Ten years on from the financial crisis, in the teeth of a climate emergency, and with the rise of anti-globalisation populism and a new generation of activist employees, consumers and investors, some of the world's largest companies are trying to start a new conversation about capitalism.
The Business Roundtable - an association of some of the most influential CEOs in America - has made a much-publicised u-turn on a decades old approach to corporate purpose. The group of business leaders had previously argued that the "paramount duty" of companies was to their shareholders and that any other stakeholder interests - yours, mine, the planet's - were a "derivative" of this.
Last week that changed. The Roundtable issued a new "Statement of the Purpose of the Corporation" stating the need for meeting customer expectations, investing in employees - including by compensating them fairly and providing important benefits, dealing fairly with suppliers and supporting communities, as well as generating long-term value for shareholders. A sharp rebuke of Milton Friedman's shareholder primacy.
Several commentators have suggested the statement which was signed by 181 companies was nothing more than a publicity stunt. However, it is important to remember that bold statements of intent can create norms and shape behaviours across a range of industries. This move is welcome air cover for those who have dedicated most of their professional lives to helping the private sector to drive social change. It also provides new ammunition for activist investors, conscientious consumers, and effective regulators who want to hold business to account for its broader impact on society. There are three interesting observations on this particular turning point.
First, purpose statements are essential. They serve as a critical reminder to a company about the essence of why it exists and who it should help. They ensure that everyone operates on the same page. The statement should motivate and inspire everyone connected to the company. However, it is a company's culture that will determine whether it plays a meaningful role in society rather than a well-crafted statement of intent. Does it make decisions about its core business while referencing its purpose? Does it have a culture that encourages debate and challenge from all, no matter their level of seniority? What happens when short term pressures and the interests of other newly prioritised stakeholders come into conflict? Some companies have now established purpose councils made up of employees to act as the guardian of a company's purpose. This is a smart way to create curious employees who will help a company to stay true to its purpose.
Second, the communication of a company’ purpose is critical. Purpose-driven companies and brands are more successful, but that success is contingent on employees, suppliers, investors, consumers and broader society understanding and internalising a company's purpose. Rather than the traditional scattergun approach to communicating social impact, companies will have to be more selective about the issues they orientate their organisations around. It will require a less of a top-down approach to communications and more of a movement-based approach to driving messages. Businesses will have to ditch corporate jargon for a more conversational and collegiate approach. Brands such as Patagonia have done a great job of harnessing the energy of activists to do a lot of its storytelling.
Third, corporates will have to embrace activism. In practice, this means that corporate leaders will have to become more comfortable getting involved in the debates about some of the world's most significant issues, as well as the themes that they are accustomed to speaking about, such as financial performance. As most social activists will attest to, this will involve entering some challenging national and global conversations. It will inevitably involve dealing with counterpunches. The alternative, deciding not to take stances on issues that are connected to a company's stated purpose, will be perceived as "purpose-washing". Millennials and Generation Z audiences, who believe that brands should take stances on relevant social issues, will be particularly quick to call out such inauthenticity, as Pepsi found out with its attempt to associate itself with the Black Lives Matter movement. Nike, Dick's Sporting Goods and P&G have all demonstrated that a company can take a stance on a social issue without the sky falling.
This is a moment of opportunity if companies are willing to match intent with culture change and action. The prize? A reinvigorated workforce; consumers who build loyalty to a brand that stands for issues; and becoming more attractive to socially conscious investors who increasingly demand that their funds should be used to generate financial returns whilst also having a positive social impact. Now is the time to act.
Co-founder and CEO of Purpose Union and author of Words that Win