The corporate objective sits above all other aims. It expresses the purpose set by the organization’s founders. This applies whether it is a business or non-profit organization.
The two key parts of a governing objective are -
So, the governing objective takes the following form -
<Organization> exists to provide <Intended Benefit>to <Intended Beneficiaries>
This format works for all kinds of entity.
For a business, this would mean raising the value of the company. Aim for a value where the investors are happy to leave their investment with the company.
For most non-profit organizations, (NPO) things can be a bit more challenging.
Non-profit-making organizations include foundations, charities, societies, clubs, associations, colleges, leagues, orders, institutions, sects, local, national and international governments and their agencies, state corporations or government trading enterprises, parties, academies, and many schools, hospitals, universities and commissions.
Many non-profit organizations seem to believe they must have many organizational objectives. The idea of a single corporate objective troubles many in the non-profit sector.
A high profile children’s charity states as its mission -
‘…to inspire breakthroughs in the way the world treats children and to achieve immediate and lasting change in their lives…’
These people have positive intentions towards children. They want to help them have a better life.
Criticizing such intentions would seem to be inappropriate. I do not know what they are exactly trying to do, and exactly for whom. ‘Exactly’? Do we need to know exactly? Yes, we do. The managers do. The children and their parents do. The other social services who work with this charity do. Moreover, I even want to put a figure on this aim. Then a target can be set. They can then measure achievement. I do not know how to do that from these statements.
Some NPO executives claim it is not possible to set verifiable performance targets. I believe some of them focus on partial, functional, or non-corporate aims. They have confused the corporate purpose with corporate social responsibilities. Some focus on specific fashionable strategies. Some others may try to represent their job as especially complex and responsible. They do this by adopting a multiplicity of ‘corporate' objectives all at once. They may want to avoid the accountability of a single defined corporate objective!
I feel sure the founders of their organization knew what they wanted it to do. They knew what verifiable benefit they wanted to provide. They also had an identifiable group of Intended Beneficiaries in mind. It would be something simple. It does not need elaborate statistical surveys to establish. If the objective is not clear now, what can have happened? Bureaucracy can obscure. Sometimes, personal ambition may get in the way. The agendas other than those of the Intended Beneficiaries may interfere.
An organization can get clarify its corporate objective with a ‘corporate description’. This includes -
The target is set using a Corporate Performance Indicator. Beneficiary Performance Indicator or BPI is a more accurate description. .
Let me illustrate.
Use the Argenti Purpose Sequence to establish the key elements of this corporate description.
Some assert that the governing objective for a business is to maximize shareholder value. True, the Intended Beneficiaries are the owners, or shareholders. I caution against talk of ‘maximizing’ shareholder value.
A corporate objective such as, ‘we aim to maximize shareholder value' is common. At first glance, this seems to include the benefit and the intended beneficiaries.
How do you verify whether you have maximized shareholder value?
How do you show that they might not have been higher?
Do you get the Chief Finance Officer to sign a declaration? ‘I certify this business maximized its profits last year'. Can we believe we could not have given one more dollar to the shareholders?
No? Then why use a governing objective that you cannot verify if you have achieved it?
How many enterprises do want to ‘maximize’ their shareholder returns?
Will many firms go to any lengths to generate even more shareholders returns?
Would they disregard all risks? Would they be inhumane to employees? Would they break the law just to extract the last drop of profit?
Yes, the purpose of the business is to create wealth for the owners. Yet, it should be at levels that they, the owners, perceive as ‘satisfactory’.
Company management needs to improve the value drivers throughout the firm. This should be at low risk to the investors’ funds.
They also need to act under the corporate code of conduct. At least, they will seek to avoid harm to any stakeholders. They will follow all relevant laws.
Even though shareholders are the Intended Beneficiaries, they are not the only people who can benefit. Other interest groups may also benefit from their association with the business. Think of employees and suppliers.
As the body pursues its governing purpose, it should ensure no harm to any groups involved. Rather the managers should engage all interest groups, as well as investors, in achieving this corporate objective. Similar responsibilities apply to non-profit organizations.
Achieving the corporate purpose of economic benefit to shareholders is not only in the interests of them. Achieving this corporate objective also supports the interests of other stakeholders.
This may seem to cause some short run harm, such as when a reorganization results in some job losses. However, a firm that anticipates this possibility in its strategic planning and employment policies will act to reduce any harm. Over the multi-year time horizons used in strategic planning, all stakeholders can benefit from decisions made in the interests of the shareholders. This is more likely if the firm’s managers and governors consider these interests in framing their code of corporate conduct. I mean building it around the ideas of the ‘no harm principle,’ and aiming to engage the stakeholders constructively in the pursuit of the governing objective.
I accept that this view of the corporate purpose, whether for businesses or NPOs, is at odds with both the stakeholder theory and the maximize shareholder value view.
Other viewpoints on the importance of the overall corporate purpose are in the following publications.
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