Test of corporate purpose
This week I learned about a new comprehensive survey titled A Test of Corporate Purpose. It examined whether the Business Roundtable’s much heralded redefinition of the Purpose of a Corporation, launched in August 2019, was carried out in practice. BRT argued that companies now need to hold stakeholder primacy as dear to their deliverables as shareholder primacy. The world has become too complex to dwell only on profit-making as the holy grail. Over 180 prominent CEOs pledged to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders. The pledge made headlines around the world, jumpstarting a major rethink on the purpose of business in society. Of course, like everything else in this polarized environment, this new corporate roadmap was met with cynicism and praise.
It should not be a surprise then that one year later, researchers inquired whether this BRT purpose-driven commitment had been put into action and progress could be measured while mega-crises were pummeling the bottom line and raging all around us — a deadly pandemic, heightened racial injustice, forest fire devastation, rising unemployment, and political unrest. As noted in the TCP executive summary, “a quantitative stress test of corporate purpose” was undertaken to see whether stakeholder primacy was winning out over — or on par with — shareholder primacy (the Milton Friedman doctrine). A Test of Corporate Purpose was conducted by the Ford Foundation along with consultancy firm KKS Advisors and other notable and luminary experts and researchers.
TCP sought to answer three important questions and here is a brief Q&A from the results:
Q1. Is there any relationship between being a company with aspirations to be purpose-driven and how a company performs when put to the test during times of crisis? Answer: Being a BRT signatory has a small but negative effect on companies’ COVID-19 responses and a slightly positive impact on their performance on racial and equality measures.
Q2. What is the relationship between proactive company strategies to address issues before a crisis and their performance during a crisis? Answer: Companies that have a consistent, positive track record of effectively managing issues relevant to COVID-19 or Inequality have continued along the same outperformance trend during the crisis.
Q3. Does it matter how quickly a company responds to a crisis? Answer: Companies that have responded positively to the COVID-19 crisis at its onset – between the downfall and recovery of the S&P 500 – continue performing better than late responders during the following months.
The New York Times columnist Andrew Ross Sorkin’s take is that “The results have fallen short of the promise…” A more measured and qualified response comes from Professor Robert Eccles, visiting professor at SAID Business School and world leader on integrated reporting, who has written two articles in Forbes (here and here) on the TCP study along with actionable guidelines on how to get companies to live up to their pledges of being purposefully led. Eccles is deeply involved in the research and someone I commend for his dogged pursuit of getting board of directors to sign a company-specific, stakeholder-inclusive “Statement of Purpose.” (One of his calls to action.) Plus I met him years ago and value his opinions.
As I see it, the results are directionally positive. Lets not forget we are only one year out since the BRT issued their new directive on valuing all stakeholders. A purpose-driven revolution that takes society into deeper consideration by business is just getting started. Similar to BLM, a pivotal or inflection point just took hold and it is going to take some time and maturation to reach greater penetration and see more definitive results. If true that only 8% of people, according to the TCP global survey, believe that the purpose of business is simply to generate profits for shareholders versus a whopping 92% for all stakeholders, the tide has already turned and the results will eventually come. The results are just lagging at this point. This decade will be the measuring stick for embedding purpose in strategy and I firmly believe that corporate reputations will be built on how companies have responded to their purposeful missions and to these unprecedented crises.
I was particularly fascinated that TCP provides scoring on how individual companies fared on the answers to these three above questions and all the metrics they were measured on. You might want to look up your company and see what metric needs improvement and how you fare. As seen in my post on the multiple of scorecards that now exist to measure corporate response on the biggest societal issues of our time, corporate America is being held accountable. Citizens will not have short memories because they can look you up. I will be adding TCP to my list.