There is rising interest in purposeful organizing, but how do for-profit businesses pursue social purpose? A new study examines how for-profit businesses enact social purpose to advance community inclusion in highly unequal societies.

Ever more businesses are espousing an organizational purpose that assumes an explicit ethical position on important societal issues. This kind of social purpose enables businesses to link their core value creation processes with wider societal responsibilities, such as alleviating poverty or redressing systemic inequality. Examples include banks and microfinance institutions that target women entrepreneurs; health and educational centers that tailor their pricing and service delivery to the poor; and, agribusiness firms that integrate smallholder farmers in their value chains.

But how do for-profit businesses pursue social purpose to mitigate inequality? Our new publication at the Journal of Management Studies examined the mechanisms through which for-profit businesses enact social purpose to advance community inclusion in highly unequal societies. We integrate insights from multiple theoretical traditions to develop a framework of community inclusion that shows how purposeful businesses generate civic wealth – or economic and social benefits – to disadvantaged community groups.

We adopt a broad conception of social purpose, defining it as a set of prosocial values and beliefs that are embodied in an organization’s formal and informal structures, practices, and routines. Our operationalization of social purpose captures the cognitive and affective attitudes of managers, reflecting attributes that are generally referred to as empathy and moral judgment. These two attributes have been found to be relevant in regulating the intentions of individuals to start social ventures.

In terms of mechanisms, we differentiate between commercial practices that recast existent business-centric processes towards creating value for marginalized groups and collaborative practices that aim to devise novel, participatory processes for engaging marginalized groups. Examples of commercial inclusion are social innovations that target low-income consumers, and initiatives that integrate smallholder farmers in agribusiness value chains to enhance their productivity and market access. Examples of collaborative inclusion are partnerships between businesses and universities to create training programs that develop the skills and capabilities of marginalized actors.

The context of our research is Sub-Saharan Africa, a continent that is home to seven of the world’s most unequal countries, including the two most unequal ones – South Africa and Namibia. Inequality in Africa significantly diverges across different social segments, reflecting historically unequal power relations that lead to uneven access to resources and opportunities between men and women or between ethnic and religious groups. Through a combination of fieldwork and online surveys, we collected primary data from a sample of 430 small businesses in seven African countries that partake in different community inclusion practices. We also organized five research workshops to validate our data and collect additional qualitative evidence that enriched our analysis.

Social purpose creates civic wealth for marginalized actors

Cross-sectional regression analysis confirms that the effect of social purpose on civic wealth is partially mediated by commercial and collaborative inclusionary practices. The study hence contributes to the literature by documenting the role of social purpose in motivating the pursuit of community-level goals. The analysis also shows that businesses are more likely to extend the scope of their inclusion through collaborative practices when they receive favorable external validation and when institutional voids are low.

This reflects the riskiness of collaborative practices vis-à-vis commercial practices. Reaching out to “unusual allies” to advance community inclusion could expose the firm to various forms of risk, including reputational risk in case of conflicts and exit risk in the event of partnership failure. The need to mitigate these risks makes collaborative inclusion contingent on the presence of certain favorable conditions. These are, according to our results, lower institutional voids that reduce partnership risks by improving coordination and favorable external validation (in the forms of awards and prizes) that help legitimize community inclusion.

Implications for the purpose of the firm

These results run counter to the critique that the pursuit of social purpose could complicate organizational goals and befuddle managerial decision making, setting the firm for failure. The results suggest that prosocial values that are widely shared among organizational actors can provide a coherent, integrative meaning system that guides business engagement with societal issues. Social purpose rooted in normative values and beliefs can transform individuals and groups from mere technical units to organized actors with a shared commitment to particular means-ends, including those that advance community interests.

We do recognize, however, that purpose is embodied within a given social structure and reciprocally negotiated and enacted by participating actors. Our analysis is primarily focused on small businesses that have a strong local embeddedness and nurture reciprocal relationships with their communities. The private firms we study are also not susceptible to the agency problems that are the cornerstone of the Freidman doctrine, which contends that the sole purpose of business is making profits. These results hence might not apply to larger corporations that are administered by professional managers and characterized by dispersed stakeholders with competing interests. Future research can explore the conditions that align organizational action with wider societal responsibilities in larger corporations.