The Value of Corporate Purpose

A unified purpose will engage stakeholders, bind them together, and propel them toward their goals.

November 20, 2023

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Competing in today’s global digital economy requires increasingly complex contributions: Employees need to be motivated to go above and beyond; customers need to be inspired, and their feedback needs to be incorporated; and the demands, opinions, and goals of civil society and government are also critical. The value of organizational purpose is to help coordinate activity among stakeholders in this complex system. The author’s research suggests that when a company and its management make it clear that their purpose is harmony in their stakeholder system — i.e., an intent to grow the pie for everyone — stakeholders make larger contributions and engage in less conflict. Firms are better able to weather crises, and total value created and distributed is enhanced — including to shareholders.

For decades, much of management theory has started by modeling the relationship between a principal and an agent. The principal wants their agent(s) to perform a task or function but can’t always monitor or evaluate their efforts — which means the agent can decide whether to fulfill their assigned tasks or shirk. In order to solve this “agency problem,” scholars have suggested shareholders incentivize senior managers based upon shareholder value. Senior executives can then hold managers accountable for key performance indicators, which contribute to shareholder value.

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Witold J. Henisz is the vice dean and faculty director of the ESG Initiative and the Deloitte & Touche Professor of Management at the Wharton School, University of Pennsylvania. His research examines the impact of political hazards as well as environmental, social and governance factors more broadly on the strategy and valuation of global corporations.