One of the most exciting things for business over the 2019 summer was when the Business Roundtable put out a Statement on the "Purpose of the Corporation." Signed by 181 American CEO's all of whose brands are well known to consumers or businesses, the statement reflects the changing times. Download the Roundtable Statement here and check out the 181 signatures from many CEO's of companies you are already familiar with.
American politicians have been telling us what we know to be true - the "American Dream" eludes most folks today due to rapid changes in globalization and technology. Thankfully, leaders of American businesses have taken notice and have decided to move their focus from the "next quarter" to "long term shareholder value" on the shareholder element and have included all stakeholders in the "Purpose of the Corporation". The times have truly changed in the last decade with all stakeholders having a voice on social media and the old dictum of "just focus on shareholder (short-term) value" can no longer work. See Eric Posner's article "Milton Friedman was wrong" in the Atlantic.
This blog assumes that the Round Table CEO's have positive intent and they really do want to switch from a next quarter approach to long term value for shareholders. So why have CEO's collectively become so pious? That question deserves an entire post but three quick thoughts. (1) As Warren Buffet has been saying investors should think long term and Americans are listening with increasing appetite for index funds. It makes sense for CEO's to align with the changing investor.(2) Politicians worldwide realize that only citizens in their country can vote and if unhappy then the election results can't be good. The politicians of all persuasions are pressurizing companies to look out for their voters (3) There was no social media when Milton Friedman suggested that if companies focussed on dividends then individual investors would have the freedom to choose what charity they would like to support. Although more efficient if companies directly engaged in charity through Corporate Social Responsibility (CSR) - Friedman thought that the individual investor would be disenfranchised in not being able to decide on which stakeholder causes she/he would like to support. Today all stakeholders can speak out easily and do so with speed and vehemence, unimaginable even ten years ago. The CEO's are forced to address stakeholder's problems - after the fact -with a lot of collateral damage to their reputations (eg. big brands caught up in the opiate crisis ). The times are changing too rapidly to stay only with short term shareholder value....
In any case, assuming that the CEO's have positive intent here is how Americans in private life and in their roles as employees, consumers and as public need to think about each element in the Corporate Purpose statement.
Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations. This is really about the purpose of marketing. All employees must appreciate that your customer needs to be happy with our work. Irrespective of the work you do including production, finance, customer service or janitorial. As a free market American companies including all their stakeholders need to appreciate that the customer (who pays the bills !) can move to a competitor as soon as she perceives that she is getting a lower value than what she is paying for.
Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect. Although primarily HR leads on this, employees need to take initiative in asking for training that will further their careers in a rapidly changing world. At the personal level it is critical that all employees deal with whatever stakeholders they are involved with (other colleagues, customers, suppliers, public) respectfully and with a spirit of diversity and inclusion.
Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions. This one is huge from this blog's perspective and many prior posts. Be respectful to suppliers and don't be that supply chain manager who makes suppliers wait in the lobby after giving an appointment. Involve suppliers in innovation early - they have a great stake in your organization's success.
Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses. As a community member - speak up - when you see a problem. Keep in mind that organizations are trying to do their mission and if they close the community loses even when you are not a direct employee or financial beneficiary of the local organization. Speaking up is easy on social media or email if you check the company's contact page. Creating and running a business or non-profit is hard - and sometimes managers just don't think of stuff. Many times if you reach the correct person- you do not need to take to the streets in protest.
Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders. As investors we all need to again "speak up". Attend shareholder meetings and at the minimum participate in the voting for board elections and do not send the letter to junk! Yes this major shift is not good news for short term investors. But they have the incentive for questioning managements when short term results disappoint. This should prevent companies and CEO's from hiding behind this broader purpose statement.
We appreciate both businesses and non-profits and their leaderships for trying to do things that make the economy and life run. Rather than demonizing business all Americans can help by first understanding and then participating in the purpose of a corporation.