By Jane Randel
Much has been written about the Business Roundtable’s (BRT) commitment to drive purpose and shareholder value equally. Some thought it was about time, others thought it was too little too late, and still others reminded these large multinational corporations that their companies have been doing business this way for decades with great success.
Wherever you fall on the spectrum, there is one thing that is universally true: The goal is not to focus on one or the other, but to find a way to integrate both.
“Conceptually this reminds us of being a working parent,” noted Robbie Karp, Co-President of Karp Randel, a social impact consultancy. “Can you be great at everything? Sure – just not simultaneously. Priorities are constantly shifting. That doesn’t mean you ignore one issue over another, rather it’s a matter of where you focus your attention at any given time.”
Few companies get it right 100% of the time, but aligning processes, setting goals, incorporating business-oriented, purpose-driven metrics when evaluating compensation, and doing all of that with authenticity is pretty much the benchmark. But finding that balance can be difficult — especially if you are trying to retro-fit systems, change cultures, and upend entrenched expectations like those of Wall Street and other stakeholders.
Understanding that everyone reacts to the BRT statement from their own perspective, we asked a few executives both in the social impact space and not, for their points-of-view.
“When companies feel the pressure to respond to short-term needs like boosting stock price or meeting quarterly earnings projections, the temptation is there to make decisions that boost profits – it takes enormous discipline to not fall into that trap,” said Keith Mestrich, President and CEO of Amalgamated Bank, the country’s largest B Corp® bank.“When companies can take the longer view, they can make smart decisions about creating real shareholder value and addressing the needs of all stakeholders. Part of that is investing in your employees, being good environmental stewards and adhering to solid principles of governance.”
“There is now a growing body of research and data indicating that our economic system and success is being hampered by a short-term, quarterly profits focus. So not only will the link between profit and purpose activities line up better when taking the long view, overall corporate success and sustained profitability will benefit from the long view,” noted Tina Tchen, Partner, Buckley LLP and former Chief of Staff, First Lady Michelle Obama. “Investing in a workplace culture that reflects the values of safety and respect for all workers is a good example – the benefits of attracting and retaining the most talented workers, and fostering the dedication and loyalty of that workforce that will lead to lower turnover costs and higher productivity, will only be realized by a long term view on profits. But the benefits, particularly in this tight labor market where talent retention is key, will be long lasting, as workers and customers are drawn to those companies who demonstrate that they are willing to invest in their workforce and live out their values of equity, safety and respect.”
Taking a holistic view, Aron Cramer, President and CEO of Business for Social Responsibility, a global nonprofit organization that works with more than 250 member companies and others to build a just and sustainable worlds, commented, “We are living in a time of multiple interlocking disruptions of business as usual. For any company – regardless of size or sector – whether or not to change is not an option. The question instead is how to create resilient business strategies to navigate our changing times. And resilient business strategies rely heavily on a strong sense of purpose, and an understanding of how to integrate social and environmental considerations, reviewed and addressed at the highest level. The Business Roundtable’s statement of purpose starts down that road, but is not sufficient to meet our moment.”
Charles Nathan, Consulting Partner, Finsbury LLC, a global strategic communications consultant, said, “The Business Roundtable’s recent statement on the ‘purpose’ of a corporation has, as cynics predicted, received far more notoriety than its content deserves. Despite the clamor surrounding short-termism, senior management and their boards of directors, with few exceptions, understand that managing a business primarily on a quarter-by-quarter basis is ultimately futile and self-defeating. Management’s and, increasingly directors’ economic incentives are overwhelmingly driven by long-term performance of the company’s stock, which makes up the vast bulk of their incentive compensation. As a result, their time horizon is measured in 5-10-15 year horizons, not one or two quarters. To sustain a corporation’s financial performance over these long-time periods requires that the company have a sustainable business model, which is difficult if not impossible to achieve without taking into consideration the interests and well-being of all of the company’s productive constituencies—not just shareholders, but also employees, supply and distribution chains and the health and welfare of the communities where the company’s facilities are located.”
Nathan added, “The BRT statement recognizes this reality (although it is hardly a model of clarity). It should not be read to say that shareholder value creation is an alternative to promoting the welfare of other stakeholders. The key to reading the BRT statement is to understand that a corporation’s purpose is not an either/or proposition (that is, either 100% shareholder value creation to the detriment of all other stakeholders or 100% non-shareholder value creation at the expense of shareholder value). Rather, it should be read as saying that the welfare of other stakeholders must be taken into account in order to achieve long-term value creation for shareholders.”
It will be interesting to see how/if more corporations act with purpose; how stakeholders keep them accountable; and the impact on profits.
Undoubtedly, we and many others will be watching.