Go get organized

In my last blog, I started on the journey to try and get to the bottom of the purpose of companies. This time around, I’ll look at how companies are a form of social organisation.

My first step is to get clarity on the obvious stakeholders from companies and ask the question: “Who or what allowed them to get into that position?”

If we want to know why companies exist, we need to first ask the people who formed them – and I still can’t do better than my friend at the CEO club – to provide security, self-determination and improving quality of life for their family.

We then need to look at the context of the society that allowed them to be created and become dominant.

History suggests that companies are the extension of a long term trend for people to specialise in what they do. In fact, it goes back to the reason for a capitalist economy of any sort – we need an economy because we need money, and we need money because it allows people to be rewarded in a single unified manner for the whole host of human endeavour, allowing them to specialise, exchange their service for money, then buy another service they need. Otherwise, we would all live off the land, eating and wearing what we could grow and make ourselves.

Companies, therefore, in social terms, are a means of organising ourselves into specialist units to provide goods or services that someone else values enough to pay for. Society allows this to happen because we all become better and better at what we do, we get more efficient and effective and ultimately we provide more for society. That is why the standard of living of people today is so much better than prior to the industrial revolution. That is why almost everyone has TVs, HiFis, mobile phones, comfortable homes, cars and holidays. Not everyone, of course, society is far from perfect – but overall we are immensely better off than we used to be.

So, for me, as a description of the purpose of companies, this starts to look good – we have the personal founder’s purpose coupled with a contextual reason from society. However, despite being multidimensional and specific enough to have true meaning and learning from it, certain questions are left unaddressed – such as why society allows the risks of companies – in other words; avarice. It also fails to explain how it works. We now have an explanation of why companies are allowed to exist and what their purpose is, but it is untested. A way of testing it is to ask: “If this is the purpose, how does it translate into the day to day activities of companies?” How did we get the TV, the car, the mobile phone? They came from an open exploration of what people might value. Who in Henry Ford’s time would have predicted the sales of Grand Theft Auto on a PlayStation? They couldn’t, so you need to give encouragement and space to innovation in the company purpose. Society demands it, which implies some coherent thought by an entity called society – which of course does not exist – (score one for Margaret Thatcher), and companies are a major source of such innovation, so it needs to be part of their role, their purpose. Hence the need for a value proposition in a purpose – people in society need to want the products or services on offer – if they don’t then the company fails.

This is the thread that eventually leads to shareholder value and EBITDA statements because if people value what you provide you will make a profit. This, therefore, drives innovation. Our definition of purpose now has to say: ‘a company must meet the needs of the founder for security, self-determination and a rising quality of life and meet the needs of society by organising its people to make something of value to others.’