Business can and should deliver on a greater purpose beyond shareholder value.
This statement is hardly new and yet, when the US Business Roundtable (BRT) released its statement with this assertion on August 19, it soaked up every business news headline for almost a week – underlining the group’s enormous influence within an attentive global network.
But the reactionary commentary wasn’t all positive. And as such, it has proven a notable example of the dual power and expectation attached to business leadership in today’s socially-conscious world.
The trajectory towards purpose
For some, it might have felt like we’d just crossed the final frontier, given the BRT’s decades-long support for shareholder primacy. This cultural shift has been a long time coming, and with its CEOs representing almost a third of the world’s largest economy, it has the potential to unleash a tidal wave of economic and social progress.
To further understand this history-making undertone, it is worth considering the stop-start nature with which purpose-led business has become recognised within our lexicon.
As far back as the Depression era, Harvard Business School dean, Wallace Donham, proposed: “Our present situation both here and in all the great industrial nations of the world is a major breakdown of capitalism. Can this be overcome? I believe so, but not without leadership which thinks in terms of broad social problems instead of in terms of particular companies.”
Even in 1932, strong leadership was touted as the anecdote to reshaping the role of business to achieve social and economic advancement.
Despite simmering momentum around society-oriented business – including the introduction of Professor Klaus Schwab’s stakeholder concept in 1971 – the late Nobel-winning economist, Milton Friedman, arguably stumped its full evolution, labelling it “pure and unadulterated socialism”.
Some say the BRT simply solidified an already well-established outlook when it declared that the sole purpose of an organisation was to maximise value for shareholders in 1997.
Fast forward a decade, and the conversation around social purpose started bubbling within the modern business community, with Bill Gates’ proclamation that “the genius of capitalism” lies in its ability to “[harness] self-interest in helpful and sustainable ways”. In 2011, this business strategy came to be known as shared value. And, as social unrest has grown, consumers, employees, investors and suppliers have wielded their respective influence to drive this movement forward; engaging with companies based on their commitment to the full gamut of business stakeholders.
Praise and power
Against this backdrop, it’s easy to understand why the BRT’s new definition for ‘the purpose of corporations’ has been lauded by many. Some 181 CEOs – from Amazon’s Jeffrey Bezos to Apple’s Tim Cook – have now publicly committed to looking beyond the bottom line to consider their holistic impact on people and the planet. It’s a brave admission that the traditional view of capitalism needs to change.
The scale of this move could be enormous – with the BRT representing 10 million workers and given their companies’ offshore presence and deep supply chains.
Although some have dismissed the group’s recent statement as mere “lip service,” we must remember that words can carry immense weight when offered from the right source. Such monumental change must begin with a foundational shift in mindset. And this articulation of a new kind of capitalism, proposed by some of the most accomplished business executives in the world, has forged a place for purpose in the minds and boardrooms of corporate America; as a consideration at the very least.
Their advocation also reinforces that delivering stakeholder value is not simply virtuous, but commercially beneficial. Almost 200 businesspeople who oversee an estimated AUD $10.4 trillion in annual revenue wouldn’t commit to it otherwise.
This leadership; similarly to the recently-released Fortune Change the World list, or Blackrock founder Larry Fink’s annual letter to CEOs, helps to set and reset the benchmark for business practice at its best. And nowadays, companies’ credibility relies on it, with Edelman’s Trust Barometer 2019 showing that 77% of 33,000+ global respondents believe CEOs should take the lead on change, rather than waiting for government to impose it.
Realising great expectations
Sure, it remains to be seen whether the BRT’s CEOs will turn their ambition into sustainable action. What will they do? How will they measure it? And will businesses’ inclusion in the high-profile group be contingent on them adopting this new mission?
It’s fair to say that the shared valued community, alongside organisations like B Lab, will be watching on with interest; with its co-founders explaining via an op-ed in Fast Company that the statement is not legally binding (as Australia’s potential Benefit Company status would be).
Others have questioned the legitimacy or true intention of the move. Comments on Allan Murray’s Twitter feed include: “Every CEO focuses extensively on the ‘needs of society,’ until they have a bad quarter;” and “I can’t but help wonder if CEOs will try to use the ‘End of Shareholder Primacy’ as an excuse for not meeting financial projections.”
Education, increased transparency and robust measurement will become increasingly important for purpose-led business; as we continue to embed and substantiate the correlation between purpose and profit.
BRT President, Josh Bolten, succinctly explains it by saying: “In the very long run, you can’t take care of your shareholders unless you’ve taken care of your customers, employees and communities as well.”
This long-termism is integral to shared value creation; where business “can only be as prosperous as the communities in which we operate”, in the words of former Bendigo & Adelaide Bank MD, Mike Hirst. The BRT’s new ‘purpose of a corporation’ signifies a giant step forward in recognising this.
For the Asia Pacific, the BRT’s new mission is a reminder that our region is ahead of the curve. While there is still plenty of room for further progress in turning purpose-led business into business as usual, as the fastest-growing economy, our potential to deliver a better future for all stakeholders is immeasurable. We, too, can lead the way.