Reimagining Capitalism: The Role of Businesses

It’s essential to reject the outdated notion that businesses must choose between purpose and profit.

This is part four of a new series called “Reimagining Capitalism.”

As we continue our “Reimagining Capitalism” series, today we’ll be diving into the true epicenter: the role businesses must play in a reimagined style of capitalism. Let's start by taking a brief look at how the role and expectations of businesses in society have evolved over time.

Purpose of Business

In a previous blog, we explored the historical roots of business and how far we’ve strayed from its original purpose. Hundreds of years ago, businesses were established with a clear mandate to serve the public good. In fact, for corporations to receive a charter to operate, they had to demonstrate that their operations would benefit society. It was a basic assumption that businesses existed to uplift communities, provide valuable services, and contribute to societal well-being.

But over time, this foundational purpose of business began to erode. Several factors contributed to this, but two critical moments in time help highlight the shifting of business from a model that serves the public interest to one centered around profit maximization. In hindsight, these were watershed moments that determined the direction and role of business thereafter. 

First, in 1970, economist Milton Friedman famously wrote that “the social responsibility of business is to increase its profits.” This statement cemented the path forward the idea of shareholder primacy and the belief that businesses had minimal obligation to society beyond generating returns for their investors. Friedman's doctrine became the gospel of corporate America and has influenced decades of business strategy, where gains were only modestly shared with employees, communities, or environmental initiatives. Instead, profits have largely concentrated toward shareholders and well-compensated executives, further distancing businesses from their original purpose.

The second key crossroads defining the role of business in society actually happened 50 years earlier: the Dodge Brothers v. Ford Motor Co. case of 1919. In this legal case, the Michigan Supreme Court ruled that a corporation's primary duty is to maximize profits for shareholders. Henry Ford had aimed to reinvest some of his company’s profits into employee wages and customer benefits, believing that the purpose of his business extended beyond generating profit alone. Ford argued that higher wages and lower-priced cars would ultimately benefit society, foster loyalty among workers, and drive affordability for consumers, helping him maintain Ford’s competitive edge. However, the court ruled against him, stating that the interests of shareholders should take precedence over other stakeholders. This ruling cemented shareholder primacy in corporate governance, establishing a precedent where maximizing shareholder returns became the main corporate obligation—a standard that still shapes corporate responsibility today, often placing social and environmental concerns as secondary considerations. Per our previous blog, this is also a great example of the role an investor (here, the Dodge brothers) can play in dictating demands to a company (sometimes that influence is positive, sometimes it’s not…).

These two moments profoundly shifted the purpose of business. As we move forward in reimagining capitalism, it's essential to return to that initial mission: serving the public good, and thinking more broadly than profit maximization solely for shareholder benefit. The good news is that despite the enduring influence of these inflection points, there is a growing movement to challenge this outdated mindset. Consumers, employees, and investors are increasingly demanding that corporations carry greater responsibility—not just to shareholders but to the environment, communities, and society at large.

Patagonia: A Model for Reimagined Capitalism

Before diving into practical steps businesses can take to embrace a more regenerative capitalism, it’s worth highlighting a company that has already made significant strides in this direction and one I have a lot of admiration for: Patagonia. The company is a beacon of how business can be both profitable and purposeful, demonstrating that profit and sustainability don’t have to be mutually exclusive.

While many companies pay lip service to sustainability and social responsibility, Patagonia has built its entire business around these principles. They understand that shareholder economics is a double-edged sword—it has driven growth and technological advancement but has also resulted in widespread environmental degradation. Patagonia Chair Charles Conn characterized the state of corporate America bluntly: “We have subsidized buoyant shareholder returns by fraying the fabric of our societies and using up the planet we live on. We all know this is happening—the world is literally on fire.”

Patagonia goes beyond the empty pledges that so many corporations make, and their actions speak louder than words. They manage their environmental footprint rigorously, tracking and reducing their water usage, carbon emissions, and chemical consumption. Their commitment to sustainable business practices extends to their product materials, using recycled fabrics and pioneering innovations in regenerative organic agriculture. What’s more, they’ve literally and explicitly asked their customers to purchase their products less, and instead repair and reuse their clothing in order to reduce waste and pollution.

Patagonia never shies away from its climate activism. They’ve demonstrated that corporations can take a stance on critical social and environmental issues without alienating consumers. Moreover, Patagonia practices radical transparency, openly reporting their progress (and sometimes their setbacks) in meeting their sustainability goals.

And they use a unique business model to accomplish all of this. Patagonia exemplifies the advantages of operating privately as opposed to being a public company, allowing them to prioritize long-term impact across its entire supply chain rather than focusing on short-term gains. Additionally, in 2022, founder Yvon Chouinard redefined corporate ownership by transitioning Patagonia to a purpose trust, a move that reimagines who benefits from corporate success and aligns business goals with purpose. As they put it, “Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth.”

The company's success, with revenue around $1.5 billion annually, proves that it is possible to run a viable and profitable business while staying true to a mission of environmental stewardship and social impact. Patagonia is showing the world that businesses in the 21st century economy don’t have to choose between profit and purpose—they can achieve both. In this way, Patagonia serves as a model for the reimagined capitalism we need to see.

Practical Tips for Businesses: How to Adopt a Regenerative Approach

So how can other businesses follow suit and adopt a more sustainable, regenerative form of capitalism? Here are some practical steps companies can take to balance profit with broader societal responsibilities. Note that this advice is tailored primarily for established companies. While startups have the agility to embed sustainability into their core from the outset — integrating more generative materials, eco-friendly facility design, ethical sourcing, and responsible supply chains—long-standing companies face a more complex challenge. For them, the shift to sustainable practices is often more gradual, requiring incremental but material changes across established systems. 

1. Shift from Shareholder Primacy to a More Holistic Stakeholder Worldview

Much has been said about the concept of “stakeholder capitalism,” but too often it’s been reduced to a buzzword. In reality, too many companies continue to prioritize their shareholders above all else, despite public proclamations about their concern for employees, communities, or the environment. In a reimagined capitalism, businesses must genuinely adopt a stakeholder approach, treating the planet and its resources as critical stakeholders. This means that business decisions should factor in the impact on the environment, local communities, and employees—not just how they affect the bottom line.

2. Challenge the Profit-First Mentality

The widespread belief that sustainability is a cost rather than a value driver continues to hinder progress. However, as thought leaders like Andrew Winston have argued, sustainability can actually create long-term business value. Winston emphasizes that executives often struggle to see this because they place profit maximization as the top priority, with sustainability framed as an expense as opposed to a valuable investment.

Raz Godelnik explains that companies must shift their mental model from “What’s the business case for sustainability?” to instead ask, “What is the sustainable case for business?” Profit generation is still important, but it can no longer come at the expense of long-term sustainability. This shift in thinking will allow companies to view sustainability as an investment that ensures their future viability, rather than as a cost to be minimized.

3. Restructure Corporate Governance

Corporate governance structures must also evolve if we are to see a shift toward a more regenerative capitalism. Many companies tie executive compensation and performance metrics to short-term financial performance, which reinforces the profit-first mentality. This emphasis on quarterly returns over long-term value creation makes it difficult for companies to prioritize sustainability and social responsibility. Instead, governance models need to be restructured to incentivize long-term decision-making that considers the impact on people and the planet.

Additionally, integrating environmental and social metrics into company accounting (which we talked about earlier in the series), such as those proposed by Total Cost Accounting (TCA) or External Rate of Return (ERR), can help businesses more accurately reflect their impact. By doing so, companies can better understand—and demonstrate—the true cost and value of their operations.

Purpose and Profit are Not Mutually Exclusive

As we reimagine capitalism, it’s essential to reject the outdated notion that businesses must choose between purpose and profit. Purpose-driven companies like Patagonia are succeeding not in spite of their mission but because of it. Consumers, employees, and investors are increasingly demanding companies that operate with integrity and responsibility—those that consider their environmental, social, and economic impacts.

Milton Friedman’s view of capitalism, which centered on shareholder primacy, no longer serves the world we live in today. The businesses that will thrive in the future are those that embrace regenerative principles, contribute to the public good, and recognize that their long-term success is inextricably tied to the health of the planet and society. By restructuring how businesses operate, we can create a more restorative form of capitalism that works for both people and the planet.

Stay tuned for the final (at least for now) part of our “Reimagining Capitalism” series on the role of Consumers, and be sure to follow us on LinkedIn for all the latest company updates and insights!