Last week, the Business Roundtable, a group of almost 200 CEOs of the largest US corporations, issued a statement that fundamentally redefined the purpose of a corporation.
For years, the common boardroom mantra has been that “creating shareholder value and maximizing profits” is the raison d’être of a corporation. Every decision made or dollar invested had to be directed toward this objective or the corporation would be perceived as having failed in its ultimate mission.
The Business Roundtable’s new Statement on the Purpose of a Corporation has shifted that view and redefines a corporation’s purpose as being “for the benefit of all stakeholders—customers, employees, suppliers, communities and shareholders,” suggesting that a new social contract is being struck between corporations and society.
The statement also suggests that a very different set of governance and employee practices needs to be put into place and there needs to be a re-evaluation of interactions with suppliers, communities and customers.
It is possible for purpose and profit to coexist, but not without intention. Here are some focus questions that CEOs, their leadership teams and Boards should be pondering as they work to embody this new direction:
CEOs wishing to create a company where purpose reigns will be challenged to examine the governance processes of their company. If an organization is legally required to serve its shareholders, but there’s not equal emphasis on employees, customers, communities and suppliers, the likelihood is high that the new Statement of Purpose drafted by the Business Roundtable will be deemed a “politically correct” act in response to a growing call for shared prosperity.
Every CEO needs to ask, “How does corporate governance in our company need to change so that the needs of all stakeholders have shared influence on the way we run this company?”
The new Statement of Purpose offers all corporations a chance to redefine their customer base, both internal and external. If customers are truly a stakeholder, what changes are necessary in the way that you service and interface with them? Are there emerging customer groups that you are not currently structured to support? Have you created an internal culture where serving customers holds the same level of importance as driving to quarterly goals that serve shareholders? Do your customers have a voice in the way in which their needs are met by the corporation?
Extensive research suggests that happy employees are 31% more productive, generate 37% higher sales and are three times more creative than unhappy employees. It follows, then, that companies with such employees enjoy better financial results. The shifting of a corporation’s purpose to also embrace employees makes sense in light of these data.
How are you shaping policies and practices to create a work environment in which employees thrive? Do you understand the relationship that employees across all generations in the workforce wish to have with the organization, versus that which they are currently experiencing? Are you creating opportunities for employees to fairly share in the profits of the company? Are you paying them a fair and livable wage? Does gender parity exist in your pay and promotion practices? Have you created, and do you fiercely protect, a culture of inclusion, where diverse viewpoints and backgrounds are not just tolerated, but embraced?
Are you developing employees for their current roles and for emerging roles, so they have the skillsets necessary for success now and into the future? Are you leveraging the competitive advantage of aligning employee passions (as well as skills) with the roles you place them in? Do you guard funds for employee development, or are they the first to be cut when budgets are strained? Do you have the right leaders in place at all levels to nurture culture as a strategic advantage?
There’s an old saying: “You have to do well in order to do good.” Such is the same for corporations. Determining appropriate support of the community in which the company exists begins by establishing a mindset at the board level.
Are you setting aside significant support for projects that meet community needs and measuring the social and business impact of such engagement programs? Have you committed to allowing employees paid time off to volunteer for causes they believe in? Are your leaders held accountable for meeting community-based objectives, and are they rewarded accordingly?
The factors for achieving an expanded corporate purpose are not mutually exclusive. Funding community endeavors and creating a positive work culture can be synergistic, as employees experience increasing pride in representing a company that demonstrates tangible commitment to the communities in which they live.
Aside from how an organization treats employees and customers, nothing shows more about the character of a company than how it treats its suppliers.
Do your vendor processes make it easy or difficult for suppliers to do business with you? Are you actively sourcing diverse suppliers, local organizations, and small business vendors as well as large? Do you pay vendors promptly after services and goods are received, or are there wait periods beyond 30 days where small vendors are more likely to struggle with cash flow? Do you discount payments to vendors who need their invoices paid in less than 60 days, asking them to bear a financial burden for needing to be paid on time? Your suppliers deserve to be treated as a valued partner in the corporation’s success.
The importance of delivering value to shareholders will remain a central tenet in successful organizations, but shareholder-centric practices will fail in a corporation seeking to expand its purpose to serving all stakeholders. There is a competitive advantage in the broadened view of the purpose of a corporation, one that will only be realized if the desire manifests as tangible actions driven by the CEO.
Alaina Love is CEO of Purpose Linked Consulting and co-author of “The Purpose Linked Organization: How Passionate Leaders Inspire Winning Teams and Great Results” (McGraw-Hill). She is a recovering HR executive, a global speaker and leadership expert, and passionate about everything having to do with, well … passion. Her passion archetypes are Builder, Transformer and Healer. You can learn more about how to grow leaders, build passionate teams and leverage passion to create great customer outcomes here.
When she’s not working with her Fortune 500 client base, Love is busy writing her next book, “Passionality, The Art and Science of Finding Your Passion and Living Your Bliss,” which explores the alignment of personality, purpose and passion, and the science of how it contributes to our well being. Follow Love on Twitter, Facebook, YouTube or her blog.