What has Religion got to do with “Corporate Purpose”? 

Working with Professor Irene-Marie Esser, Dr Catriona Cannon has drawn up a proposal for a new research project that will look at what the secular, for-profit sector can learn from faith organisations on implementing “corporate purpose” (a higher purpose beyond profit) into their operations. These are their preliminary considerations.

Should the purpose of business be solely to maximise profits? Profit maximisation theory – the idea that achievement of profits for shareholders ought to be the sole purpose of business – was vociferously defended by international economist Milton Friedman who, writing in 1970, resisted the trend at the time towards what is now known in the management and ethics field as “corporate social responsibility” (Friedman, 1970).

Despite Friedman’s protestations, the corporate social responsibility practices of companies have developed at a fast pace over the last fifty years, often pursued enthusiastically by business executives – whether for strategic, reputational or ethical reasons. Further, the adoption of environmental, social and governance strategies is now commonplace in the business world, with company impact on the environment and society now routinely considered in the decision-making of potential investors.

In recent years, however, the calls for business to have a “higher purpose” have grown louder. Business, it has been said, should ‘not profit from creating problems’ (British Academy, 2018). Responsibility for responding to the needs of people and the environment – tackling poverty, inequality, climate change, social exclusion, human rights violations and so on – ought not reside solely with the State: business, too, must take responsibility.

The “higher purpose” of business, so described, has been characterised in the literature as “corporate purpose”. Described as a “management concept” (Fleischer, 2021), it connotes the idea of purposeful business and has generated much interest in the management, ethics, human resources, marketing and legal sectors. Engagement in corporate social responsibility activity or the promotion of environmental, social and governance factors is no longer considered sufficient to effect positive and lasting change. Rather, supported by law and policy, “purposeful business” ought to be the conscience of the company, guiding it in its internal and external relations towards value creation for the wider community and environment.

What has all this got to do with religion? For a start, there are close ties between religion, business and social responsibility. Indeed, principles of ethical business practice derived from Christianity, Judaism and Islam – particularly justice, mutual respect, stewardship and honesty – have been incorporated into a published code of ethics on international business: An Interfaith Declaration: A Code of Ethics on International Business for Christians, Muslims and Jews. Churches across the world have historically been important in the development of ethical investment by, for example, establishing ethical investment funds and assisting to set up organisations to help these funds (Kreander et al, 2004). The Islamic finance industry, meanwhile, which provides financial services in accordance with Shari’a law, continues to grow. Importantly, studies have evidenced the influence of religion on company behaviour: companies in areas of high religiosity have been found to display more risk-averse practices (Hilary et al, 2009). Another study has identified a positive link between corporate social responsibility activity and some religions, though a negative link with others (Rodríguez-Domínguez and Gallego-Alvarez, 2021).

But can religion add anything to the present debate on “corporate purpose”? Faith-based organisations across the world have a long history of value creation for people and communities. Active today in many sectors, including housing, social care, health, youth, family and education, faith-based organisations comprise an important provider of services in the community. Mostly operating on a not-for-profit basis, they actively pursue a purpose which seeks to promote societal well-being. Arguably the quintessential ‘purposeful’ enterprise, faith-based organisations are likely to be highly experienced in navigating many of the considerations now facing business in the secular, for-profit sector.

Rooted in theological principles, organisational purpose in faith-based organisations is, by all accounts, the driving force behind their activities. If businesses in the secular, for-profit sector desire to integrate “corporate purpose” into their organisations, there is, therefore, surely knowledge to be gleaned from a closer look at the workings of faith-based organisations. Who determines organisational purpose? Is it important to define purpose in governing documentation and policies? How does purpose infiltrate relations, both internal and external? How does commitment to purpose help advance positive outcomes for people and the environment? How is a commitment to purpose monitored and regulated? What tensions or conflicts can arise in pursuit of purpose and how are these handled? Answers to these questions could helpfully inform considerations of business executives and management consultants in the UK and further afield as they engage with the current movement towards more purposeful business.

Of course, faith-based organisations set up on a not-for-profit basis are free to pursue their purposeful activities without fear of being held to account by shareholders with an expectation of receiving maximum returns on their investments. To this extent, the experience of faith-based organisations might be said to hold limited relevance for business organisations in the secular, for-profit sector who are questioning how they can and should reconcile the pursuit of purpose with shareholder interests. The corporate fiduciary duty, embedded in law in the UK, requires the boards of directors of UK companies, whilst having regard to various stakeholder interests, to act in the way they consider, in good faith, is most likely to promote the success of the company for the benefit of the members as a whole (s172 Companies Act 2006). Understood to promote what is known as the “enlightened shareholder value” theory, this corporate fiduciary duty precludes directors from acting in the interests of stakeholders – employees, customers, community, suppliers, environment etc – if the action damages the long-term profit interests of its shareholders.

Still, decision-making in faith-based organisations is unlikely to be completely devoid of the challenges thrown up by conflicting interests. Though not shareholders in the sense of having an entitlement to dividends, donors “invest” in faith-based organisations through their giving, and it is not difficult to imagine tensions in decision-making over how to spend donations when various interests – employees, service-users, donors, affiliated religious organisations etc. – are at play and in tension. Does the active pursuit of purpose in an organisation help navigate these conflicts? The experiences of faith-based organisations could shed light on the answer to this question.

There are, moreover, organisations with a religious influence already trailblazing the ‘corporate purpose’ agenda in the for-profit sector. Earlier this year, the Jubilee Centre, a Christian charity, published its research report, 21st Century Pioneers: Faith, Business and Social Enterprise. The report was the output of research carried out by the organisation into 42 commercial businesses and social enterprises in the UK with a Christian founder, leader or other significant influence. Describing the subject organisations as ‘purpose-driven businesses and social enterprises’, the organisation carried out qualitative interviews with their founders or leaders to identify ways in which the organisations participated in areas of ethical practice defined by seven Biblical principles which the Centre considered ought to guide business in the delivery of “greater economic justice”, “strong society” and “environmental flourishing”. Finding examples of good practice in each area (“purposeful enterprise”, “dignified work”, “fair pay”, “relational capital”, “rooted communities”, “fair taxation” and “environmental stewardship”), the report applauded the contribution of Christians to the positive development of purpose-driven business and enterprise in the UK.

Whilst faith-inspired commercial undertakings are more common in the USA, those in the UK could offer useful insights on how a corporate fiduciary duty which prioritises long-term shareholder interests can (if it does) interact with the pursuit of purposeful business.

As the secular business world grapples to adjust to the “corporate purpose” phenomenon, the experiences of faith organisations in both the not-for-profit and profit sectors ought to be considered instructive. With direct experience of the challenges and opportunities presented by UK law and policy for purposeful business, they offer valuable insights into what is uncharted territory for many in today’s marketplace. Not yet recognised as relevant to this debate, religion and faith-based or faith-inspired organisations surely have something meaningful to contribute.

References

  • British Academy (2021) Policy and Practice for Purposeful Business: The Final Report of the Future of the Corporation Programme, London: British Academy.
  • Fleischer H (2021) ‘Corporate Purpose: A Management Purpose and its Implications for Company Law’ ECGI Working Paper Series in Law.  Working Paper No: 561/2021.
  • Friedman M (1970) ‘A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits’ New York Times, 13 September 1970.
  • Hilary G and Hui KW (2009) Does religion matter in corporate decision making in America? Journal of Financial Economics 93(3): 455-473.
  • Kreander N, McPhail K and Molyneux D (2004) God’s fund managers: A critical study of stock market investment practices of the Church of England and UK Methodists. Accounting, Auditing and Accountability Journal 17(3): 408-441.
  • Rodríguez-Domínguez L and Gallego-Alvarez I (2021) Investigating the Impact of Different Religions on Corporate Social Responsibility Practices: A Cross-National Evidence. Cross-Cultural Research 55 (5): 497–524.
  • The Jubilee Centre (2022) 21st Century Pioneers: Faith, Enterprise and Social Purpose, Research Report, The Jubilee Centre.

Cite this article as: Catriona Cannon and Irene-Marie Esser, “What has Religion got to do with ‘Corporate Purpose”? ” in Law & Religion UK, 19 December 2022.

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The authors have arranged an event at Glasgow University on 7 February 2023 on the theme, ‘Corporate Law, Religion and Social Responsibility’. There are seven confirmed speakers and it is anticipated that there will be around 25 delegates from civil society, business, academic and practitioner backgrounds. The event will be based around a number of themes, including the theological foundations of social responsibility; faith and director decision-making; religious values and socially responsible investing; corporate purpose and the religious organisation; and corporate responsibility for religion as a human right. 

 

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