http://www.sciencedirect.com/science/article/pii/S0191308515000088
Abstract
What is the purpose of business? While most agree that business minimally involves the creation of value, a blurred double image of value haunts our discussion of purpose. The image of what counts as value for a single firm is laid atop an image of what counts as value for business in general. These two images cannot match. Indeed, the resulting conceptual blurriness is a classic example of a composition fallacy. We should never mistake the properties of a part for the properties of the whole. A theory of the firm is ill-equipped to handle the many expectations we hold for business practice. As such, we seek to establish the beginnings of a theory of business, one that is both empirical and normative. Offering four central propositions about the purpose, accountability, control and success of business, we close with a consideration of several important theoretical issues and practical opportunities that await us in the years ahead.
Introduction
“Law is to justice, as medicine is to health, as business is to _____.” We have asked business students and colleagues alike to fill in the blank above. The first reaction is always one of awkward silence. People are surprised that the answer does not roll off the lips. There is always a sense in the room that we should know the answer and yet, we do not. Then the answers come. A cluster of people will focus on profit, money, and wealth. Others, more expansively, will talk about value creation and prosperity. Still others will focus on the likes of coordination, exchange, production, and innovation. Some will take a decidedly macro perspective and speak about commerce, the economy, collective well-being, and society. And finally, some will shift gears and focus not on wealth but greed, not prosperity but power, not well-being but oppression. One colleague in a recent Academy of Management symposium memorably said “our fucked-up global economy.” This exercise points out three challenges when we think about the nature of business. One is that we grapple with its purpose. The second is that we have a hard time disentangling our thinking about a single business enterprise from business more broadly, an agglomeration of those enterprises in their institutional and historical context. And finally, we know that business may not be an unalloyed good. All of these tensions are on display when we appraise our thinking about the place of business in society.
What is the purpose of business? While most agree that the purpose of business minimally involves the creation of value, today's discussion is haunted by a blurred double image of value. The image of what counts as value for a single firm is laid atop an image of what counts as value for business in general. We will argue that these two images cannot match and that the resulting blurriness is a classic example of the composition fallacy. Enumerating persistent expectations and concerns about business practice, we believe that a theory of the firm is ill-equipped to handle them. Working from a set of definitions that give precision to such everyday concepts as value, dignity and business success, our goal is to develop a theory with both normative and empirical relevance. Since business works both in society and for society (Walsh, Meyer, & Schoonhoven, 2006), the theory must include both empirical and normative elements. With this work as a foundation, we then offer four central propositions about the purpose, accountability, control, and success of business. We will close with a consideration of several questions, issues and opportunities that we are likely to face in the years ahead. While this effort is admittedly preliminary, we do hold some criteria for its success. We hope that our ideas both align with known facts about business practice and with deep, widely held intuitions about values. Beyond that, we hope that others will be moved to build upon these ideas in the coming years.
