by Gael O’Brien
The 181 CEOs who recently signed and committed to a new “Purpose of a Corporation”
traded in shareholder maximization for a stakeholder focus. Can they really implement the switch? While sceptics point to past actions raising doubts about the leaders’ sincerity, I believe these Business Roundtable CEOs can create the purpose and processes needed for change. The outcome will depend on how deeply they believe in a stakeholder focus. It’s a focus requiring a reboot affecting every part of their organizations.
They pledged at the end of August 2019 to commit to:
• “Delivering value to our customers”
• “Investing in our employees”
• “Dealing fairly and ethically with our suppliers”
• “Supporting the communities in which we work” and
• “Generating long-term value for shareholders”
A stakeholder focus lives in the DNA of many companies, including private companies, small businesses and Certified B Corporations. These values are centuries old, as author James O’Toole illustrates in his new book The Enlightened Capitalists: Cautionary Tales of Business Pioneers Who Tried to Do Well by Doing Good.
Changing the “purpose of the corporation” requires that CEOs reconnect the purpose of their business to all stakeholders. Rethinking the integration of ethics, decision-making, business strategy and human relationships should be at the core. Three approaches can help the CEOs deliver on good intentions: 1) Reapplying lessons from the past; 2) Refocusing to have an “ignorant eye;” and 3) Reestablishing the power of purpose.
Reapplying Lessons from the Past
For Johnson & Johnson, a stakeholder focus brings the company back to its roots and Credo, written in 1943 by former chairman Robert Wood Johnson. Johnson & Johnson is one of 50 companies O’Toole writes about in The Enlightened Capitalists. The Credo, its guidelines and the annual “Credo challenge” reinforcing it are credited with the company’s successful handling of its 1982 Tylenol crisis. However, some subsequent CEOs chose to ignore the Credo, creating inconsistency, O’Toole writes, and vulnerability to ethical issues.
O’Toole’s book spans two centuries and addresses founder CEOs and those who eventually became CEOs. They were driven, he writes, by moral obligation or business pragmatism that “the most effective way to do well was to do good.” They intentionally led by respect, fairness and dealing ethically with stakeholders. They focused on earning employee trust and creating a climate for engagement. Priorities included developing employee talents, fostering community, sharing decision-making and believing “well paid workers were the best customers of the companies they worked for.”
Three of the many stories in O’Toole’s book offer examples of how stakeholder commitments were or weren’t internalized:
• James Lincoln, (1883-1965) head of Lincoln Electric for 41 years until his death, never laid off an employee. He said of his leadership: “I knew that if I could get the people of the company to want to succeed as badly as I did, there would be no problem we could not solve together.” The company, now a world leader, is still operating successfully according to its values.
• Ken Iverson (1925-2002) is credited with reshaping the steel industry as former CEO of Nucor. He said about Nucor’s competitive advantage: “It is 70 percent culture and 30 percent technology.” His rule was “tell employees everything.” O’Toole noted that in a recession Iverson kept employees working on a reduced work week, cut their pay 25 percent, manager pay about 50 percent and his own salary 75 percent.
• James Cash Penney (1875-1971), founder of the department store chain bearing his name, repeatedly told his managers they would succeed only to the extent they put themselves in the shoes of the customer. That formula worked well for the company until, over time, Penney neglected the customer focus himself by focusing primarily on profit.
O’Toole shares CEOs’ mistakes and successes. While particular approaches may not align with those of the Roundtable CEOs, much can be learned from the spirit in which they treated all stakeholders.
Refocusing to take an “Ignorant Eye”
Newly announced commitments are wake up calls to see freshly from different perspectives, stripping away habits, biases and preconceived ideas. Dealing with change triggers this line in a poem by Wallace Stevens:
“You must become an ignorant man again
And see the sun with an ignorant eye
And see it clearly in the idea of it.”
“An ignorant eye” is open to seeing stakeholders’ needs in changing business realities. It’s fueled by questions, not assumptions. It bypasses relying on self-reassurances about what has already been done and doesn’t limit seeing what is needed to achieve new purpose. Crises often occur because what is meant by “fairly and ethically” or “value to customers” isn’t clear, validated or evenly applied.
An “ignorant eye” looks at decisions made before the new “purpose” announcement to see disconnects. Shareholder proposals and proxy filings are a point of contention. Some shareholder groups oppose what they see as the Business Roundtable CEOs’ efforts to make proxy filings more difficult.
Amazon, during its May 2019 annual meeting, actively opposed each of the 15 shareholder proposals on the ballot, according to Michael Connor, Executive Director of Open MIC, a nonprofit that works with shareholders to foster corporate accountability in the tech and media sectors. One resolution asked for a report on the human rights risks of Amazon’s facial recognition technology. Amazon has refused to engage with shareholders on it, Connor told me. Amazon CEO Jeff Bezos (a Business Roundtable member) didn’t appear onstage at the meeting while shareholders were presenting resolutions, Connor added. (Connor is also editor of Business Ethics Magazine.)
Reestablishing the Power of Purpose
It is a big leap moving authentically from fixating on driving profit to pursuing profit through delivering value to all stakeholders. Employees and customers will know immediately if actions don’t match words. The genie is out of the proverbial box because 181 global companies made a public commitment to behave differently. The power of purpose will give the leap safe landing.
Rebooting to foster an authentic purpose in each company means defining why the stakeholder approach matters. It’s essential to involve employees and suppliers in the dialogue. Institutionalizing a stakeholder mindset requires new vocabulary, new goals and new ways of recognizing success around this new purpose.
When purpose is tactical, there is satisfaction crossing a task off, but little sustained momentum. When an organization talks about a purpose fueled by values evident in day-to-day behaviors, purpose inspires and motivates. It has a personal and organizational dimension. It’s energizing when acting to benefit stakeholders is valued and institutionalized. It fuels pride to create positive impacts in stakeholder relationships or reduce negative impacts on people or the environment.
BlackRock Chairman and CEO Larry Fink (also a Business Roundtable member) has been a persistent advocate for the role of social purpose in companies. In January 2018, his CEO letter indicated he expected companies in which BlackRock holds a position to incorporate social purpose in their strategic plans. He defined purpose as “an understanding at every level of the company about its role in the world and in the community.” His January 2019 letter advocated the board “articulating and pursuing” corporate purpose. We don’t know yet the impact Fink is having on companies.
If the 181 Business Roundtable companies pull off focusing on stakeholder value, we should start seeing actions that make it real. Bringing value to stakeholders was a driving purpose in the leaders O’Toole writes about. He ends his book, “Without doubt it is extremely difficult for business leaders to do good, but that fact is no excuse for not trying to do so.”
Gael O’Brien is a catalyst in leaders leading with purpose and impact through clarity, presence and connection. She is an executive coach, culture coach, speech coach and presenter. She publishes The Week in Ethics and is also a Business Ethics Magazine columnist, a Kallman Executive Fellow, Hoffman Center for Business Ethics at Bentley University, and a Senior Fellow Social Innovation, the Lewis Institute at Babson College.