The double-edged sword of a dual bottom line

Are purpose-driven companies likely to systematically outperform conventional competitors? That's the question this book aims to answer, and why good intentions alone aren't enough

Incorruptible: Why good companies go bad and how great companies stay great

By Eric Ries

Published by

Penguin Life, 2026

403 pages ₹1,299

 How do we structure organisations that have a commitment beyond maximising shareholder returns? Eric Ries explores this fundamental question in Incorruptible. The title assumes a solid fabric on which the corporations stay dedicated to maximising shareholder wealth and being a fair employer; fair to customers and the ecosystem. Mr Ries argues that such organisations deliver better shareholder returns in the long run; survive multiple cycles and have superior competitive strength.

 

The question is not about good intent and commitment. On this parameter, public-sector entities having multiple desirable objectives (non-extraction, fair play, equal opportunity) should be at the top of a list of desirable organisations. Barring a few exceptions, we do not discuss them as “good” companies delivering “value” at multiple levels.

 

 

It is, therefore, important to examine how businesses with a purpose are designed. The book notes that mission-driven organisations have a clear intent, etched in the organisation’s muscle memory. They are accountable by regular “tests by fire”.

 

Mr Ries highlights examples of mission failure — Google moving from the tagline “do no evil” to “do the right thing”. He talks about Johnson & Johnson (J&J) recalling $100 million worth of Tylenol capsules in 1982, following its credo of “first responsibility being towards the patients (and medical fraternity)” above shareholders. However, in 2009, when defective Mortin tablets were discovered J&J had lost its muscle memory and attempted a phantom recall of the drug before being caught. Using such counter-examples, Mr Ries builds stories of organisations that stuck to the mission and survived inter-generationally. In the process, he teases out the design elements.

 

The most valuable chapters look at alternative structuring of organisations such as Ikea, Patagonia and Mondragon. A common feature is they are all closely held or had supermajority voting rights. In cases where Mr Ries identifies a drift from the purpose, the ownership was wider. This helped the governance gatekeepers to focus on the purpose.

 

Mondragon is a co-operative, but others have an unlisted holding structure. The holding is a trust that has a larger purpose with the trustees having no pecuniary interests. The mission survives because there is a governance fortress that is difficult to breach. To replicate such mission-driven enterprises, we need a larger ecosystem to foster such organisations: Incorporation as Public Benefit Corporations; Certification as Benefit Corporations; listing on the social stock exchange (in the case of India) or long-term stock exchange, and creating a larger conversation for organisations with alternative outcomes that move beyond profits.

 

The problem with the book is the way it opens with contradictory outlandish claims — that purpose-driven companies are likely to systematically outperform conventional competitors and are more likely to endure over generations. This is quickly followed by illustrations of failure in spite of a clear purpose, but due to a lack of an appropriate design.  Fedmart wanted to be fair to employees and customers; Sears vested 33 per cent of its shares with employees; Polaroid focussed on cutting-edge research; Cadbury was working with communities. These succumbed to the conventional framework of shareholder primacy, pressed by investors. They succumbed to factors that Mr Ries identifies: Friendly fire where the shareholders dismantled the ethos; hostile takeover where there was a breach by outside actors; betrayal in the boardroom; lacking a solid succession; mission drift or a temptation to harvest.

 

This book is contextually important to examine the current stress in the house of Tatas. Is this a case of weak fortification of the purpose? Possibly no. The Tatas did not begin as a purpose-driven conglomerate. It was structured as a regular company. Its purpose was later articulated by the will of Sir Ratan Tata and Sir Dorabji Tata, where the holdings in a profit-seeking commercial entity were transferred from individual holdings to a charitable purpose. The nature of the holding company with minority shareholders being profit-seeking (the SP Group) continued. The current structure of Tatas is of a double holding: The trusts (with charitable purposes and guardrails) hold a majority in Tata Sons — structured as a commercial holding company with other minority shareholders (SP Group). Given the sequence of events, the Tata group was not designed as purpose-driven commercial ventures. The structuring of charitable holdings is a post-facto event, and not integral to the design. In this context, two options available for defining Tatas as purpose-driven may be: (a) the SP group is fully on board regarding their charitable purpose or is given a fair exit; or (b) the trusts move towards demutualisation of charitable purpose from the commercial arm.

 

We can see that in all the cases that drifted/failed, the root cause was a lack of a governance fortress around the purpose. Those who have survived without the fortress such as the Tatas (till recently) and Costco is because of the leadership’s commitment rather than a design fence around the purpose. Mr Ries provides a good framework to construct our arguments on alternative positions. 

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The writer is professor, Centre for Public Policy, Indian Institute of Management Bangalore