I once worked with a consultant who started meetings with the following provocation: "The system," he would say, "is perfectly designed for the results we have now." In other words, if we want a different result, then change whatever's driving our behavior.
I just returned from a great exchange of ideas organized by the Kellogg School of Management's Public-Private Initiative and the Aspen Institute, convened under the title: "Rethinking 'Shareholder Value' and the Purpose of the Corporation." A key driver in the behavior of business and capital markets, the conference organizers believe, is how we describe -- and measure -- the purpose of the business corporation.
The meeting brought together scholars, lawyers, corporate governance experts and business people. As a rule, these aren't the kinds of people in sleeping bags down at "Occupy." By and large, they respect the power of business, of markets, of capitalism -- but, if polled, I think they would agree that we, in the U.S., are not getting the results we want right now. Thus the question on the table, which is attracting new scholars and scholarship at Northwestern and elsewhere: What is (or should be) the purpose of the corporation, and what does U.S. law have to say about it?
One big idea that surfaced at this March 7-8 conference is that we are governed as much by "culture" -- the sum of our actions and attitudes -- as by the law, although obviously the two are connected. While the lawyers in attendance differed on the fine points, they agreed that the law gives corporate boards the discretion they need ("business judgment rule") to put employees and communities in the equation. Shareholders in U.S. companies don't "own" the corporation; they own shares with specific rights, and boards are not required to put shareholders first. While the perception of the law ("shareholders trump") still deters decisions that are critical to rebuilding the commons, it's the norms and protocols that matter most. Another thing that matters is the theory taught in business and law that underpins these norms and protocols.
Businesses are motivated to move beyond the old mantra about shareholder value for several reasons. One important consideration is the basic nature of people who choose to go into business in the first place. The generation entering business schools now doesn't get out of bed in the morning to make the shareholders rich. They want something more.
And they want to get real things done. This is where purpose is central. A meaningful business purpose is about solving real problems, not just chasing a number on a stock ticker. Maintaining the reputation of global brands is one key motivation for business. But if you want results, challenge an intrapreneur or entrepreneur with a real problem and the possibility of creating a market and revenue stream, and get out of the way. It's the power to invent and compete to solve problems within the constraints of market supply and demand that makes private sector approaches so compelling.
That's why the best business schools, like the one that hosted this event, can fill their seats several times over. An MBA is no longer just a short-cut to a well-paying job. Management is the skill set for getting things done. MBAs want the networks, the language, and the basic knowledge for building enterprises. And enterprises exist to make and create and build, and to solve problems of great complexity -- to do things that cannot be accomplished by individuals working alone. To seize this moment and capture this talent will take realigning purpose, metrics, and pay incentives with something larger than stock price. The benefits to the whole system will follow.