CEOs Get Vocal About the Purpose-Profit Link

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The August 19th Business Roundtable news sparked an enormous amount of press–181 CEOs of the Business Roundtable signed a new statement of purpose for the corporation. These CEOs committed to lead their companies for the benefit of all stakeholders–customers, employees, suppliers, communities and shareholders, not just owners alone.  

This is a positive step. It was bold and unexpected. But it was considered lip service by many. And it was alarming to some. 

The Economist published an article stating, “However well-meaning, this new form of collective capitalism will end up doing more harm than good. It risks entrenching a class of unaccountable CEOs who lack legitimacy. And it is a threat to long-term prosperity, which is the basic condition for capitalism to succeed.”

I reject the idea that building value for a broader set of stakeholders will harm capitalism. Instead, I think it will strengthen corporations and our society. 

Investors, consumers and employees have already pushed companies to think beyond purely financial measures. 

  • Investors: In January 2018, BlackRock CEO Larry Fink sent a letter to CEOs of public companies telling them that their responsibility is not only to deliver profits but also to make “a positive contribution to society.”

  • Employees: A 2016 Study revealed that 64% of Millennials won’t take a job from a company that doesn’t have strong CSR practices.

  • Customers: 2018 Edelman research found that 1 in 2 people are belief-driven buyers who will choose, switch, avoid or boycott a brand based on where it stands on the political or social issues they care about.

As I see it, the Business Roundtable statement is playing catch-up. Many CEOs have been out front with the multi-stakeholder model for some time.

The New York Times published a piece this month from Salesforce CEO Marc Benioff titled, “We Need a New Capitalism,” stressing that executives have a responsibility to society along with delivering profits. 

The most successful organizations in the long-term will be the ones that optimize value for all their stakeholder groups. George Serafeim of Harvard Business School and Claudine Gartenberg at Wharton contend that the choice between profit and social purpose is a false one, as companies “with high levels of purpose outperform the market 5% - 7% per year.” 

I work with several CEOs who already make broad stakeholder engagement a core part of their strategy. Edwards Lifesciences, located in Irvine, California, is one great example. 

The company keeps intense focus on delivering innovative, quality products that save patients’ lives. They build strong relationships with doctors, researchers and health care providers. They’ve created an employee culture founded on a strong purpose that encourages curiosity and supports innovation. And at every level and around the world, the company is working to help the communities around them. 

All of this has ultimately contributed to strong returns for shareholders. The company’s stock price has increased consistently since the company was established on the New York Stock Exchange nearly 20 years ago. Edwards’ market cap has climbed dramatically in the past five years—from $12.43 billion in October of 2014 to $47.28 billion in October of 2019. Chairman and CEO Mike Mussallem was just recognized this week by Harvard Business Review as No. 12 on the ranking of the world’s best- performing CEOs, which considers financial performance over time as well as scores for environmental, social and governance actions.

Mike firmly believes that we all have the responsibility and the opportunities to lift others up. In a recent interview, he said, “We’re believers that we should be givers to our community, not takers.”  The actions Edwards takes are not only with dollars from their foundation and employee volunteerism and charitable contributions but also through Mike’s own commitment of time. For example, he and his team are working with other leaders in Orange County to help solve some of the most difficult problems facing the communities where Edwards employees live and work.

I believe we have crossed the tipping point. The danger is that the late adopters to the multi-stakeholder model will say they are committed but not take real actions beyond their grand statements. The purpose movement is only sustainable if we make fundamental changes to our operations and help others grow into what it really means to lead with purpose. I look forward to sharing more real-world examples.