One step back, two steps forward – purpose remains on the march. Unwavering corporate commitment is needed to make it work.

It should not need to be said, but companies are social organisms populated by human beings. Of course, they are supported by contractual relationships and, to stay alive, must make profits over time. But to conceive of them as solely networks of contracts consecrated to making the highest profit possible as soon as possible – as classical economics, some management texts and business schools do – is to make a first order capital error. The conception does not capture the essence of what constitutes a great company – what drives it forward, keeps it innovative and commands loyal customers, engaged employees and committed shareholders alike.

For better insight, we have to leapfrog that arid worldview and instead borrow from Aristotle. To paraphrase, he argued that what makes a human being happy is not material assets or even relationships, but deploying whatever gifts the gods have given him or her to make the world incrementally better. We need purpose in our lives to confer meaning and, thus driven, we act on the world.

The same is true of the company. If it is to sustain itself, it must offer those who work in it a sense of purpose, while also acknowledging another Aristotelian truth: The man or woman who does not want to share the common life and partake of society, wrote the philosopher, is either a beast or a god. The great company must create a common life and language for its stakeholders for which the precondition is to unite all those who have a stake in it around a great intrinsic purpose. Thus, they make sense of their working lives, and give their best to the company. Indeed, society – and the economy – would be stronger if it was insisted that companies can only trade in their midst if they commit to a purpose. This is not rocket science – nor as radical as it first seems.

There have been some recent missteps in the argument for and the delivery of purpose. Witness the retreat of Unilever in Britain, a once-committed advocate of purpose. The incoming CEO Hein Schumacher declared that corporate purpose can be a distraction and vowed to focus on performance. Then there was the row in 2023 at purpose-driven bank NatWest over the withdrawal of politician Nigel Farage's private account. That action led to the resignation of the CEO. But regardless of these incidents, the case for purpose is too strong and too deep-seated not to have ongoing force. Hardheadedly integrated into strategy, a commitment to purpose remains a potent animator of business – as it always has been.

The concept of the modern company was invented in Holland and England in the late 16th century. The government would grant a group of shareholders acting companiably together the right to hold a license to trade or undertake a specified activity. The shareholders would specify their purpose and mission – to build a brewery, to trade with India, to build ships – and the state would, if it agreed with the purpose, issue a license for the companiable shareholders, merchants or investors to share risk and build an enterprise. The word company has its roots in the Latin word com – meaning together – and panis – bread. The act of coming together to bake, eat and share bread was an act of companionship. A company was where investors or merchants expressed their companionship as they shared risk and reward to deliver purposed activity.

For three centuries companies incorporated in Britain, Holland, the United States and the rest of capitalist Europe around a declaration of their purpose for whose pursuit they aimed to earn a profit. Founders could raise additional capital on early stock exchanges or sell their own shares if they wanted cash to spend – but crucially the founders, and as the company grew, their children, owned the majority of voting rights and actively managed the company around the agreed purpose. New shareholders understood the arrangement. They wanted dividends and a higher share price of course, but it would be delivered through executing the purpose. Companies largely functioned as communities with relationships, with workforces mediated through guilds of trained workers and long-term apprenticeship.

The arrival of the factory and urbanization would shatter that conception. Companies were allowed to incorporate without declaring their purpose – a process pioneered in the US and soon followed in Europe – so that even larger amounts of capital could then be raised from external shareholders to build factories and machines. Founders were no longer owners and ownership passed to multiple shareholders: Management and control passed to a new class of professional managers who defined purpose either as profit maximization or their own personal objectives. Urbanization and industrialization created cruel living and working conditions; the working class was compelled to organize trade unions to improve their lot. Conceptions of the company as a social organism committed to a shared purpose were lost.

Capital and labor had become oppositional, although the degree varied from country to country. Germany, Holland and the Nordic countries (and later Japan) did better at preserving the traditions of employees as upholders of crucial skills and crafts. These countries seemed readier to make common cause with companies organized to enable founders or shareholders to own controlling blocks of shares protecting a mission or purpose. Britain and the US were at the other end of the capitalism spectrum – disparate multiple shareholders in companies whose mission was, above all, short-term profitability. The rise of free-market economics in the 1970s and 1980s gave an additional impetus: The only duty of a company was to maximize shareholder value. Despite these headwinds in both countries, there were individual companies that held out – Unilever, Cadbury, the John Lewis Partnership in Britain for example or Wells Fargo, Abbott Laboratories, Procter & Gamble in the US – managing to preserve the culture of purpose.

Jump to the 21st century. The knowledge-based "intangible economy" now accounts for more of GDP in every industrialized country than the former industrial "tangible" economy. Competitive advantage lies in the capacity to evolve business models based on the intangibles of data, intelligence and tech – and in marketing all that is wrapped up in the intangible asset of the brand. This can only be done by organizations with smart, committed and engaged workforces. Free-market economics has become discredited by its many failures, so ideological support for profit maximization as the sole corporate purpose has fallen. At the same time the decline of religiosity has left Western populations wanting answers to the question: Why? If faith and the life hereafter are not going to supply an answer, then they look for it in the here and now. They seek purpose in their lives, and they expect to find it in their workplace and how they live: in what they eat, wear and buy. Companies, if they are to succeed both with their workforces and their consumers, need to be purposeful – and that has to express itself in their employment practices and in the goods and services they produce.

It should therefore be no surprise the US's famed big seven tech companies – Amazon, Nvidia, Microsoft, Apple, Meta Platforms, Tesla and Alphabet – have all to a greater or lesser degree as they grew deployed a commitment to purpose. The original intent of their founders was, following Aristotle, to use the gifts the gods had given them to make the world better. They have answered questions challenging their purpose and also, in the main, try to curate, respect and nurture their workforces, although for some not up to the point of recognizing trade unions. A sign of the changing times was that in 2019 181 CEOs signed the US Business Roundtable statement of the corporation's purpose: to benefit all stakeholders.

This commitment is even more true of the wave of startups and scale-ups. Interview the founders of unicorns – small companies whose most recent fundraising exercise has valued the company at more than a billion dollars – and they answer the same way: A clear purpose is an indispensable component of success in the new economy. It motivates employees, provides a strategic compass, binds in and commits shareholders and confers an agility and ability to pivot as market conditions change.

One academic study of 920,000 employees using Great Place to Work data shows a strong correlation between purpose and profitability among knowledge economy firms; another that purpose-driven tech firms are "first to respond"; another that purpose serves as a corporate "attention filter" screening out good and bad opportunities; another that it promotes the culture of trust essential for high-growth firms to maintain a culture of continual innovation. It is the young, high-growth, high-tech firms who are purpose warriors.

In some earlier reports from The Purposeful Company, which I co-chair, the leaders of established companies repeat the same refrain. Purpose is the necessary precondition for outperformance. They led organizations such as top-performing insurance company Legal & General, whose purpose is to "improve the lives of our customers, build a better society for the long term and create value for our shareholders." Or the National Grid, which went through an 18-month process with all of its staff to develop its recent purpose: to "bring energy to life."  The leaders would also acknowledge how demanding it is to introduce and sustain purpose meaningfully into a long-standing company.

NatWest, after its reversals, is recommitting to a purpose that's hardwired into its strategy, and even Unilever, despite its CEO's comments, is not discarding its more than century-long culture of wanting to make the best everyday products to improve the lives of everyday folk. But the purpose torch is being more decisively and convincingly carried by those fast-growing tech companies.

For them, it is easier: They began with this intent so it is already embedded in everything from human resources practices to shareholder relationships. It is a quiet and poorly understood revolution. Many asset managers and asset owners, for example, have yet to climb aboard, although here again the trends are clear. Better-performing portfolios and more successful venture capitalists are those who take the proposition seriously, and build it into their investment decisions. Western capitalism is facing challenges and is in the throes of change. The era of purpose is entering a second and more convincing phase of growth.