What Should be the Goal of a Corporation?

November 3, 2012

Economists and conservative politicians say the goal of a business is profits–long-term profits.It makes sense: It is a clear goal. It is measurable. It represents the interests of the owners.But it has a problem nonetheless: What are profits in the long term? How long is long? “In the long run, we are all dead,” said John Maynard Keynes, the revered economist.How do you operationalize the long run, especially when CEOs are measured by quarterly earnings per share? And even managers of non-public companies feel the pressure to perform in the short run, simply because their competitors do.Another school of thought, often supported by those on the political left, is that the goal is to optimize the needs of a host of constituents: owners, labor, clients, community, etc.Although the goal fits the mood of the time and is politically correct, it is difficult to quantify. And how does one optimize the interests of the variousconstituents ? That’s an endless subject for discussion and argument.Then what should the goal be?Developmental psychology and the science of biology tell us that the purpose of every living system is survival and reproduction––in other words, the survival ofthe species.What does that mean for corporations? Corporations are living systems; thus, they have an equivalent goal: the survival of the system in the long run. Thefield of sociology supports the idea that the goal of all organizations is survivability.Now, the questions:First, if we want to use living systems as an analogy for corporations and other organizations, how should we define “survival of the species”?What is the species, in our analogy? The company itself? The industry the company belongs to? Or is the species the corporate institution as such?The second question, no less complicated, is: How can we operationalize this goal so that it can be used as a management tool rather than a mere academicexercise?In answer to the first question, I suggest that the “species” is the company itself, because that is what the CEO must focus on when making decisions: What willbest promote the survival of the company he or she leads?The species could also be the industry––if an industry-wide organization with a leader has been established. In those circumstances, that leader has the sameresponsibility as any company CEO: to support and advance that industry’s survival.However, I see no organized system for taking care of the institution of “the corporation.” There is no CEO directly responsible for the survival of “thecorporation” phenomenon. To discuss “the corporation” as a species is an academic exercise, like discussing how many angels can dance on the head of apin.Let us discuss the second question. How should a leader go about securing the survival of the “species” he is entrusted with?Well, how does anyone survive? How does a human being survive? Or a dog, or a cat, or a horse–or a tree, for that matter?By being healthy.A system that is not healthy will not survive in the long run––nor will it reproduce itself as effectively as a system that is healthy.I suggest that the goal of every system–and that includes corporations and not-for-profit organizations, micro-, mezzo-, and macro–is to be and to remainhealthy.Confronted with major strategic decisions, or even some tactical decisions that have strategic repercussions, a leader should ask him- or herself: Is my decisiongoing to promote or impair the health of the system I lead?Simple, right?Not at all–because again, and as usual, the hurdle is: How?Those readers who know my theory of (PAEI) should not be surprised at my answer:If a system is effective in the short run–i.e., it fulfills the purpose of its existence at the present time, which means satisfying the present needs of its clients, (P); iseffective in the long run––i.e., it works proactively to identify the future needs of both its existing clients and its new clients, and is preparing at present to satisfythose future needs, (E); is efficient in the short run––i.e., it prevents the waste of energy, which we all know is fixed, (A); and, finally, is efficient in the longrun––i.e., it is organic, which means it is integrated both within itself and within its environment, (I); then we have a healthy system––i.e., a (PAEI) system.The goal of every leader, of any type of organization, is to strive to ensure that the (PAEI) roles are fulfilled and balanced correctly and reflect the organization’s phase in its lifecycle.If a company is healthy, it will be profitable in the long run and will reproduce itself by bringing successful new products into new markets.The next question is how to create a (PAEI) organization, but it will take many books to answer that question. I have written several and am working on somemore.Sincerely,Dr. Ichak Kalderon Adizes

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Dr. Ichak Adizes