In August 2019, the Business Roundtable rewrote their statement of corporate purpose. I followed this with significant interest being that I have never forgotten the debates about corporate purpose in business school almost two decades ago. We were taught that the purpose of a company is ultimately to generate returns for its shareholders. So, when all of these CEOs from the Business Roundtable signed this new purpose statement, I felt relieved to know I was living in a world where (most) business leaders were thinking more broadly about their business’s purpose and had agreed on record that it was bigger than financial returns. However, signing this commitment was really just catching them up to public opinion that corporate purpose should be just as much about doing good as about generating profit. This movement started well before 2019 and it continues to progress. Just last week, the World Accounting Forum published a core set of common metrics for sustainable value creation.
I was recently talking with my dad, a retired college professor who did a lot of work in the business ethics space, and he reminded me that shareholder primacy wasn’t always the going philosophy. Before Milton Friedman promoted this viewpoint in the 1970s, and it turned into conventional business wisdom, businesses did have a broader perspective on their purpose. I guess if you think back to when companies first emerged in human society, they were created to serve a community need, not just as a way to make external shareholders money — there weren’t even external shareholders! This New York Times article published a couple of weeks back on the 50th anniversary of Milton Friedman’s famous essay has lots of great conversations from CEOs and other leaders and their takes on his essay today. Marc Benioff’s comment about how a generation of CEOs were brainwashed really resonated; because of the way we were taught in school, it is sometimes hard to let go of shareholder primacy. I was also slightly persuaded by a couple of comments that defended Friedman’s views, saying that if they are applied with a long-term versus short-term focus, they naturally do incorporate broader stakeholder interests. But ultimately, there are still some real gaps that I think the new statement of corporate purpose does a better job of addressing.
When the CEOs signed this new statement in 2019, I don’t think any of us imagined how much it would be tested through 2020. Companies have faced really tough choices while trying to navigate health concerns, economic headwinds, and racial injustice. Who all do they consider and how do they weigh various stakeholders? Company after company have impressed us with their choices through the various crises. A few have not. We’ll look back on 2020 and see that the business landscape was forever changed — not just as a result of the obvious winners and losers from industry impacts — but from the ones whose cultures took a good or bad turn based on the decisions of their leaders. Employees and other stakeholders have very high expectations of companies, especially amidst this crisis, and with social media spreading news like wildfire, any missteps are publicized quickly.
With people desperately seeking competent leadership through these challenging times, 2020 is a prime opportunity for businesses to build trust. This recent survey shows that, in general, trust in business is increasing as trust in government is falling. This would not be happening if businesses were solely focused on profits. Businesses are stepping, perhaps leaping, so far beyond a focus on profits to take care of their employees, customers, and other stakeholders in incredible ways. It is hard to even imagine a myopic focus on shareholder returns in this moment.
2020 is also an opportunity for businesses to reflect. As we make hard decisions and also think about how to evolve our businesses, the question “What really matters?” is front and center. If it isn’t just about profit, what is it about? It is a perfect time to look at your purpose and affirm it, evolve it, ditch it, or create it. Just like how people get clarity on the meaning of their life after a brush with death, companies can get clarity on their purpose after a brush with 2020.
Be sure to check out my next blog if you are interested in how we have evolved Thought Ensemble’s purpose in 2020, and check out my conversation with Dan Albaum about corporate purpose on the Market Impact Insights podcast.