey Participants hark back to the financial crisis of 2008 as a defining moment for the relationship between society and business in Western democracies and the views with regards to the purpose of the corporation.

Perrin Beatty and Goldy Hyder, who respectively represent the Canadian Chamber of Commerce and the Business Council of Canada, raise the negative consequences of the financial crisis on society’s social cohesion. Perrin Beatty deduces that there has been, since 2008, a “loss of confidence in institutions in general”. Goldy Hyder concludes, “Really, with what I date back to 2008, is the loss of trust, by the public, in our institutions.”

Moreover, it is the view of some thought leaders that due to the financial crisis of 2008, the rejection of shareholder primacy has gained momentum.17

There are undoubtedly signs that the movement to include a broader range of stakeholders on the same level of importance as shareholders is gaining steam amongst an array of groups and institutions.

Numerous CEOs of some of the largest corporations in the world have been denouncing the ‘Chicago School’ of thought. An example of this is when a significant number of the CEOs of some of the largest corporations in the United States joined forces to debunk the Friedman doctrine. The U.S. Business Roundtable (hereinafter referred to as “BRT”), a business advocacy organization comprised of CEOs of leading corporations in the United States, issued a statement in August 2019 which the Economist Magazine observed, “seemed to represent quite a U-turn – nothing short of a repudiation of America Inc.’s shareholder-first orthodoxy .” The large business CEOs who are the signatories of this statement declare that a corporation not only has a duty to deliver value for shareholders, but that it also has the responsibility - on the same footing - to create value for its employees, customers, and suppliers as well as the communities in which it operates.19