Working with Purpose, Forever(hakaimagazine.com)
hakaimagazine.com
Working with Purpose, Forever
https://hakaimagazine.com/news/working-with-purpose-forever/
73 comments
Call me crazy, but the idea that a company can be formed with no purpose other than to make a profit strikes me as somewhat perverse and malign. All companies should exist for a specific purpose, and when that is achieved (or no longer needed, or no longer possible), they should be wound up.
I think you need memorandum and articles of association to incorporate a company in most places. And those documents state the purpose and type
of activity the company can engage in.
But I don't think they're typically the sort of thing that would ever be finished, unless maybe the entire industry becomes obsolete.
VCs only want profitable companies so that they can get that sweet sweet exit payday. CEOs of larger, listed corps are competing in the same markets as startups and so are forced to pursue the same or risk looking like they're failing in the market.
Ultimately everyone(customers, employees, the company, longer term investors) loses except the investors who are able to influence the company's direction and priorities.
Ultimately everyone(customers, employees, the company, longer term investors) loses except the investors who are able to influence the company's direction and priorities.
And in a world without value investing then everyone loses.
Profitable companies must be providing valuable goods and services to customers.
In the long run the customer is king.
Profitable companies must be providing valuable goods and services to customers.
In the long run the customer is king.
>In the long run the customer is king.
Traded companies don't exist in the long run, they exist to the quarter and if they 'screw up' (whatever that means) they are punished by the short sellers.
Companies can work just fine for some period of time providing nothing of value and long as they can keep investors hooked to the slot machine. I mean, this is typically how every boom/bust cycle works. The problem with boom/bust cycles is they can have society destabilizing effects if they are large enough. They key is moderating behaviors to avoid the worst outcomes.
Let's play with a silly analogy to example this. Farmers find out they can make a lot of money very quickly growing a cash crop of drugs. It only takes a few months to grow so they can harvest a few times a season. Huge numbers of farmers jump on this and achieve record profits... Then fall comes around and everybody starts asking "Where's the food at".
Traded companies don't exist in the long run, they exist to the quarter and if they 'screw up' (whatever that means) they are punished by the short sellers.
Companies can work just fine for some period of time providing nothing of value and long as they can keep investors hooked to the slot machine. I mean, this is typically how every boom/bust cycle works. The problem with boom/bust cycles is they can have society destabilizing effects if they are large enough. They key is moderating behaviors to avoid the worst outcomes.
Let's play with a silly analogy to example this. Farmers find out they can make a lot of money very quickly growing a cash crop of drugs. It only takes a few months to grow so they can harvest a few times a season. Huge numbers of farmers jump on this and achieve record profits... Then fall comes around and everybody starts asking "Where's the food at".
> VCs only want profitable companies
In the US at least this hasn't been true for a very long time. You only have to look at "YCombinator Top 100" to see multiple companies losing hundreds of millions and billions of dollars of investor money for years
In the US at least this hasn't been true for a very long time. You only have to look at "YCombinator Top 100" to see multiple companies losing hundreds of millions and billions of dollars of investor money for years
There is nothing wrong with wanting to have a share in a profitable company, the full line that you quoted fills in the rest of the problem, they want to maximize the "value" so that they can exit.
It's a pump and dump scheme with more steps.
It's a pump and dump scheme with more steps.
VCs also incur risk. The only reason you're able to use a computer today is because of VCs.
You can form companies with all kinds of specific purposes, however, if you want to attract investors (or even attract general public investment by being a publicly traded ompany), then don't be surprised if most investors want to invest in companies whose explicit purpose is making money for the investors.
Yes the system is broken
What is the broken part? There is a difference between investment and donation, should investors be forced to invest in ventures which don't explicitly promise them financial return on the investment?
The broken part is when the investors sue the company for not making maximal profit possible, ethic be damned. This is exactly where choosing to be a social purpose corporation might help.
> What is the broken part?
"most investors want to invest in companies whose explicit purpose is making money for the investors".
Rational investors should favor companies whose explicit purpose at least resembles a value proposition, which "PROFIT$!" does not.
"most investors want to invest in companies whose explicit purpose is making money for the investors".
Rational investors should favor companies whose explicit purpose at least resembles a value proposition, which "PROFIT$!" does not.
The unspoken premise here is that profit correlates to value creation, so it may be more rational to allocate resources to people who can generate value regardless of the form it takes (that's kind of Friedman's idea if you dig a layer deeper).
Rational investors should favor companies which prioritize investor interests, rather than companies which intentionally prioritize someone else's interests over investors.
>What is the broken part?
The second law of thermodynamics is always at fault
The second law of thermodynamics is always at fault
We're in the complex phase between point A of a low-entropy uniform distribution of densely packed particles with strong gravitation, and point B of a high-entropy uniform distribution of widely spaced particles with almost no gravitation.
The second law is unfortunately taking us to B eventually, but it's also responsible for the journey from A to where we are today!
A being the Big Bang and B being heat death (est. 1.7×10^106 years).
The second law is unfortunately taking us to B eventually, but it's also responsible for the journey from A to where we are today!
A being the Big Bang and B being heat death (est. 1.7×10^106 years).
The broken part is that the system overall has negative incentives. We, as humans, want to improve humans’ lives, make technological progress, provide for our needs, etc. and the current strategy of prioritizing profit over any other metric only sometimes aligns with these goals.
Come up with a different measurement for good that is equally wanted and fungible
If you actually want to dedicate your company to a purpose, it should be something like this: https://en.wikipedia.org/wiki/Social_purpose_corporation
Not to burst your bubble, but B corp certs (I know it's slightly different than SPC, but similar concept and related in your wiki.) isn't exclusive nor hard to get. [0]
[0] https://www.bbc.com/worklife/article/20240202-has-b-corp-cer...
[0] https://www.bbc.com/worklife/article/20240202-has-b-corp-cer...
Nothing is perfect, but some things are better than the others.
I’d propose a general rule that no social responsibility can survive corporate scaling. As they get larger more people enter who lack the founders’ vision and the system becomes less driven by personal whims and more driven by things that maintain the system. Profit for a corporation is borderline tautological, like homeostasis for a cell. The most you’ll get out of a larger corpo is whatever appearance of responsibility is required to maintain profits with as little action as possible.
Literally every job I've ever had I've done with no purpose other than to make a profit.
It's up to the people buying my labour to decide whether it's useful for them, we're not all the same.
It's up to the people buying my labour to decide whether it's useful for them, we're not all the same.
But if you're pivoting it seems like a waste to wind up the company and restart it with the same people and resources. A company is just a legal name with legal powers attached to it. Why add purpose to that?
Why create it in the first place?
If companies and persons are legally equivalent, I'm not sure why this is so perverse to you. There are many people in the world who do not have "purpose", their personal philosophy is that they need/want to go out and "make a profit" so that they can survive. Are they perverse?
A company isn't perfectly equivalent to a person, but does exist as a tool so people can accomplish goals. If two people have no calling, have no passions, and they start a company that expresses their personal goals of survival, what's wrong with that?
A company isn't perfectly equivalent to a person, but does exist as a tool so people can accomplish goals. If two people have no calling, have no passions, and they start a company that expresses their personal goals of survival, what's wrong with that?
I'll believe that companies are the legal equivalent to persons when Texas executes one of them.
If they aren't the legal equivalent of persons, then they can't perform necessary activities like entering into contracts.
Can you find a company that committed capitol murder? Or are they supposed to just execute one to test your theory, even if they're not guilty?
Can you find a company that committed capitol murder? Or are they supposed to just execute one to test your theory, even if they're not guilty?
>If they aren't the legal equivalent of persons, then they can't perform necessary activities like entering into contracts.
That's not true. Yes, corporate personhood exists to make things like forming a contract with or suing a corporation possible without a whole bunch of extra laws. But corporate personhood is not declaring corporations totally equivalent to natural persons. Corporations, for example, cannot vote or get married and probably can't adopt kids in any state.
That's not true. Yes, corporate personhood exists to make things like forming a contract with or suing a corporation possible without a whole bunch of extra laws. But corporate personhood is not declaring corporations totally equivalent to natural persons. Corporations, for example, cannot vote or get married and probably can't adopt kids in any state.
Not all natural persons can vote. Despite what Trump says, green card holders are disallowed such.
The trouble, I think, is that some people want to keep corporations, but to somehow keep a leash on them so that they're only weaponized against their enemies. If you truly hated corporate personhood, instead, you might start talking about how corporations shouldn't be allowed in any circumstances. You can't keep a leash on them. They're effectively immortal, enormously rich beyond even billionaires, and have agendas. Like, I'm not exaggerating... they have agendas, and can play a long game. You'll never politically neutralize them as long as they exist, and unneutralized they will just continue to chip away until they've got their legal personhood back.
The trouble, I think, is that some people want to keep corporations, but to somehow keep a leash on them so that they're only weaponized against their enemies. If you truly hated corporate personhood, instead, you might start talking about how corporations shouldn't be allowed in any circumstances. You can't keep a leash on them. They're effectively immortal, enormously rich beyond even billionaires, and have agendas. Like, I'm not exaggerating... they have agendas, and can play a long game. You'll never politically neutralize them as long as they exist, and unneutralized they will just continue to chip away until they've got their legal personhood back.
They don't have independent agendas - company owners have agendas, and they have the means and the rights to have the company implement whatever the owner's agenda is.
No, they do have independent agendas. The ownership in an S corp is spread out over many thousands of people, and they are ineffective at exerting their own agenda onto the company. Even those who believe themselves effective at doing so. I think it was Charlie Stross who first said that corporations are actual AIs whose code executes on wetware of its employees. In the execution of that AI code, new agendas are developed that were never communicated or even imagined by anyone who could reasonably be called an owner.
No; basic eligibility criteria for Sub-S require ownership of the entity be limited to 100 owners.
>Not all natural persons can vote
The ones that were created in the US over eighteen years ago and haven't been convicted of a felony can. The same is not true of corporations, because they're not legally equivalent to humans.
The ones that were created in the US over eighteen years ago and haven't been convicted of a felony can. The same is not true of corporations, because they're not legally equivalent to humans.
> ... exist as a tool so people can accomplish goals.
Precisely. Companies exist so that people can work together to accomplish goals that are difficult to accomplish separately. I'm suggesting that 'make money' should not be a sufficient goal. Companies are not a natural thing — we decide the laws that govern them.
Precisely. Companies exist so that people can work together to accomplish goals that are difficult to accomplish separately. I'm suggesting that 'make money' should not be a sufficient goal. Companies are not a natural thing — we decide the laws that govern them.
Pooling resources via a corporation is one way that those with less individual wealth have a chance to compete against the very wealthy. Why should they have to meet a higher bar than such wealthy individuals?
[deleted]
Alan Kay mentioned this recently at a UCLA talk [1] in February. It's known as the "The Friedman doctrine" after the American economist Milton Friedman.
A) Milton Friedman: Shareholder profits > All. "...the social responsibility of business is to increase its profits. This shareholder primacy approach views shareholders as the economic engine of the organization and the only group to which the firm is socially responsible. As such, the goal of the firm is to increase its profits and maximize returns to shareholders." [2]
B) Peter Drucker: Customer has primary focus. "A company's primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company's continued existence and sustainability." [3]
[1] https://www.youtube.com/watch?v=dZQ7x0-MZcI&t=5205s
[2] https://en.wikipedia.org/wiki/Friedman_doctrine
[3] https://en.wikipedia.org/wiki/Peter_Drucker
A) Milton Friedman: Shareholder profits > All. "...the social responsibility of business is to increase its profits. This shareholder primacy approach views shareholders as the economic engine of the organization and the only group to which the firm is socially responsible. As such, the goal of the firm is to increase its profits and maximize returns to shareholders." [2]
B) Peter Drucker: Customer has primary focus. "A company's primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company's continued existence and sustainability." [3]
[1] https://www.youtube.com/watch?v=dZQ7x0-MZcI&t=5205s
[2] https://en.wikipedia.org/wiki/Friedman_doctrine
[3] https://en.wikipedia.org/wiki/Peter_Drucker
Company's continued existence and sustainability isn't necessarily a terminal goal or a valuable thing; most industries aren't growing eternally but eventually reach a decline, and in certain cases the best way to handle that is to exit that industry while you can still do it effectively - milking the company dry and then shutting it down while you can get a good deal for its assets, instead of losing most of its value while slowly agonizing in a declining market to try to continue its existence until you can't and it gets shut down after bleeding all its reserves.
you can chalk it down to survivorship bias but most companies don't always end up succeeding in their original mission. if the likes of samsung and netflix stuck to their original purpose and stopped operations, we would not see the impact they've created today.
How would you incentivize an AI to "work towards" goals universally?
> A Perpetual Purpose Trust (PPT) is a legal and organizational structure that allows a company to operate with a focus on achieving their overarching goal of creating purpose or impact rather than focusing on maximizing profits alone.
Patagonia and Bosch are the well known examples of this ownership structure.
Patagonia and Bosch are the well known examples of this ownership structure.
Maybe Zeiss too?
Possibly even better, the Zeiss Foundation seems to fund wider science and teaching using the profits from the companies they own:
"Carl Zeiss AG and SCHOTT AG use the dividends to promote science and teaching in the fields of mathematics, computer science, the natural sciences and technology."
https://www.zeiss.com/corporate/en/about-zeiss/present/facts...
"Carl Zeiss AG and SCHOTT AG use the dividends to promote science and teaching in the fields of mathematics, computer science, the natural sciences and technology."
https://www.zeiss.com/corporate/en/about-zeiss/present/facts...
Interesting you find this "even better", I agree with you, though I found that to be a pretty hard sell to the crowd typically interested in purpose-owned companies, they tend to think smaller, more local, more direct impact.
As mentioned in the article. Anything to add?
How about OpenAI?
From TFA: "By that time, though, Anderson was the sole owner, and she was tired. She was looking to sell and get out of the restaurant grind."
I've been looking into this for a project of mine & most of these transitions to a purpose-based company seem to happen at the end of the road. I'm really curious to learn if anyone know about projects who start like this from inception.
I've been looking into this for a project of mine & most of these transitions to a purpose-based company seem to happen at the end of the road. I'm really curious to learn if anyone know about projects who start like this from inception.
This sounds like just a fancy version of a co-op, which has been a thing for a very long time.
A thing where? Afaict, no IT company I ever encountered in real life was structured as a co-op.
EDIT: found this list: https://github.com/hng/tech-coops
EDIT: found this list: https://github.com/hng/tech-coops
This article isn't about an IT company either. Most tech start ups are VC funded, which isn't the most compatible with a Co-op structure.
Those two organizational models are fundamentally different. The PPT is a top-down approach which sets firm company values with little room for deviation, ensuring consistency but limiting individual input (admittedly mostly executive/company officer input).
In contrast, the co-op is a bottoms-up model which empowers every employee to have a say, making the company dynamic and responsive to collective decisions.
While both might aim beyond just profits and share goals like amplifying employee voices, their execution is markedly different. For example, in an employee cooperative, major changes can happen quickly through collective decision-making. Conversely, in the PPT model, even unanimous agreement on change could be denied.
As a thought experiment, imagine what would happen in both scenarios (co-op vs PPT) if every single employee (including executives/company officers) decided they didn’t want the business to buy local fish anymore.
In contrast, the co-op is a bottoms-up model which empowers every employee to have a say, making the company dynamic and responsive to collective decisions.
While both might aim beyond just profits and share goals like amplifying employee voices, their execution is markedly different. For example, in an employee cooperative, major changes can happen quickly through collective decision-making. Conversely, in the PPT model, even unanimous agreement on change could be denied.
As a thought experiment, imagine what would happen in both scenarios (co-op vs PPT) if every single employee (including executives/company officers) decided they didn’t want the business to buy local fish anymore.
To extend the thought experiment further, imagine if, in the co-op scenario, a survey was run to collect information about whether employees still wanted the company to buy local fish...and then the employees who didn't were slowly whittled down to a minority through selective firings.
The tendency for the most ruthless in leadership to "take the wheel" by excising any from the organization who aren't on board with increased ruthlessness is a common one (see the current GOP in the US, various stories of Soviet leadership, and common trends in executive-turnover-immediately-preceding-layoffs).
The tendency for the most ruthless in leadership to "take the wheel" by excising any from the organization who aren't on board with increased ruthlessness is a common one (see the current GOP in the US, various stories of Soviet leadership, and common trends in executive-turnover-immediately-preceding-layoffs).
> The transaction was financed by a lending institution that helps support alternative ownership models
I guess this lending institution isn't altruistic, so the founder essentially moved control of their business to them.
I guess this lending institution isn't altruistic, so the founder essentially moved control of their business to them.
In theory the trust structure limits their control. They will presumably get repaid out of future profits, but won't be able to change the company mission (at least, as long as the company is able to keep paying what it owes them).
In practice, who knows how much that will hold up. I remember Etsy adopting some kind of benefit corporation status with great fanfare, only to quietly abolish it a couple of years later.
In practice, who knows how much that will hold up. I remember Etsy adopting some kind of benefit corporation status with great fanfare, only to quietly abolish it a couple of years later.
Presumably there's a business loan with a fixed contract and terms. That's a very different situation than an open ended commitment to maximally enrich shareholders... Pay your bills and the lender has nothing to say about how you run the business. Don't pay your bills, and the contract (which everyone signed) says what happens.
Simultaneously achieving two goals (supporting the local seafood industry and making a profit) is much more difficult than achieving a single goal - making a profit, so the likelihood of failure is high.
Making profit is always a goal you achieve while doing something else: selling local seafood, writing software, designing chips, mining ores, whatever. So making profits and doing something else cannot be harder than just making profits. Also, companies receive and pay back loans all the time, it's quite a common procedure. Why should it be any different here?
> Making profit is always a goal you achieve while doing something else: selling local seafood
It's selling expensive local seafood when your competition selling cheaper imported frozen stuff.
> Also, companies receive and pay back loans all the time, it's quite a common procedure. Why should it be any different here?
If there was no difference, then there would be no need in inventing alternative capital formation legal structures like PPT.
It's selling expensive local seafood when your competition selling cheaper imported frozen stuff.
> Also, companies receive and pay back loans all the time, it's quite a common procedure. Why should it be any different here?
If there was no difference, then there would be no need in inventing alternative capital formation legal structures like PPT.
They were already selling expensive seafood before, presumably with profit, why should that have changed? I imagine for a few years part or all of their profit will go to the lender while the pay back the loan. Then it's all for them again, except they're now owned by the trust instead of by the previous shareholders.
The point of having a trust is not to form capital, but to enforce a certain company governance system (as described in the legal documents with whom the trust is set up) without tying it to who happens to be the owner at any given moment.
The point of having a trust is not to form capital, but to enforce a certain company governance system (as described in the legal documents with whom the trust is set up) without tying it to who happens to be the owner at any given moment.
IMO governance/voting rights are an essential part of capital formation.
If you give somebody else governance/voting rights as part of the transaction - you might've created a security. That's why I mentioned capital formation.
There was an SEC paper which deemed "The DAO" (the first DAO) as a security.
I think most "governance tokens" also deemed as securities.
If you give somebody else governance/voting rights as part of the transaction - you might've created a security. That's why I mentioned capital formation.
There was an SEC paper which deemed "The DAO" (the first DAO) as a security.
I think most "governance tokens" also deemed as securities.
I can't know what they're doing, but it doesn't look like they're giving the lender any voting right. They're just borrowing some money and returning them in the following years. And I still can't see why this imply that the likelihood of the company failing is high.
It sounds like you don't understand how business loans work. This is not a VC play.
You must have missed the part where the business was actually successful at this.
This is just the Shirky principle on steroids.
richrichie(2)
It would be interesting to see DAO's take on the mantle of websites and other projects that have similar trajectories as Local Ocean Seafoods.
The code would be able to facilitate payments for things like hosting and basic web maintenance in perpetuity, where otherwise the site would be dead forever.
The code would be able to facilitate payments for things like hosting and basic web maintenance in perpetuity, where otherwise the site would be dead forever.