How we think about, and live out, the purpose of business matters a great deal — not just in businesses, but also in larger societal conversations about democracy, the environment, income inequality, the American Dream and creating the kinds of regulations necessary to manage our economy.
According to many experts, we are on the verge of a major technological revolution — cutting across the fields of artificial intelligence, robotics, nanotechnology, the Internet of Things and biotechnology — that will radically alter how we live and work. One of the primary effects of this change, which is likely to happen in the next 10–20 years, is the possibility of the mass displacement of jobs currently held by humans. This would dramatically change the availability of and nature of work in our society.
The Questions to Ask
If businesses continue to automate a substantial portion of jobs, these questions remain:
- What kinds of jobs will human beings continue to have access to?
- What skills will people need to acquire to be successful and add value?
- What role will business play in creating the answers to those questions?
We believe the answer to these question requires a new story about the purpose of business in this coming Smart Machine Age.
In a world where income inequality is growing, where upward mobility is disappearing, where there is widespread discontent about global capitalism and where there are increasing doubts about the ability of our current institutions to meet the challenges of the emerging future, we need to look critically at the narrative we use to talk about business in that future.
While we are already facing major challenges related to business at present, the pressure from massive job displacement related to the expansion of smart machines has the potential to radically alter our social fabric.
The questions become:
- What is the role of business in society?
- How do we craft a narrative about business that allows us to create jobs and wealth in that new environment and serve the larger ends of our society?
- What role can business play in shaping that narrative, both to create prosperity and to empower a wide array of stakeholders to see business as an institution that serves their interests?
A Stakeholder Account of Business
In facing this future, we would argue that a stakeholder account of business — in which businesses operate to serve the interests of an array of groups that are integral to their operations (e.g. customers, suppliers, employees, financiers, society) — is both more useful and more conducive to what we need from business.
A stakeholder theory is more useful in that it speaks to what needs to happen for business to “work” and to create the conditions required to generate wealth and opportunity, not just for the 1 percent, but for a wide array of stakeholders. Focusing solely on shareholders’ returns fosters a story about business in which meanings beyond wealth creation for shareholders are either discarded or discredited; this reinforces a cynicism about business that ignores the potential for other stakeholders to find an array of different kinds of value through their cooperation (e.g. advancing larger human purposes, making people’s lives better, treating people fairly).
Stakeholder theory frames the conversation differently — it instead focuses on how stakeholders come together to create value and make each other better off. By focusing on the creation of value and the process of cooperation, stakeholder theory enables managers to think about the mechanisms required to create and deliver value as integral to society at large. It also provides a narrative that puts human beings, their purposes and aspirations (some of which involve improving their financial well-being), at the center. Returns remain vital, as none of the stakeholders involved can get what they seek if they don’t create the value that all primary stakeholders seek.
Creating Value for Stakeholders and the Role of Business
Businesses in the United States are created and exist under societal rules designed to encourage the creation and legal protection of property. Businesses are supported by a societal education system and a way of life that attracts entrepreneurs and the best students from foreign countries. The rules of business conduct are societal creations. We contend that the Smart Machine Age will require that business values society more as a stakeholder than it is now. Businesses will economically benefit from the Smart Machine Age, and business should have a role in solving the human challenges regarding the future and meaning of work that will arise.
Becoming more focused on how businesses benefit key stakeholders, and create more value for those they serve, provides a strong basis — both to sustain innovation and creativity, as well as justify the legal protections that allow business to function. If that occurs, stakeholder theory would do a better job of explaining why business is good for society, not just that it can do good. It is by looking out for stakeholders and their interests, by highlighting the inherent good of stakeholders choosing to cooperate, and by noting that all stakeholders involved need to be made better off by their joint efforts that we get an account of business that deserves a place in society. We need a story about the purpose of business that does more than glorify and rationalize the sometimes exorbitant returns provided to executives and shareholders, one which allows us to better connect concerns about issues like income inequality into our conversations about the day-to-day activities of business.
Indeed, it is the interdependence between business and society — including the fact that society provides the rights and license to business to operate within our communities — that makes having a new story about the purpose of business in the Smart Machine Age so important. Business needs a new story about its purpose to enable the kind of productive and creative activity that will become even more critical to its success in the emerging future — and ensures that its activities preserve our democracy and our way of life.