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The basis for the current debate on the company’s purposes

conoce qué dice el actual debate de los propósitos de la empresa

Given the international debate on the company’s purpose, Chile’s Manufacturers’ Association (SOFOFA - Sociedad de Fomento Fabril) carried out the following analysis to understand how to address it at a local level.

The existing international debate is none other than the controversy between the shareholders’ supremacy in the company’s purpose or that of the stakeholders, among which the shareholders are but another element along with employees, customers, suppliers, community, and environment.

This discussion was deepened with the statement made by 180 CEOs of the main companies in the US, gathered at the Business Roundtable, held in August 2019 to update the company’s purpose.

The statement expressed commitments with customers, employees, suppliers, communities, and shareholders, which would be assumed by any company nowadays. Where is the polemic then?

The debate was not generated due to the content of these commitments, but by what is transmitted between the lines with the conceptualization of stakeholders and considering the shareholders as a part of them.

What does SOFOFA say about this?

At SOFOFA, they believe it is fundamental to address this debate in Chile. 3 years ago, they created Business Evolution (Evolucion Empresarial), a new strategic area with the purpose of driving an evolution that is only sustainable and authentic if it comes from the distinctive elements of the company’s essence.

Each institution —be it private, civil society, or State-owned— has an essence it must preserve. However, once in a while they seek to expand that essence to extents that end up diluting it. We should be more ambitious in expanding the role of each one of them through the collaboration of all of them.

In this sense, SOFOFA proposed that the company’s purpose must combine an “essence” that transcends times and an “evolution”  that adapts to them, because “a business evolution that opposes the fundamental elements of the company’s essence is not sustainable in time”.

How to understand the real purpose of the company

As the company is a space where different forces converge and has a fundamental role in making Chile a more developed, modern, and inclusive country, its purpose must be to combine an essence that transcends time and evolution that adapts to it.

Distinctive elements of a company’s essence

1. Its necessity to generate long-term value for their shareholders, integrating short-, medium-, and long-term horizons, as well as growth, profitability, and sustainability goals.

2. Its duty of transparently and responsibly accounting to shareholders or owners, assets and liabilities, concerning their strategy and capability to create long-term value.

3. Its entrepreneurial and innovative vocation to come up with solutions that satisfy the diverse needs of people and contribute to the achievement of their life projects.

4. Its ability to allocate resources cost-effectively, efficiently acknowledging the scarcity problem before the multiple challenges and needs.

5. Its commitment to the well-being and development of the people who integrate it, ensuring fair treatment and retribution, according to their talent, productivity, and effort.

6. Its proactive and systematic commitment to free-market competition, which transcends the adherence to regulatory frameworks established by the States to safeguard it.

Distinctive elements of a company’s evolution

1. A mobilizing and inspiring purpose, connected to the solutions the company offers to address the challenges the planet, society, and people face.

2. The generation of value for employees, clients, suppliers, community, and the environment through systematic management based on metrics, as imperative to make the long-term value generation sustainable for shareholders.

3. Transparency as a trademark to respond to a necessary, legitimate, and ever-increasing public scrutiny from society towards business activities.

4. The commitment with gender, profession, capability, and talent diversity, is not only fair but also necessary for decision-making in a complex, dynamic, and unpredictable environment

5. The reconversion of employees and training of young people in the capabilities and talents demanded by the Fourth Industrial Revolution.

6. The pre-competitive collaboration between companies and with the State, academia, and civil society to face public and social challenges, contributing to building a fairer society and a more sustainable planet.

What is your position?

As SOFOFA states, the positive aspect of acknowledging that the company’s purpose must be anchored in its essence, as well as proactively adapt to a world in constant evolution, is stating that the most important thing is to work sustainably in time.

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