The Purpose of a Business: A Catholic Perspective

Jean-Yves Calvez and Michael J. Naughton

From: Rethinking the Purpose of Business (University of Notre Dame Press, 2002)

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[T]he purpose of the business firm is not simply to make a profit but is to be found in its very existence as a community of persons who in various ways are endeavoring to satisfy their basic needs, and who form a particular group at the service of the whole of society.

John Paul II, Centesimus Annus, 35

In 1932, Adolf Berle and Gardiner Means wrote, in their seminal work The Modern Corporation and Private Property, that the corporation “had ceased to be a private business device and had become an institution.”[1] What they meant by this statement was that the growth and development of the modern corporation in the twentieth century has made it the dominant way to organize economic life. The concentration of economic power in the modern corporation compares to the concentration of religious power in the medieval Church or of political power in the nation state.[2] The corporation cannot be, if it ever could be, understood as only a so-called private enterprise. It has become so pervasive in modern life that a social understanding of the corporation is imperative. The critical questions before us are: What social understanding of the corporation do we have? And does it have the capacity to help people grow?[3]

A year before Berle and Means classical work, Pope Pius XI, in his encyclical letter Quadragesimo anno (1931), began in an explicit way to formulate an answer to these questions. As the leader of the Catholic Church, he realized that as the modern economy develops, and especially as the corporation’s role in that economy grows, social understanding of the economy and of the corporate form must be informed by the social nature of property, the virtue of justice, the dignity of work, the principles of subsidiarity and solidarity, the common good and above all the social and spiritual understanding of the human person; otherwise, the economy and its corporate form of organization fail to create conditions to develop those within the organization so as to serve those outside it.

In this introductory chapter, we summarize the development of the official Catholic social teachings on one of the most dynamic institutions within the twentieth century: the business organization. Most people, including Catholics, are unaware of this social teaching, and many Christians too often fail to connect faith and business, except in either prophetic critiques or spiritual platitudes. What is missing in the engagement is a serious conversation between the intellectual depth of the Catholic social tradition and the complexities of a business organization.

This engagement of the purpose of business with Catholic social thought is no mere academic exercise. It is critical, especially for the manager, who not only plays a decisive role in defining, translating and implementing the purpose of a business, but whose vocational and self-identity as a manager is at stake. 

The problem of recognizing a corporate and common purpose to the business enterprise is present from the first days of the modern social teachings of the Catholic Church.[4] Those first days are indeed the time when the enterprise develops without the name enterprise. People view the corporation as an “anonymous society,” as often-stated in Europe, that is, as a society of things (capital, shares) rather than of persons. While there are shareholders, their personal commitment is mitigated by “limited liability.” The worker is not considered as a member, that is, as a person, of that society, rather, she relates to it only from the outside through the labor contract, as one more input or service hired by the anonymous society (see Clark and Tavis’ essays on the economic view of the corporation, Chapters 4 and 9).

In the presence of this situation, Pope Leo XIII, in his encyclical letter Rerum novarum (1891), will not yet react by saying that the enterprise is a community of persons with a common good. He will, however, react by not accepting whatever labor contract is given. A wage, for example, is not just simply because two parties consent. Underlying the contract is a duty that the wage would be sufficient for the subsistence of the worker and his family. According to Leo, there is a natural law informed by the nature of the human person governing whatever contract is offered (see Gordley’s essay, chapter 4). But Leo does not discuss the context of the enterprise where the contracts are offered.

With Pius XI, at the time of the great modern crisis of the capitalist system, the Great Depression, the question of the nature of the enterprise properly surfaced. In his encyclical letter Quadragesimo anno (1931), the pope asked, “Should one not replace the labor hiring contract by a societal (or partnership) contract (a contract among persons forming a society among themselves)?”   His first response to this question was negative. He was concerned that a positive answer would encroach upon the rights of owners, who would undergo undue outside influence over their own property. Pius XI is extremely keen on respecting the right of property. He recognizes that many social obligations can be put to the charge of the owner; yet property can not be lost or its owner forfeit property rights because of misuse. Misuse can be corrected, even punished by the social authorities; yet, the basic property right itself should in any case remain intact.

But Pius XI, after denying the principle that the labor contract should of necessity be replaced by a societal or partnership contract, adds immediately: “We however think that it is appropriate to the present conditions of social life to temper somewhat, as much as it is possible, the labor contract by elements coming from the societal [or partnership] contract.”[5] Some companies already heading in this direction influenced Pius XI. He realized, through the experience of certain companies, that a deeper relationship could occur within the enterprise through shared ownership and management.[6] Still, Pius XI did not want to make this a strict obligation for all companies; rather, he favored any free, voluntary, initiative in those directions. What Pius XI began to see, was that the worker is really not a stranger to the enterprise, or that there really is an enterprise, made up of persons, not just a society of capital shares. The worker is an agent within the enterprise who in part achieves fulfillment through her work.[7] To reduce a business to merely a legal fiction, whereby people are connected by a nexus of contracts so as to be more productive, that is, to a society of things, leads to an impersonalization as well as alienation of the person within the firm. This, of course, is a critical issue concerning the nature of a business organization, which will be examined throughout this volume (see in particular Kennedy, Chapter 3; Tavis, Chapter 10; and Cortright/Pierucci, Chapter 7).

Not much was made, however, of the hint that was Pius XI’s conception of a societal or partnership contract in the years preceding World War II. What dominated much of the discussion after 1931 was corporativism.  Whereas the idea of the societal/partnership contact focused on the micro-level of the enterprise, corporativism focused on the macro-relationships among labor, employers and the state within the whole national economy.

There was much more interest in the enterprise as such and in the structure of the enterprise after World War II, at a time when people were eager to make deep and radical social reforms. Reforming the enterprise was one of the main issues. In Germany particularly, under British influence (in the British Occupation Zone), there developed a new system of co-management or co-determination (Mitbestimmung) by capital and labor, first in the coal and steel industries and then eventually extended to all the major industries by the German government itself.[8]  Already in 1949, a Congress of the German Catholics, Katholikentag (in Bochum), made a moral doctrinal claim that co-determination in the enterprise was required by the natural law itself, and therefore absolutely required:

Catholic workers and employers agree that the right to joint management of all workers in social, personal and economic matters [codetermination] of common concern is a natural right according to the order laid down by God, and corre­sponding to the collective responsibility of all. We demand its legal establishment.  Following the example given by progressive firms, it should be put into practice everyw­here from now on.[9]

Pope Pius XII reacted to this statement, which he considered too extreme. He argued, following his predecessor, Pius XI, for the intrinsic legitimacy of the labor contract. Explaining that all those who work in the enterprise should of course be considered as “subjects” or persons, not as mere “factors” of production, he did not see the need to abandon the system of the labor contract in order to take into account the subjective character of the members of the enterprise.

Pius XII in particular feared two things concerning codetermination as articulated by the Germans: first, that the new system proposed would deprive the owners of their innate property rights; and second, that, by introducing into the administration of the enterprise representatives of the unions not necessarily members of the firm, there was a danger of transferring real decision to “collective anonymous forms.”[10]

Throughout the 1950s, however, Pius XII’s fears over the eradication of private property did not materialize as a result of the codetermination laws. What worsened at this time was the depersonalization of the worker through the mechanistic production processes of large industries. His attention turned from property to the subject of the corporation—the employee. Pius XII began, at the end of his pontificate, to stress the need for “a larger share of responsibility of the working classes in the national economy, professional life and the productive organisms themselves.”[11]

While Pius XII never wrote a social encyclical, he would give talks to associations from bee keepers to bankers about how the social tradition of the Church could be understood within their particular field of work. In a talk to the International Congress of Catholic Association of Small and Medium Sized Business, he explained that their vocation calls employers and entrepreneurs to create in the enterprise conditions which allow employees to develop.

The economic and social function to which every man aspires requires that control over the way in which he acts be not completely subjected to the will of another. The head of the undertaking values above all else his power to make his own decisions. He anticipates, arranges, directs, and takes responsibility for the consequences of his decisions. His natural gifts . . . find employment in his directing function and become the main means by which his personality and creative urge are satisfied. Can he [then] deny to his subordinates that which he values so much for himself?[12]

What is of particular interest in this paragraph is that Pius XII articulated for the employer what the principle of subsidiarity means for the business organization (see Tavis, Chapter 10; McCann, Chapter 8; and Fort, Chapter 11).  While the authority of the owner ought to be protected,[13] no room can exist in such a conception of a business for practices that deny the profound worth of the employees of the enterprise.  Also of particular interest here is who Pius XII was talking to: owners of small and medium sized businesses. He believed that large industries foster, sometimes unavoidably, an impersonal anonymity between owners and labor. While he insisted, as mentioned above, that economic responsibility must be legally located with the owners of capital, he perceived the separation of ownership from control as an obstacle (although one that could be overcome) to creating a business organization that fostered human development. He believed that small and medium size enterprises could better “connect” labor and capital through co-ownership and co-management that would create a real community of work (see Gates, Chapter 12 and Murphy/Pyke, Chapter, 13).[14]

During the 1950s, Pius XII was in many respects weaving a moral argument for the purpose of the business organization by integrating the right of private property, the proper social use of that property and the humanization of the workplace in the face of depersonalization through industrialization and technology. While his impulse toward the codetermination movement in Germany was to stress the right of property in the late 1940s and early 1950s, his addresses to business managers throughout the 1950s made unambiguously clear that the right of property did not include uses which promote the dehumanization of the worker.[15]

The controversy after World War II over the nature and purpose of the enterprise, and Pius XII’s successive responses to this controversy, proved to be a critical phase in the articulation of the Church’s understanding of the enterprise. By incorporating the spiritual and moral resources of the social tradition, that is, the social nature of property and its private ownership, the role of virtue, the idea of community of persons and so forth, Pius XII made a significant contribution to the formulation of the Catholic social tradition on the nature and purpose of the enterprise. His final views clearly lead to the idea of a partnership or a community of persons in the enterprise. One can thus speak of a corporate purpose of the enterprise involving all the participants in it. Managerial responsibility, that is a manager’s ability to respond,  extends not only to capital holders but also to labor holders, whose participation is critical to the business’s capacity to be an authentic community of work. 

All development in moral teaching requires a period of solidification.  In terms of the firm, this period comes about with Pope John XXIII, who succeeded Pius XII in 1958.  In his encyclical Mater et magistra (1961), John XXIII writes in a very serene atmosphere of the enterprise as a community and of the obligation to enable all its members to participate more fully in its activities.  This participation can not be undertaken in an indiscriminate manner and must, of course, take into account the particular input and contribution of each member. Yet, the workplace must represent "in form and substance" a "true community" where workers are treated as human persons, and have a chance to take an active role in the operation of the particular organization.[16]

This development on the nature and purpose of the enterprise is formulated at the Second Vatican Council in the document Gaudium et spes (1965), in the following terms:

In economic enterprises it is persons who are joined together, that is, free and independent human beings created to the image of God. Therefore, with attention to the functions of each—owners or employers, management or labor—and without doing harm to the necessary unity of management, the active sharing of all in the administration [in Latin curatio, that is, management] and profits of these enterprises in ways to be properly determined is to be promoted.[17]

Building upon Gaudium et spes, John Paul II grounds Catholic social teaching on the firm squarely in a theological understanding rooted in the claims of the book of Genesis. In Laborem exercens (1981), he explained that human beings have been given a superior place in the order of creation.  Because they have been made in God’s image, all people have been given the command, which is both a right and a duty, to subdue the earth. He defines the expression “subdue the earth” as a human activity that discovers all the resources the earth provides so as to use them for people to develop, not simply to maximize capital returns or balance individual interests.[18]  It is only through work that people can tap the richness creation has to offer, and it is through organizations that this work is carried out most effectively. Humanity's tremendously accelerated technological advancement, through the organization of various occupations, provides, for John Paul II, "a historical confirmation of man's dominion over nature."[19] This dominion does not constitute a license for individual exploitation, but just the opposite. The enhanced potential offered by business organizations can be a “means for the practice of work which realises the human person.”[20]

Business as the major form of economic organization is consequently the major mechanism to achieve dominion. Yet, to properly understand dominion, a business must conceive itself to be responsible for the use of an inheritance or gift. For John Paul, people who make up a business enter into a two-fold inheritance: 1) what is given by the Creator in terms of natural resources and 2) what is given by others in terms of what has been already developed on the basis of those natural resources.[21] Each human generation is indebted both to the Creator and to its predecessors for the means and the opportunity to share in the goods of creation.  Moreover, since the Creator’s gift if given for the use of all in pursuit of their development, this two-fold inheritance—the gift of creation and the productive instruments already forged from it—has, in the formula of Gaudium et Spes, “a universal destination.”  The destination is “universal” both in that participation in the human inheritance should benefit all present humanity and in that it should be developed and transmitted to future generations. On this theological foundation of creation as gift John Paul builds his understanding of property, and especially corporate property. Consequently, any idea of an absolute right to property and capital, expressed through formulas of shareholder wealth maximization, or any idea of a corporate body as merely a nexus of competing interests is rejected, because they deny the significance of this human vocation to work and impede persons’ development in and from their work. Nevertheless, this principle of universal destination “does not de-legitimize private property; instead it broadens the understanding and management of private property to embrace its indispensable social function, to the advantage of the common good and in particular the good of society’s weakest members.”[22]

For John Paul II, persons’ development within the business organization depends upon whether the business is a community of work (see Kennedy, Chapter 3). To understand the importance of what John Paul means by a community of work, it is helpful to distinguish it from what Robert Bellah et al. call a life-style enclave.[23] In a life-style enclave, a group of people come together to have their interests served. A business as enclave is about each particular person serving his particular interests and using others to get his “due.” The person’s concern for others is determined by their effect on his interests or “stake” (see Cortright/Pierucci, Chapter 7).  In contrast, a community of work unites its members in the pursuit of common goals, shared goods through which each develops. In a talk to Italian managers and workers, John Paul II explained that the social teaching of the Church makes “clear that the sole criterion of profit is insufficient, especially when it is raised to the level of an absolute; . . . Indeed, a business firm is not merely an instrument at the service of the well-being of its management; rather, it is itself a common good of both management and labor, at the service of the common good of society.”[24]

Speaking to Peruvian businesspeople, John Paul reminded them that the social teaching of the Church implores them to see “their enterprises as a social function.  They must not conceive them only as instruments of production and profit, but also as a community of persons.”[25]   Philip Chmielewski puts it well when he writes that since “work must complete itself in the service of persons,”[26] a community of work is only authentic when it serves those outside it, which is the basis of developing those within it.

One may of course raise the obvious question: Do John Paul II and those before him expect too much from business organizations? Is this not merely theological idealism that has no bearing in the globalization of corporations? These are legitimate questions. Yet, John Paul II, as well as the whole tradition behind him, raises the critical question that must be at the fore of any business: Can managers and employees develop in the corporate form of organization in which they find themselves?[27] John Paul II’s idea of business as a community of work does not suppose a disembodied community disconnected from the economic pressures of profit, risk, competition and productivity. Rather, he sees that only through a community of work, can these economic values be properly ordered within a business so that they serve to develop people and society. Because of the nature of a business, profit and productivity are necessary and critical dimensions; but, unless a community develops within a business to provide a proper ordering of these economic dimensions, the possibility of the business becoming a place where people can develop evaporates. For example, in his encyclical letter Centesimus annus (1991), John Paul states that: “Profit is a regulator of the life of a business, but it is not the only one.”[28] Profits, like any instrumental good, must be at the service of not just individual agents, such as shareholders or employees, but at the service of the common good; otherwise, profits corrupt the agent who pursues them (see Alford/Naughton, Chapter 2).

 John Paul II praises the “modern business economy” for its “positive aspects.” He sees that the business organization gives people a chance to develop in the economic sphere, just as people develop in the political, cultural, and religious spheres. The role of business in the modern economy puts to use the best qualities of the person, her capacity to investigate and to know, her capacity for solidarity in the organization, her capacity to work towards the satisfaction of the needs of her fellow employees.

The unfortunate side of things, however, is that not enough businesses reach their full potential of developing people, and instead of developing people, they alienate them. John Paul describes this alienation in business as ensuring “maximum returns and profits with no concern whether the worker, through his own labor, grows or diminishes as a person.”[29] This alienation in part stems from a spiritual alienation where people refuse to transcend themselves by instrumentalizing everything including their own relationships within the firm. For example, managers treat employees well not because they are created in the image of God, but because it will maximize shareholder wealth. This pervasive logic of instrumentalization within corporations today fails to develop the habit of mind and heart to authentically give themselves to God and others.[30] John Paul crystallizes this social and theological insight by explaining that:

The concept of alienation needs to be led back to the Christian vision of reality, by recognizing in alienation a reversal of means and ends. When man does not recognize in himself and in others the value and grandeur of the human person, he effectively deprives himself of the possibility of benefiting from his humanity and of entering into that relationship of solidarity and communion with others for which God created him.[31]

This brief survey of the official Catholic social teaching concludes that the enterprise is a community of persons, even if each of the persons participating in the community has a specific contribution to offer, justifying a specific reward and treatment. If the enterprise is in this sense a community, then the ideas of co-responsibility, co-management, and co-ownership come strongly to the fore again and are decisive. These critical organizational issues will be discussed in detail in the last two chapters of this volume (see Gates, Chapter 12 and Murphy/Pyke, Chapter 13).  This view of the enterprise also challenges the prevailing shareholder and stakeholder views of the corporation, which will be addressed throughout Sections I and II.

Finally, it is important here not to overstate the case. What should not be missed through this discussion of the nature and purpose of the business organization within the official Catholic social teachings is that while the popes and bishops raise the importance of a business, they never absolutize its value. As Murphy and Pyke explain in the last chapter of the volume, work is more than an instrumental good, but it is not the highest good in human life. While people develop through work, they cannot fully develop as human beings only through work. Unless they participate in other communities such as family, church, civic, and culture, their full humanity will always be stunted. All members of the enterprise have social obligations beyond the enterprise itself, which has been suggested many times throughout the Catholic social tradition.[32]

Notes