U O Y O WHAT D ? R O F D S TA N Evolving Trends in Corporate Purpose, Impact Investment, and Entrepreneurism
WRITTEN BY BRIAN B. DEFOE
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n prior articles, we’ve discussed the challenges that face spir its entrepreneurs seeking to launch and build their businesses. The biggest of those hurdles — apart perhaps from summoning the courage necessary to start in the first place — is usually getting the cash in the bank necessary to make the business viable. And so in most cases our would-be founder will look close to home for the funds necessary to take her leap. But after she’s managed to wring all the possible funding out of her friends, family, credit cards and 401(k) (please try to avoid those last two options), the entrepreneur whose business is not yet self-sustaining is faced with a bit of a dilemma. Namely, how best to attract the necessary capital to allow her business to grow and thrive? Historically, sourcing that cash required the entrepreneur to focus primarily on luring potential investors with bait consisting almost exclusively of the promise of profit. Sure, owning an interest in a distillery may be sexy (or at least I’ve always thought so) but profit was the primary driver. Slowly but surely, however, that ap pears to be changing — at least somewhat. To explain how things are evolving, a bit of a history lesson may be helpful. For nearly the past five decades, investors, shareholders and boards of directors have generally held firm to the principle first espoused by economist Milton Friedman that the sole purpose of a corporation is to generate profits for its shareholders. This view is known as “shareholder primacy.” Friedman was a pretty sharp
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guy; among other things he won a Nobel prize, helped found the Chicago school of economics, and was awarded the Presidential Medal of Freedom. So, it isn’t necessarily surprising that his views on this topic — or anything else related to economics — would carry a lot of weight. But as playwright George Bernard Shaw famously said: “If all the economists in the world were laid end to end, they would not reach a conclusion.” Economics is a field in which much is open to debate and there are many competing arguments. And so even within Friedman’s time there were those who criticized many of his views — including his views on the purpose of the corporation. Those criticisms have continued to the present day, when socie tal events and stakeholder pronouncements have converged to form a potent and influential challenge to Friedman’s perspective: the release by the Business Roundtable in August 2019 of a paper in which they proposed to redefine the corporate purpose away from shareholder primacy toward one of promoting “An Economy that Serves All Americans.” Hearing that title, the reader might naturally assume that the Roundtable consists of a wild rabble of progressive ideologues who are out of step with the mainstream of economic thought — socksand-sandals types who burn biodiesel in their VW microbuses and smell vaguely of patchouli. But that would be a mistake. The Roundtable, in fact, is a group largely made up of Wall Street mov WWW.ART ISANSPI RI TMAG.CO M