FE377—The Purpose of a Business Corporation

What is the purpose of a business? The question seems straightforward, but it contains an often-overlooked ambiguity: whose purpose? Milton Friedman famously argued that the social responsibility of business is to increase profits for its owners, while John Mackey has argued that businesses serve multiple stakeholders whose interests cannot be reduced to shareholder returns. This essay examines a more fundamental question underlying that debate. Purpose is not necessarily an intrinsic characteristic of an organization; it depends partly upon the perspective of those who interact with it. Investors, employees, customers, suppliers, founders, and communities may each see legitimate but different purposes in the same enterprise. Purpose, like beauty, can be in the eye of the beholder. Recognizing these differing perspectives does not eliminate the need for organizational objectives. Instead, it raises a more useful question: how should businesses reconcile the different—and sometimes competing—purposes of the people they exist to serve?