Written by John Carbrey.
If you are building a home, you hire a contractor, not a landscaper. If you are adding a retaining wall, then you hire a landscaper — but not a software developer. We know that a business’s purpose is to solve certain problems or meet specific needs and make a profit while doing so.
But beyond a company serving its purpose lies the idea of having a purpose and allowing that purpose to drive a company to expand beyond its legal boundaries. The teachers of the Economics of Mutuality declare that:
…most successful organizations are those that choose to be driven by a sense of purpose that transcends self-interest — a sense of purpose that seeks to develop reciprocally beneficial obligations amongst a wide variety of relevant stakeholders — a sense of purpose that can transform business performance for the benefit of people, planet and profit (in that order) — in other words, mutuality.
The idea of knowing our purpose not solely to maximize profit but to engage and include other stakeholders with whom our enterprise interacts is an idea that has taken root in my mind. It inspires me to consider expanding the coverage of my business ecosystem and encouraging others to do the same.
Basic boundaries and exceeding them
Each company has a set of employees, executives, boards, and shareholders that exist within the legal boundary of the company. These people work together to fulfill the company’s purpose. Successful companies also account for and invest in non-financial capital in the forms of human, social, and natural. These investments produce mutually beneficial outcomes within and outside of a company’s boundaries. I discussed these in a previous article.
But a legal boundary is not the only boundary for an enterprise to consider because the business ecosystem extends beyond just its legal components.
Outside of a firm’s legal boundary is its purpose boundary. This boundary includes relevant stakeholders with whom it is essential to build relationships of trust. Stakeholders within a company’s purpose boundary may even include those who cannot repay the firm or contribute directly to its profitability, but they are part of what a business ecosystem includes.
As an example, a company founder I know will offer to pay for an employee’s house cleaning during a pressured deadline. He has contractual agreements with the employee, but realizing the impact that seasons of long work hours have on the family, he’s made an intentional choice to consider that the family unit is part of his business’s ecosystem. This type of culture building is an investment in human capital that helps reduce a company’s negative externality on family members — an externality that is within the purpose boundary of the company, as illustrated below:
Purpose boundaries
The researchers behind the Economics of Mutuality paradigm state it this way:
“The corporate ecosystem must be enlarged to go beyond the legal boundaries of the firm and be aligned with the effective boundaries of the firm (as determined by its purpose) — to encompass all relevant stakeholders; in a word: mutuality” (emphasis mine; and for the purposes of this article I refer to an “effective” boundary as a “purpose” boundary).
Two key words from this statement are “purpose” and “relevant stakeholders.” A company with a clearly defined purpose can identify who and what is within this purpose sphere — the relevant stakeholders. It isn’t reasonable to expect a firm to provide unlimited consideration to all relevant stakeholders, but there are two approaches to allow a more full inclusion of stakeholders: first, calibrating tradeoffs between stakeholders across social, financial, human, and natural capital resources; and, second, business model innovation, which can reduce or eliminate such tradeoffs.
There are practical limits on the business ecosystem fully reaching the purpose boundary and I am inviting leaders to clearly know their purpose and make intentional decisions about what relevant stakeholders exist within their ecosystem. I hope to have more conversations like the recent conversation I had with a university dean, who said, “I have the budget to cover the legal boundary, and as an educator I’m called to go to the purpose boundary — that is why I became an educator. But as an individual I feel called to solve problems beyond that in the global sphere. Ultimately, how we lead across these boundaries is the true measure of each of us as individuals — isn’t it?”
Knowing your purpose
When you know your firm’s DNA, what it was built for, you can more easily consider and engage stakeholders inside your purpose boundary. For example, we have co-founded a company in the healthcare space called Medibanx. Medibanx unlocks critical health data needed to create the next generation of rare disease therapies. Unlike other current players in the healthcare data space who collect and sell data without a patient’s knowledge and permission, Medibanx believes a patient should have control over their own medical record and even receive compensation for their data that contributes to medical research. Medibanx’ boundaries include the source of the data — the patients — as compensated participants in its business ecosystem. Because Medibanx clearly knows its purpose, it can engage the specific set of clients within its ecosystem and consider mutually beneficial outcomes. See below:
What follows is an example of a company which neglects participants outside its legal boundaries, but within its business ecosystem.
Facebook has been challenged regarding its responsibility to the people who moderate the platform’s content. These moderators, who spend hours reviewing content of murders, sexual abuse, and other horrors in order to keep it off of Facebook’s platform, often suffer mental health trauma. Facebook pays them as contractors, and their compensation is not comparable to Facebook’s employees. In addition, their benefits do not include much-needed counseling. Facebook has determined that the boundaries of their “firm” exclude these contractors, and so they do not accept responsibility for how the moderator’s job affects their well being. Mental health as an externality is not considered part of the compensation package, seen in the image below:
An alternate approach for Facebook would be to ensure that Facebook’s contracts with their vendors require that they provide mental health support for affected workers, effectively pricing that negative externality into their contracts.
Beyond the purpose boundary
So what’s beyond the purpose sphere as delineated by the purpose boundary? The myriad of ongoing, unsolvable, entrenched problems of people and the planet. We can’t each solve all of them, but perhaps we can expand our boundaries to include some contribution to people and the planet, beyond making money for our shareholders.
A firm must be true to its purpose and identify missions for them that are positively world-changing AND those that are equally valuable that they won’t engage in.
An ancient commentary on a portion of Hebrew wisdom states, “Do justly now. Love mercy, now. Walk humbly, now. You are not obligated to complete the work, but neither are you free to abandon it.”
No single company is expected to or capable of meeting every need of every client, patient, or customer. It’s okay to know our limits and not take responsibility for every problem. It’s not only okay, it’s essential to know our limits.
The limit of our purpose boundary frees us up to know more precisely who we need to engage. But knowing our boundaries and doing what is good to do are two different things. Let’s become known as founders and entrepreneurs who go beyond the minimum of the legal boundaries and seek to impact those in our specific and unique ecosystem.
If you’re interested in co-creating mutual technology companies driven by purpose we’d love to speak with you.
To read the next article in this series, click here.