The Economics of Higher Purpose

1. Conventional Assumptions Blind Us to Higher Purpose

When managers accept the empirically sound assumptions of economics and related disciplines that employees are effort averse and work hard only if sufficiently monitored and compensated, these gloomy assumptions become self-fulfilling prophecies, and the workforce tends to underperform.

Self-fulfilling prophecies. The conventional economic view assumes people are inherently self-interested and avoid effort, leading to management practices that reinforce these behaviors. This creates a cycle of distrust and underperformance, where control systems stifle engagement and innovation. Managers often design systems based on these negative assumptions, inadvertently bringing forth the very behaviors they expect.

Beyond transactions. To break this cycle, leaders must shift from a transaction-oriented mindset focused on constraints to a purpose-motivated mindset focused on possibilities. This involves clarifying a passionate, higher purpose that centers around contribution, moving beyond mere economic exchange. The key is to recognize that employees are not just economic agents but individuals capable of being inspired by a cause larger than themselves.

The power of exceptions. Instead of focusing on average behavior, leaders should seek out exceptions—those employees who demonstrate excellence and a strong sense of purpose. By examining what drives these individuals, organizations can identify and cultivate a higher purpose that resonates with their workforce. This approach transforms the implicit contract between employers and employees, fostering collaboration and exceeding expectations.

2. Higher Purpose Transforms Individuals and Organizations

When people embrace higher purpose, they begin to transcend convention, access new capacity, and behave in seemingly counterintuitive ways.

Individual transformation. Embracing a higher purpose shifts individuals from reactive problem-solving to proactive value creation. Work becomes more than just an economic exchange; it becomes a source of pleasure and self-actualization. This shift leads to increased self-respect, respect for others, and a focus on intrinsic motivators like meaning, integrity, and learning.

Organizational benefits. A higher purpose binds people together, creating a "moral glue" that inspires employees to act in the collective interest. This reduces self-interested behavior, promotes ethical conduct, and fosters a culture of cooperation. Moreover, a clear higher purpose clarifies the organization's intent to external stakeholders, reducing conflicts and enhancing its reputation.

Scientific validation. Research supports the claim that having a life purpose leads to numerous benefits, including increased longevity, reduced risk of heart disease, and improved mental health. Similarly, organizations with a clear higher purpose experience increased employee satisfaction, engagement, and retention. The key is to weave this purpose into the fabric of the business model, ensuring it's not just a charitable cause but an integral part of the company's strategy.

3. Imagination and Inclusion Transcend Conventional Thinking

A leader must be able to simultaneously maintain and destroy culture.

Limitations of convention. The conventional economic mindset, while rigorous and analytical, can limit a leader's ability to inspire change and tap into the full potential of an organization. This mindset often leads to a focus on control, hierarchy, and self-interest, hindering collaboration and innovation. Leaders need to transcend this narrow perspective and embrace a more inclusive mindset that values learning, growth, and contribution.

The power of imagination. Leaders must be able to imagine possibilities beyond the current reality, integrating images of a desired future with the constraints of the present. This requires a shift from a culture of knowing to a culture of learning, where leaders are not expected to have all the answers but are instead facilitators of collective intelligence. This involves recognizing that influence flows in every direction and that everyone contributes to shaping the organization's culture.

The inclusive mindset. An inclusive mindset acknowledges the validity of conventional assumptions while also recognizing the potential for people to be motivated by a higher purpose. This "both/and" thinking allows leaders to appreciate constraints without losing sight of possibilities, fostering a culture where people flourish and exceed expectations. The leader must be able to speak both the language of transactional problem solving and the contributive language of higher purpose.

4. The Principal-Agent Model: Contracts vs. Covenants

A moral hazard arises when an individual chooses self-interest over the collective interest and acts in a manner that violates the spirit of the contractual relationship, although not necessarily the legal aspects of the contract itself.

The limitations of contracts. The principal-agent model, a cornerstone of microeconomics, describes the relationship between employers and employees as a transactional exchange driven by self-interest. While this model provides valuable insights into designing incentive contracts, it also highlights the inherent inefficiencies and waste that arise from moral hazard—the tendency for individuals to prioritize their own interests over the collective good. This model, while empirically sound, can become a self-fulfilling prophecy, limiting the potential for exceptional performance.

Beyond self-interest. To transcend the limitations of the principal-agent model, leaders must foster a sense of covenant—a mutual promise based on respect, trust, and shared purpose. This involves creating a culture where employees feel a sense of belonging and collective responsibility, motivating them to act in the best interests of the organization even without explicit contractual incentives. The leader must react not from self-interest but from care for the common good.

The covenant of leadership. The covenant of leadership is a sacred agreement between the leader and their people, built on trust, transparency, and a shared commitment to a higher purpose. This covenant inspires employees to transcend the conventional mentality of financial exchange and become intrinsically motivated, leading to greater collaboration, innovation, and overall organizational success. The leader is promising to do their best to find the way, and the people expect the leader to see the way.

5. An Economic Theory of Higher Purpose

The adoption of an authentic higher purpose creates a bond between employees and the purpose and motivates them to work harder, be more entrepreneurial, and subordinate their self-interest for the common good, all in order to help the organization serve its higher purpose.

The power of authenticity. The economic theory of higher purpose posits that when employees believe in the authenticity of an organization's higher purpose, they are motivated to work harder, be more entrepreneurial, and prioritize the common good. This leads to better economic performance, but only if the purpose is genuinely embraced and integrated into the organization's strategy and decision-making. The key is that the employees must truly believe in the authenticity of the organizational pursuit of higher purpose.

Beyond pecuniary rewards. Employees care about more than just money; they also value the satisfaction of contributing to a greater social good. By aligning the organization's higher purpose with the personal values of its employees, leaders can tap into a powerful source of intrinsic motivation that transcends traditional economic incentives. This requires leaders to discover and articulate an authentic higher purpose, communicate it effectively, and integrate it into every aspect of the organization's operations.

The role of sacrifice. To signal authenticity, leaders must be willing to make personal and organizational sacrifices in pursuit of the higher purpose. This demonstrates a genuine commitment that cannot be easily mimicked by those who are solely motivated by economic gain. Over time, this commitment fosters a culture of trust, collaboration, and shared purpose, leading to superior performance and a more fulfilling work environment.

6. Why Higher Purpose Isn't Universally Embraced

For those who believe in free markets and are aware of all the evidence of failed experiments in socialism, this result is shocking.

The threat to capitalism. Despite the potential benefits, higher purpose is not universally embraced due to a combination of factors, including skepticism, short-term pressures, and the fear of appearing inauthentic. The failure to address economic inequality has led to disillusionment with capitalism, making it crucial for corporations to adopt authentic prosocial higher purposes to restore faith in the system. If firms fail to do so, the consequences will be dire.

The manipulator's dilemma. Leaders who are not true believers in higher purpose may be tempted to mimic the actions of those who are, but they face a credibility problem. Employees are often skeptical of leaders who appear to be pursuing higher purpose solely for economic gain. This makes it difficult for manipulators to achieve the same level of engagement and commitment as true believers.

The crisis catalyst. Higher purpose often emerges during times of crisis because it is easier for leaders to convey authenticity and convince employees that they are genuinely committed to a cause larger than themselves. During a crisis, the sacrifices required to pursue higher purpose are more apparent, making it more difficult for manipulators to mimic the actions of true believers. This creates an opportunity for organizations to redefine their values and build a stronger, more purpose-driven culture.

7. Envisioning the Purpose-Driven Organization

If you can find one positive example—a person, a team, a unit, that exceeds the norms—you can create a sense of hope by helping people examine the excellence that already exists.

Breaking free from thought walls. The first step in creating a purpose-driven organization is to envision what it might look like. This requires breaking free from conventional assumptions and challenging the belief that employees cannot be inspired by a higher purpose. Leaders must cultivate a positive mindset and believe in the potential for their workforce to become purpose-driven.

Learning from excellence. Instead of focusing on what's not working, leaders should seek out examples of excellence within their organization. By examining the purpose that drives these exceptional individuals and teams, they can identify key elements to replicate and scale across the entire workforce. This involves recognizing and celebrating those who are already living the organization's values and making a positive impact.

Creating a shared vision. To foster a sense of collective purpose, leaders should engage employees in a collaborative visioning process. This involves asking thought-provoking questions, listening deeply to their responses, and co-creating a shared vision of what the organization can achieve when it's functioning at its full potential. This process helps to align individual aspirations with the organization's higher purpose, creating a powerful sense of unity and commitment.

8. Discovering the Organization's Latent Purpose

You do not invent higher purpose. It already exists.

The sculptor's approach. Discovering an organization's higher purpose is akin to a sculptor finding the elephant within a stone. It requires careful observation, deep reflection, and a willingness to see beyond the surface. Leaders must immerse themselves in the organization's culture, listen to the stories of its people, and identify the underlying values and aspirations that drive their actions.

Scaling empathy. The process of discovering higher purpose involves scaling empathy—understanding and connecting with the deepest needs of the collective. This requires asking provocative questions, actively listening to the responses, and reflecting on the emerging themes. It's about giving voice to the soul of the organization and articulating a purpose that resonates with everyone.

The iterative process. Discovering higher purpose is not a one-time event but an ongoing process of learning, refinement, and integration. Leaders must continually revisit and revise the organization's purpose, ensuring that it remains authentic and relevant in a constantly changing world. This requires a commitment to disciplined reflection, authentic dialogue, and a willingness to adapt to new insights and perspectives.

9. Authenticity: The Cornerstone of Higher Purpose

If purpose is a PR gimmick, a slogan put up on the walls, employees see through it.

Beyond corporate speak. The higher purpose that you discover must meet a crucial test—it must be authentic. If purpose is a PR gimmick, a slogan put up on the walls, employees see through it. They become cynical. If the higher purpose is not authentic, it may do more harm than good. Authenticity also ensures that higher purpose will change the culture of the organization from one of intrafirm competition and conflict to one of shared beliefs, renewed commitment to the purpose, and cooperation.

The test of sacrifice. Authenticity is demonstrated through action, not just words. Leaders must be willing to make personal and organizational sacrifices to align their behavior with the higher purpose. This might involve making difficult decisions that prioritize the common good over short-term profits or challenging conventional practices that are inconsistent with the organization's values.

The power of vulnerability. Authentic leaders are not afraid to show vulnerability and admit their mistakes. This creates a sense of trust and connection with employees, making them more likely to believe in the organization's higher purpose. By sharing their own struggles and demonstrating a genuine commitment to the common good, leaders can inspire others to embrace the organization's values and contribute to its success.

10. Constancy: The Arbiter of All Decisions

People are keeping book on you. You must represent what right looks like.

Beyond task completion. Constancy of purpose means that the higher purpose is not just a statement on the wall but the guiding principle behind every decision the organization makes. This requires leaders to continually communicate the purpose, integrate it into their daily actions, and use it as the arbiter when faced with difficult choices. The leader must be the message.

The test of crisis. The true test of constancy comes during times of crisis. When faced with difficult challenges, leaders must demonstrate their unwavering commitment to the higher purpose, even if it means making short-term sacrifices. This builds trust and reinforces the organization's values, creating a culture of resilience and shared purpose.

The power of modeling. Leaders must model the behaviors they expect from their employees, consistently demonstrating their commitment to the higher purpose. This involves making ethical decisions, prioritizing relationships, and fostering a culture of learning and growth. By "representing what right looks like," leaders inspire others to follow their example and contribute to the organization's success.

11. Stimulating Learning: The Engine of Growth

Purpose does not let you take a vacation. It will not let you go. It pulls you into the next crucible. Eventually, you begin to see the next crucible as a gift.

Beyond task completion. The conventional view of management focuses on task completion and efficiency, often neglecting the importance of learning and growth. However, in a purpose-driven organization, learning becomes a central value, driving innovation, adaptation, and overall success. Leaders must create a culture that encourages experimentation, celebrates failure as a learning opportunity, and provides employees with the resources and support they need to develop their skills and knowledge.

The growth mindset. Leaders must cultivate a growth mindset, believing that talent and intelligence can be developed through effort and dedication. This involves providing employees with opportunities to challenge themselves, learn from their mistakes, and continuously improve their performance. It also requires creating a safe and supportive environment where employees feel comfortable taking risks and sharing their ideas.

Connecting to purpose. Learning is most effective when it's connected to the organization's higher purpose. By helping employees understand how their work contributes to a larger goal, leaders can foster a sense of meaning and motivation that drives continuous improvement. This involves providing opportunities for employees to reflect on their purpose, connect with their colleagues, and share their insights and experiences.

12. Midlevel Managers: Catalysts for Purpose-Driven Leadership

When you find the leader within, you discover that you have a covenant.

Beyond authority. In conventional organizations, midlevel managers are often seen as extensions of the hierarchy, responsible for implementing decisions made at the top. However, in a purpose-driven organization, midlevel managers become catalysts for change, inspiring their teams to embrace the higher purpose and contribute to the organization's success. This requires a shift in mindset, from managing tasks to leading people.

The power of authenticity. To become purpose-driven leaders, midlevel managers must connect with their own personal values and purpose. This involves reflecting on what truly matters to them and aligning their actions with their beliefs. By communicating their authentic selves, they can inspire trust and create a sense of connection with their teams.

Creating a community of service. Purpose-driven leaders foster a culture of service, prioritizing the needs of their team members and empowering them to take ownership of their work. This involves providing clear expectations, offering support and guidance, and celebrating their successes. By creating a positive and supportive environment, they can unlock the full potential of their teams and drive exceptional results.

Last updated: February 19, 2025