A few weeks ago, The Business Roundtable reached a major milestone on the path toward a broadly accepted redefinition of business purpose. What's next? We have some ideas.
In an open letter signed by 181 CEOs, from Apple to Walmart, the group expressed its commitment to managing companies for the benefit of all stakeholders — with customers, employees, suppliers, communities and shareholders named explicitly as top priorities; and a healthy environment described as going hand-in-hand with supporting all communities in which businesses operate. The last two sentences of the letter were unequivocal:
“Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
Milton Friedman must be rolling over in his grave, seeing as this statement is in sharp contrast with the shareholder-supremacy model which has dominated the global economy for the last several decades. We at Sustainable Brands® (SB) strongly agree that such a pivot serves people around the world better and promotes an economy that is stronger, healthier, more resilient and more equitable. This kind of thinking has been at the core of our mission since our founding in 2006, and it is consistent with our first principles and theory of change. That is why the global SB community welcomes this change with an encouraging and can-do attitude.
The link between purpose and profit still remains vital for this next stage of the evolution of capitalism. Blackrock CEO Larry Fink articulated it well in one of his recent annual letters when he wrote, “Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose. In fact, profits and purpose are inextricably linked.”
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Leading research shows that companies with a strong commitment to environmental and social purpose consistently outperform the market — they tend to grow faster and generally have higher profitability. A recent Harvard-Columbia study found this purpose premium to be 5–7 percent per year, on par with companies with top-notch governance and innovation capacities. SB’s own corporate membership network of over 80 companies generated $2.9 trillion in revenue in 2018, with a total annual growth rate of 17 percent — far beyond the US GDP growth rate. These data points support our belief that businesses are in the unique position to succeed by solving global societal and environmental challenges. With all this in mind, we warmly welcome the Business Roundtable to the party — after all, it is far better to join the party late than to miss it altogether.
What the Business Roundtable leadership hasn’t discussed publicly yet is how to do it — how it plans to accomplish the ambition shared in its letter. The Why and the What are of course important, as those frame the overall mission. However, the ability for a business to deliver on its mission is predicated on its ability to adapt, learn and build capacity — in essence, the How. A shift of this magnitude, from a narrow focus on quarterly earnings for shareholders to long-term strategies for all stakeholders, requires a holistic systemic reset. These 180+ companies — and many more that we are confident will follow — need to adjust their core strategies, supply chain relationships, operational tactics, innovation pipelines, stakeholder engagement priorities and, in many cases, governance practices in order to be consistent with the new paradigm. This means reinventing goal-setting, planning, measuring and reporting, as well. It’s a tall order.
So, how do we do it? We must evolve from redefining the purpose of business to redesigning everything mentioned above in order to deliver on this new, more balanced vision.
The SB community has been working on the How, in parallel with the What and Why, for over a decade and we have many (but by no means all) of the answers. We have worked to distill the key steps on the journey from business-as-usual to a sustainable brand through our SB Brand Transformation Roadmap™ — an orientation and navigation tool that not only fully meets the needs of the Business Roundtable’s new purpose of a corporation, but also breaks down the journey into practical levels of maturity and achievement, helping set appropriate goals and priorities in all departments and find the right collaborations (both internal and external) to speed up progress.
Furthermore, the SB community has been studying, synthesizing and applying the best available thought leadership around measuring both business risk and positive impact with respect to all essential stakeholder groups: customers, employees, suppliers, communities and shareholders. This is the basis of SB’s New Metrics series of conferences, currently running in its 9th year.
Between our theory of change, the SB Brand Transformation Roadmap™ and New Metrics, the SB community not only welcomes Business Roundtable’s recent redefinition of the Purpose of a Corporation, it also stands ready to share best-in-class know-how with respect to goal-setting, implementing, measuring and reporting on success. We have been seeding this work for many years, and the moment to take it to the next level is now. Our sleeves are rolled up and we are tackling precisely the journey that the Business Roundtable is committing to. Let’s all get to work together and solve these challenges through social and environmental innovation at scale.