What Are Corporations Good for Anyway?

Shareholders aren't the only people with a stake in the future of public companies

Written by Chris MacDonald

Illustration: Alberto Ruggieri/Getty

What’s the purpose of a corporation? Or, somewhat more abstractly, what’s the purpose of corporations in general?

That question is the topic of a big swath of academic literature, but the question itself is far from academic. In fact, it has enormous practical importance. Take, for instance, the recent news that Target is leaving Canada—news that puts a rather fine point on the question.

Surely for the top executives (and presumably the Board) at Target, the decision to pull out of Canada was a tough one. But one suspects it was also entirely a “business” decision—that is, one driven entirely by bottom-line considerations. CEO Brian Cornell pointed out, as part of the rationale for pulling out of Canada, that projections indicated that, if the company stayed in Canada, Target Canada would not expect to be profitable until 2021. Presumably shareholders were simply not going to put up with that. And from a fairly standard view about the purpose of the corporation, the wishes of shareholders matter a great deal. After all, or so the story goes, the entire purpose of a corporation is to make money for shareholders.

READ: Why You Need a Better Shareholders’ Agreement »

But of course, shareholders aren’t the only interested parties in this story. Consumers, too, have a stake. And despite the fact that many Canadians were sorely disappointed in Target’s initial efforts, many held out hope that Target Canada would eventually live up to the standards of their US counterparts, stores that are in fact a favourite cross-border shopping destination.

But among various stakeholder groups, the move is perhaps felt most acutely by Target Canada’s employees. Pulling out of Canada means Target is closing 133 stores and eliminating 17,600 jobs. For employees, the company was a source of jobs—jobs ranging from cashier to admin assistant to fairly senior executive posts. To the holders of those jobs, Target was a valued employer—a way to feed a family and pay the bills and maybe save for a vacation.

So now ask, again, what’s the purpose of a corporation? We’ve mentioned already the shareholder-wealth-building view. A more modern, critical view is to say that the purpose of a corporation is something more than the pursuit of shareholder wealth. Corporations, on this view, have a higher purpose as part of a community. The corporation has a social role, and that role goes far beyond attending to the interests of shareholders. Adherents of this view are indeed typically indignant at the very thought that anyone could think that corporations have so lowly a purpose as to merely make money.

READ: What’s Stopping You From Building a Billion-Dollar Business? »

And those critics are right, at least in part. It really is foolish to think that the purpose of a corporation is to make money. But that’s only because it’s foolish to think that corporations have purposes at all. That is, it’s foolish to think of a large, multifaceted organization as having a single, unitary “purpose” in the universe, rather than thinking of it as serving many purposes for many interested parties. Arguing over what a corporation is “really for”—building shareholder value? making products to make people happy? providing jobs?—is a fool’s errand.

There are, of course, exceptions. If an individual or small group files the paperwork to form a corporation to serve some single, stated purpose, then it’s probably fair to say that that is what the corporation’s purpose is. But that’s seldom what’s at stake, at least as far as this debate goes. When you’re talking about a widely-held, multibillion dollar corporation like Target, talk of the organization’s “real purpose” just sounds silly.

READ: The Art of Selling to Giant Corporations »

But the fact that the corporation is many things to many people doesn’t mean that everyone is bound to consider all of those purposes, all of the time.

To see what I mean, consider a different, parallel question. What is the purpose of a job? Say, your job. If we think of your job as an abstract thing—a position in the marketplace that happens to be filled by you—what is its purpose? Does that question even make sense? You’ve got the job, and it (hopefully) helps you achieve your goals. How you should behave yourself in the course of that job, in pursuit of those goals, is a question of ethics. And that question is much more enlightening than some grand question about purposes.

Chris MacDonald is founding director of the Jim Pattison Ethical Leadership Program at the Ted Rogers School of Management, and founding co-editor of the Business Ethics Journal Review. Follow him at@ethicsblogger


Originally appeared on PROFITguide.com