How can government and business work together in this fractious political moment, when finding solutions to pressing problems like inequality and climate change are more urgent than ever?

Rebecca Henderson, Harvard University’s John and Natty McArthur University Professor, explores this question as an editor and contributor to a new book, A Political Economy of Justice. Her essay, one of 14 in the book, makes a case for purpose-driven firms—companies that espouse prosocial goals, beyond merely maximizing profits.

Consumers are growing increasingly aware of leaders who champion agendas like regulating carbon emissions and treating all workers equally, making this an ideal time for companies to embrace purpose along with profit, Henderson says.

Henderson says companies and societies have long had qualms about the pursuit of profit only for profit’s sake. In early capitalist Renaissance Italy, for instance, lending money was considered a sin. Plus, she points to Walmart, founded in 1962 with a mission of making consumer goods more affordable for a broader swath of low-income Americans. Her chapter, “Reimagining Capitalism: Could Purpose-Driven Firms Help to Build a Just and Sustainable World?” also explores corporate partnerships that support social good, such as one that Unilever pioneered to unite a group of companies to sustainably produce palm oil.

Here is an excerpt from Henderson’s chapter in the book, which she edited with fellow scholars associated with Harvard’s Safra Center for Ethics, including Danielle Allen, Leah Downey, and Josh Simons, and Harvard Law School’s Yochai Benkler.

Book Excerpt

A Political Economy of Justice

Chapter excerpt by Rebecca Henderson

In the 19th century a number of highly successful business people built their firms on the idea that the goal of the firm was not to maximize profits but to sell useful, high quality products produced by well treated, well paid employees. Take, for example the case of Cadbury, the British confectionary giant. George and Richard Cadbury took over their father’s failing tea and coffee business in 1861. They were Quakers, or, as they preferred to be called, members of the Society of Friends. As a community the Quakers were suspicious of profit, believing that the function of commercial activity should be to serve the community as a whole, and that conflict between labor and management should be resolved through open conversation and good will. George was an active teacher in the Quaker Adult School Movement and had spent years teaching in Birmingham’s worst slums. The brothers explicitly rejected Taylor’s approach to management and its implicit assumption that employees were merely things to be manipulated. “Even if on the productive side,”—one of them remarked in a 1914 paper entitled, “The Case Against Scientific Management”—“the results are all that the promoters of scientific management claim, there is still the question of the human costs of the economies produced.” George Cadbury claimed “the status of a man must be such that his self-respect is fully maintained, and his relationship with his employer and his fellow-workmen is that of a gentleman and a citizen.”

"The sense that business was at heart a moral enterprise was reinvented in a particularly powerful way by Milton Friedman and his colleagues."

The Cadbury brothers invested heavily in their beliefs. The firm, for example, required that every employee take an introductory academic course and gave them the option to take further commercial or technical training at company expense. It provided sports facilities, sick pay and a (men’s) pension fund, and experimented with worker participation in the running of its plants. The Works Committee included both staff and foremen and was responsible for factory conditions, quality control, and welfare work. In 1919 the company began to experiment with full-fledged industrial democracy, creating a three-tiered structure of Shop Committees and Group Committees reporting to a Works Council. There is no evidence that this method of management placed the firm at a competitive disadvantage. Indeed rather the reverse. By the 1930s Cadburys was the 24th-largest manufacturing company in England and had created a portfolio of brands that remain global powerhouses.

The sense that business was at heart a moral enterprise was reinvented in a particularly powerful way by Milton Friedman and his colleagues. The advent of neoliberalism is often framed as a movement that took its power from neoliberal economics. But it was also an explicitly moral movement.

Friedman’s suggestion that the “social responsibility of business is to increase its profits” is first and foremost a moral injunction, deeply rooted in the belief that well-functioning capitalism is a critical source of economic prosperity and economic and political freedom, and suggesting that to suggest that managers to do anything other than maximize profits is to invite them to betray the trust of their investors and reduce the efficiency of the market. Friedman and his colleagues suggested that, under a number of well-defined conditions, including free competition, non-constant returns to scale, the absence of collusion, the mitigation of information asymmetries and the presence of proper accounting for both positive and negative externalities, maximizing shareholder returns maximizes public welfare. The modern business person who talks about his or her duty to maximize shareholder value thus often experiences themselves as acting from a deep sense of moral responsibility.

Indeed one way of thinking about the current move towards pro-social purpose is that it represents a natural evolution in this kind of moral thinking. For if markets are not genuinely “free”—if, for example, firms are free to influence the political system in ways that shape the rules of competition to benefit themselves, or if prices do not reflect real costs because firms can legally emit huge quantities of greenhouse gases that cause enormous social harm then there is no reason to believe that maximizing shareholder value will maximize either welfare or freedom.

"He claimed repeatedly that his responsibility was to multiple stakeholders, including consumers in the developing world and climate-change activists."

Paul Polman, who was until very recently the CEO of the consumer goods giant Unilever, is one of the most prominent exponents of this idea. Just over 10 years ago, on his very first day in the job, he announced that Unilever would no longer issue either quarterly earnings guidance or quarterly earnings reports. (He later joked that it was the first thing he did because he didn’t think the board would fire him on his first day.) Instead, Unilever would focus on the long term and on solving the great problems of the world. He even went so far as to urge shareholders to put their money elsewhere if they didn’t “buy into this long term value creation model, which is equitable, which is shared, which is sustainable.” Six months later he announced the Unilever Sustainable Living Plan, under which the firm committed to halving the size of its environmental footprint while doubling its output. In the years that followed he claimed repeatedly that his responsibility was to multiple stakeholders, including consumers in the developing world and climate-change activists. Regarding shareholders, Polman said, “I’m not just working for them … Slavery was abolished a long time ago.”

Reprinted with permission from A Political Economy of Justice, edited by Danielle Allen, Yochai Benkler, Leah Downey, Rebecca Henderson, and Josh Simons, published by the University of Chicago Press. © 2022 by the University of Chicago. All rights reserved.

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