Top CEOs Redefine a Corporation's Purpose—We Couldn't Be Happier.

"Boom!!" - That's all our Executive Creative Director, Jason Strong, included in his email to the Executive Team.

He accompanied the onomatopoeia with a link to this Wall Street Journal, article heralding Business Roundtable's newly issued statement of a corporation's purpose.

Why would a creative guy get so excited about what nearly two hundred of America's most prominent C.E.O.s would say?

Well, it hits close to the heart of Latitude and something we focus on daily: Business can – and should – be a force for good.

The announcement has been met with support and cynicism, but current data, and our own experiences, shows that a business rooted in purpose goes much further.

The announcement.

In its August 19 statement, the Business Roundtable redirected the primacy of a corporation's purpose from just making money for its shareholders to serving the interests of all its stakeholders. That would include the likes of customers, employees, suppliers, the environment, and the communities in which they operate.

The statement overturns a five-decade business philosophy that posited the economy - and society - best benefits when an enterprises' principal objective is to generate financial returns for its owners. Now, these top C.E.O.s seek to advance the idea that society flourishes best when businesses focus on creating value for all stakeholders; with which shareholders are but one.

An excerpt from the announcement read:

"The American dream is alive, but fraying," said Jamie Dimon, Chairman and C.E.O. of JPMorgan Chase & Co. and Chairman of Business Roundtable. "Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community's unwavering commitment to continue to push for an economy that serves all Americans."

The cynics.

However, this new definition isn't eliciting the same response from many others.

Cynics, generally speaking, believe these elite C.E.O.s are playing politics to head-off socialist-like controls if Democrats take the helm - or to get into the good graces of socially-minded influencers.

In an August 19, 2019, New York Times article, Shareholder Value Is No Longer Everything, Top C.E.O.s Say, Nancy Koehn, a historian at Harvard Business School, said in an interview, "They're responding to something in the zeitgeist," she went on to say, "They perceive that ‘business as usual’ is no longer acceptable. It's an open question whether any of these companies will change the way they do business."

Others reassert the traditional purpose of a business—to make money for owners—is the better way. In an immediate response, The Council of Institutional Investors (CCI) expressed concern the Business Roundtable statement undercuts notions of managerial accountability to shareholders."

"The Council has a productive relationship with B.R.T. that has included discussion on corporate "stakeholder" obligations, but we respectfully disagree with the statement issued by the B.R.T. earlier today. The B.R.T. statement suggests corporate obligations to a variety of stakeholders, placing shareholders last, and referencing shareholders simply as providers of capital rather than as owners. CII believes boards and managers need to sustain a focus on long-term shareholder value. And, they believe, to achieve long-term shareholder value, it is vital to respect stakeholders, but executives must have clear accountability to company owners."

The Supporters: Restoring Virtue to Capitalism

This new definition tracks with Latitude's stated purpose to champion the idea that business is a force for good in the world. And, for us at Latitude, it's a reason for cautious optimism and high-fives; thus, Strong's email anvil-drop – “Boom!!”

“…it returns virtue to capitalism.”

We don’t see redefining a corporation’s purpose as a move towards socialism as detractors fear. Rather, it returns virtue to capitalism; a ship whose captains have steered it off course for decades.

And there are other’s that agree.

Darren Walker, President of the Ford Foundation and a Pepsi board member, believes today’s business climate is pushing many to the margins. In the same New York Times article referenced earlier, Walker said, "The ideology of shareholder primacy has contributed to the economic inequality we see today in America."

Paul Tudor Jones' sobering 2015 TedTalk, Why We Need to Rethink Capitalism, buttresses Walker's sentiment. Jones makes the case that an overemphasis on profits is exponentially escalating the income gap in America. A division he believes, as history indicates, will eventually be closed through revolution, war, or governmental redistribution of wealth; three outcomes Jones wants to avoid. So much so, he started Just Capital, a non-profit evaluating and reporting on the justness of America’s largest companies.

The Business Roundtable release portrays its C.E.O.s as motivated by more than altruism; they view generating value for all stakeholders as a better business practice. In the announcement, Tricia Griffith, President and C.E.O. of Progressive Corporation, said, "[most] C.E.O.s work to generate profits and return value to shareholders, but the best-run companies do more. They put the customer first and invest in their employees and communities. In the end, it's the most promising way to build long-term value."

And she’s right. Businesses that work to do more, build long-term value. It’s not just an emotional connection, there is data to support it. 

“Businesses that work to do more, build long-term value.”

It’s more than a feeling, it’s in the numbers.

Larry Fink, C.E.O. of BlackRock – the world’s largest investment management corporation and a subsequent Business Roundtable member – has championed the idea of working with a purpose beyond making money because it creates a distinct advantage in the marketplace. In his 2019 open letter to C.E.O.s, Fink doubled-down on his expectation that companies in which his firm invests must articulate a strategy to drive value for all stakeholders.

He defined purpose as "not a mere tagline or marketing campaign; it is a company's fundamental reason for being--what it does every day to create value for its stakeholders." He furthered, "When a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability." Surely, Fink has based his directive on more than just noble leanings; he's seen the data.

Over the past decade, research conducted by several organizations affirms the strategic advantage of operationalizing a purpose beyond just making money for shareholders. For instance, Ernst & Young collaborated with the Harvard Business Review to publish the 2016 groundbreaking study, The Business Case for Purpose. Of the 474 global executives surveyed, 85% of those who prioritized a purpose beyond generating a return for shareholders experienced revenue growth over three years as compared to only 58% of those who lagged in leading with purpose. These findings coincide with the analysis consumers believe business is best equipped to tackle today's issues.

According to the 2018 Edelman Earned Brand Global Report, 64% of consumers proclaimed themselves to be belief-driven buyers. While 53% agreed with the statement, "business can do more than government to solve societal ills." And, 60% of consumers say brands should make their beliefs clear.

In a recent interview, Klaus Schwab, the chairman of the World Economic Forum, echoed this phenomenon, "The threshold has moved substantially for what people expect from a company. It's more than just producing profits for the shareholders." Modern brands like Patagonia, Southwest Airlines, and Trader Joe's have tapped into this deeper consumer motivation to become preferred brands in their category.

The Purpose model works.

A lot of skepticism surrounds the Business Roundtable purpose statement and some of this skepticism is warranted. According to The Business Case for Purpose, even though 90% of executives say leading with a purpose is important, over half of them say purpose does not guide their decision-making.

I believe executives are sincere about wanting to lead with purpose but struggle to break free of Milton Friedman's owner-focused philosophy, which has gripped the C-suite and boardroom since the 1960s – which makes the announcement by the roundtable a welcome change.

Latitude has experienced first-hand the profitable effects that come with operationalizing a purpose. Established nearly ten years ago as a self-professed 'purpose enterprise,' working with a higher purpose has been at the heart of what we do. We put purpose at the center of every client brand strategy we formulate and we instill meaning into every experience we design. We know the amount of intent, thought, determination and trust it takes to lead with purpose.

First and foremost, C.E.O.s have to make the case to owners, employees, and others that working with a purpose to create value for all is a strategic imperative. The executive will have to cast a vision for improving the world in a way that will tap the shareholder's desire to be a part of something meaningful. To operationalize purpose enterprise-wide takes establishing a strategic architecture that is understandable, repeatable, actionable and compelling. And, most importantly, expressed in a simple and common language so all stakeholders can use with each other--effectively aligning the enterprise in a shared mindset. Which, according to McKinsey and Company's report Mastering Three Strategies of Organic Growth, is the top competency shared by high organic growth companies.

Ultimately, a C.E.O.'s task is to build a successful enterprise and Business Roundtable just flipped how success is defined. Every C.E.O. who signed that statement just slid themselves under a higher-powered microscope.

If they are serious, committed and willing to sacrifice for what they believe, I have no doubt they can change the world. They are on the right side of what is good and true. Because, when it comes to attaining success, I believe Viktor Frankl nailed it when he wrote:

"Don't aim at success. The more you aim at it and make it a target, the more you are going to miss it. For success, like happiness, cannot be pursued; it must ensue, and it only does so as the unintended side effect of one's personal dedication to a cause greater than oneself."

Boom!!