The Changing Landscape of Corporate America
Recently 181 CEOs of the Business Roundtable released a new statement, “The Purpose of Business”.
The board states that business has a “vital role in our economy as it creates jobs, fosters innovation and provides essential goods and services.” The statement includes a compelling commitment to stakeholder orientation – the belief that businesses need to consider and take into account all of its stakeholders (customers, employees, suppliers, communities, and shareholders) when making decisions.
Their statement was so compelling that it caught the attention of The New York Times, The Wall Street Journal, Forbes, Fortune and the others… I personally can’t help but be uncontainably excited that this conversation has entered center stage. And, within that excitement I also am grounded in a few thoughts and observations of my own:
- This is not a new or novel concept. Jack Welch famously took back his position on shareholder value by declaring, “On the face of it, shareholder value is the dumbest idea in the world,” Welch said. “Shareholder value is a result, not a strategy… Your main constituencies are your employees, your customers and your products.” Following up, John Mackey (CEO of Whole Foods) and Raj Sisodia (author of Firms of Endearment) co-founded the Conscious Capitalism movement over a decade ago. They go as far to include stakeholder orientation as one of the four core tenets required for the modern, sustainable, long-view business. Mackey argues that any business strategy that includes a tradeoff between stakeholders (meaning one must lose for another to gain) is a bad business strategy. Visit www.consciouscapitalism.org to learn more and if you are a business leader that already abides by this concept, consider signing the Conscious Capitalist Credo.
- The investor’s importance as a stakeholder is not diminished. At a conference I recently attended I heard a misconception that in this model, taking care of other stakeholders may come at the expense of shareholder interests. In fact, the opposite is true. Stakeholder Orientation (also referred to as Stakeholder Theory, Stakeholder Management and Stakeholder Interdependence) aims to benefit those that affect or can be affected by the company’s actions, objectives, policies and practices – typically employees, customers, suppliers, communities and investors. At the core, the notion is that if a business cares for the winning interests of all stakeholders there is ultimately more value and wealth creation for shareholders. Similarly, Herb Kelleher, founder of Southwest Airlines, argues for a people-first orientation famously saying, “If the employees come first, then they’re happy. A motivated employee treats the customer well. The customer is happy so they keep coming back, which pleases the shareholders. It’s not one of the enduring green mysteries of all time, it is just the way it works.” Southwest Airlines is the only airline that has always made a profit. That is a living example of a stakeholder ecosystem at work.
- Put your money where your mouth is. I think this is the biggest question that only time can answer. Do the 181 CEOs of the Business Roundtable mean what they are saying or are they just trying to join the “cool kid” conversation? Purpose, values-aligned culture, stakeholder models are all the trend in today’s business conversation and those concepts are easy to misappropriate or confuse with marketing messages. In our book, Get Your Head Out Of Your Bottom Line…and Build Your Brand on Purpose, we spend a considerable amount of time discussing the importance of walking the talk – and even more importantly, recognizing what and where in your organization supports or contradicts your ability to realize your purpose.
With that, I enter the next few months cautiously optimistic that this statement is more than a few words and becomes a recognizable, demonstrable reality in Corporate America. Now that would be powerful!