The Purpose of the Corporation

Introduction

Corporations have, for most of their history, been organised around two things: power and profit. Power, in the sense of control over resources, and profit, in the sense of returns to owners (shareholders). Traditional models of corporate governance have been built on this foundation. However, these two pillars alone do not provide a complete and adequate account of what effective governance requires. The argument advanced in this lecture is that purpose is the third and essential pillar, the absence of which results in material governance consequences.

What is the purpose of the corporation? This is a deceptively simple question. One might assume that, given the long history of corporations, a definitive answer should already exist. However, the answer continues to evolve alongside societal change, market shifts, ecological conditions, and technological advancement. The lecture examined the limitations of the dominant model of shareholder primacy, diagnosed its limitations, and introduced a framework for understanding multi-stakeholder and multi-capital value creation.

The Dominant Model of Shareholder Primacy

The shareholder primacy thesis, most prominently articulated by Milton Friedman, asserts that the primary social responsibility of business is to increase profits. Under this framework, corporations are viewed as artificial entities owned by shareholders, and corporate executives act as agents whose duty is to manage the company in accordance with shareholders’ interests. These interests are typically defined in terms of profit maximisation within the bounds of law. Friedman further argued that the use of corporate resources for broader social objectives amounts to an inappropriate diversion of shareholders’ funds, likening it to taxation without representation.

Over time, this perspective became deeply entrenched. It shaped business education, informed legal doctrines, and influenced the behaviour of capital markets. Shareholder value maximisation became the dominant metric for evaluating corporate performance, often to the exclusion of other considerations.

Problems with the Model of Shareholder Primacy

Despite its influence, the shareholder primacy model rests on an unproven empirical assumption: that maximising shareholder value necessarily produces optimal outcomes for society. Corporate failures, including Enron (2001), the collapse of Lehman Brothers (2008), and Nigeria’s banking crisis of 2009, demonstrated otherwise. Short-term, profit-driven decisions produced systemic failures that harmed shareholders, stakeholders, and the broader economy alike. Companies that externalise environmental costs shift those losses onto communities and future generations.

Secondly, the model misrepresents how value is produced. Corporations do not generate value in isolation; value is co-created through complex, interdependent relationships among employees, suppliers, customers, host communities, regulators, and the state. Treating those relationships as costs to be minimised rather than as sources of value damages them over time and reduces the returns the model was designed to protect.

Thirdly, the model conflates outcome with purpose. Profit, while essential, is an indicator of performance, not the fundamental purpose of the corporation. It signals that a company is delivering value others are willing to pay for, but it does not define why the company exists. To elevate profit to the level of purpose is to misunderstand its role within the broader governance framework.

The Four Layers of Corporate Purpose

Professor Ajogwu, in his lecture, posited that corporate purpose can be understood through four interconnected layers. The first is the stated purpose, which is the formal legal expression of a company’s objectives, typically contained in its constitutional documents. The second is the generic purpose, which reflects the underlying economic rationale for the corporation. As Professor Colin Mayer stated in his piece on ‘Principles for Purposeful Business’ (2019), a company’s purpose is to produce profitable solutions to the problems of people and planet, without profiting from producing those problems.

The third layer is the expected purpose, which represents societal expectations of responsible corporate conduct. The King Reports on Corporate Governance in South Africa best exemplifies this with the outcome-based governance approach. Outcomes-based governance, as articulated in the King Reports (most recently, the King V Report on Corporate Governance in South Africa, 2025) and developed in Mervyn King and Fabian Ajogwu’s work, Outcomes-Based Governance: The New Model for Governance (2020), asks what results governance should produce and works backwards to identify the structures required.

Organisations are required not only to apply governance principles but to demonstrate tangible outcomes in ethical, social, and financial terms. King V’s “apply, explain and provide” standard goes further: a company must demonstrate that its governance structures produced the outcomes they were designed to produce, with narrative evidence and data to support that claim. This shifts the accountability question from process to result (or outcomes).

The fourth layer is the refined purpose, which captures how corporations adapt their purpose in response to evolving environmental, social, and governance considerations. Refined purpose describes how corporations recalibrate in response to evolving societal expectations, particularly in relation to sustainability demands and ESG (Environmental, Social, and Governance) considerations. It requires authenticity. The critical question is whether that recalibration is substantive or cosmetic.

“Purpose-washing,” defined as the deployment of purpose language for reputational benefit without corresponding changes in governance or operations, degrades the concept. It becomes harder to distinguish genuine commitment from performance, and the normative pressure for real change weakens.

An authentic, refined purpose must be visible in governance structures, operational decisions, and organisational culture. An illustration is the Volkswagen scandal. Between 2008 and 2015, Volkswagen marketed its diesel vehicles on environmental credentials while concealing software that disabled emissions controls during testing. Roughly eleven million vehicles worldwide were fitted with these defeat devices. The scandal that followed cost the company over US$38 billion in fines, penalties, and settlements across multiple jurisdictions, and wiped more than €32 billion from its share value within a week of the fraud being exposed.

The four layers of corporate purpose must be considered collectively. A corporation’s purpose cannot be fully understood by reference to any single layer alone.

The Board as the Locus of Purpose

The board serves as the central custodian of corporate purpose. That is, it holds primary responsibility for defining and maintaining corporate purpose. Principle 3 of King V sets out the scope: the board must direct the organisation’s purpose-setting, apply integrated thinking across all six capitals, and oversee the continuous assessment of the corporation’s negative impacts on the economic, social, and environmental context.

This is why the board is designated as a “Multi-Capital Steward.” The multi-capital stewardship model requires boards to govern across six capitals: financial, manufactured, intellectual, human, social and relationship, and natural. That scope requires cognitive diversity on the board itself. Directors with working knowledge of ecological systems, human capital, and long-term non-financial value creation are crucial. 

The Ajogwu Framework for Governance (the AFG Model) positions ethics as the foundational multiplier across all governance components. This relationship is expressed through the governance equation:

S = E × (BG + CC + PDG + OBCG + RL + AC)

Where S represents Sustainability, E represents Ethics, BG is Behavioural Governance, CC is Conscious Capitalism, PDG is Purpose-Driven Governance, OBCG is Outcome-Based Corporate Governance, RL is Rule of Law, and AC is Anti-Corruption.

The implication of this formulation is significant. Ethics operates as a multiplier across all governance components. Where ethics is absent (or equals zero), the entire governance framework collapses, regardless of the strength of the other components. An ethical foundation is indispensable to sustainable corporate governance.

The Purpose Matrix

The purpose matrix, an original tool introduced in the lecture, has two dimensions. The first maps stakeholders: shareholders, people (employees, customers, suppliers, communities), and the planet. The second maps forms of capital: financial, social, and natural. Crossing the two produces a 3×3 grid in which each cell represents a specific value relationship.

Within this framework, corporate purpose is further translated into a measurable construct through the concept of the Purpose Formula, expressed as:

P = (S × F) + (Pp × Sm) + (Pl × N)

Where P represents Total Purpose Value, S is Shareholder Value, F is the Fairness Factor, Pp represents People Value, Sm is the Social Multiplier, Pl represents Planet Value, and N is the Natural Multiplier.

This formulation captures the essence of multi-capital value creation by integrating financial performance with social and environmental impact. It ensures that corporate success is not assessed solely on profitability, but on the extent to which value is created equitably and sustainably across all stakeholder groups.

Conclusion

Purpose is the North Star. A coherent account of corporate purpose requires a commitment to sustainable, multi-generational value creation. It must be the guiding principle for corporate strategy and operations, and a consistent reference point for decision-making, resource allocation, and organisational behaviour.

The question of corporate purpose determines who benefits from corporate activity and who bears its cost. Directors, investors, regulators, and citizens each have a stake in how that question is answered.

As Professor Fabian Ajogwu, OFR, SAN, proposes in The Purpose of the Corporation (2026):

“The purpose of the corporation is to create sustainable, multi-generational value by producing profitable solutions to the problems of people and the planet, while respecting the dignity of all stakeholders and contributing to the common good.”