How Will We Know CEOs are Making Good on Their Promise to All Stakeholders?

Co-written with Michael Green

For decades, corporate executives have held to the standard that shareholder value comes first, above all other concerns. Until now. Business Roundtable put forth the news we have been waiting for: a new Statement on the Purpose of a Corporation, signed by nearly 200 CEOs. The statement pledges each CEO to lead for the benefit of all stakeholders, such as customers, employees, suppliers, and communities — not just shareholders. It’s not clear what each corporation will do to make good on their promise, but if they mean business, their businesses will need to change.

If corporations, backed by investors, do change how they operate to create value for all stakeholders, how do we tell? Most corporations are not designed — in terms of policies, procedures, or precedent — to meet this revised purpose. The daily stock price and quarterly earnings don’t tell us much about how well corporations are serving these wider stakeholders. Soaring stock prices and economic growth has bubbled along nicely in recent years and unemployment is at record lows. Our standard economic dashboard says everything is fine, so what do we expect to be different?

One of the first signs of a turning tide in business is the new focus on delivering long-term value for shareholders. An increasing number of corporations have embraced “shared value” concepts and sustainability strategies over the past decade. From the investor side we have seen Larry Fink of BlackRock leading the way with his CEO letters of 2018 and 2019 urging businesses to take social and environmental risks more seriously. Indeed, the Business Roundtable announcement urges “leading investors to support companies that build long-term value by investing in their employees and communities.” It takes two to tango and both partners, CEOs and investors, now say they are ready to dance.

A second and crucial piece of evidence will be how corporations invest in their employees and communities. In terms of creating the capability to lead for all stakeholders, a number of signatory companies are creating internal knowledge that may be useful in balancing stakeholders through Global Pro Bono programming, where employees are directly engaging with mission-driven organizations to advance corporate social goals.

The SAP Social Sabbatical program is now the largest Global Pro Bono program, serving communities through local and cross-border efforts, while also building leaders for just the type of purpose-driven company that the Business Roundtable statement describes. Other leaders in the Global Pro Bono space include 3M, Medtronic, Pfizer, EY, Johnson & Johnson, FedEx and Dow; and the newest entrants to the Global Pro Bono space from the financial services sector, Moody’s and BlackRock.

JPMorgan Chase has married its human capital commitment of pro bono assistance with financial capital in its multi-year commitments to Detroit, Chicago, and DC, seeking to show significant positive impact on the economies of these large cities. And John Deere, a company “committed to those who are tied to the land” has made a decade-long commitment to agrarian villages in rural India through the Joint Initiative for Village Advancement (JIVA), and is now adapting this model to Nigeria through the Rayuwa program; in each case, Deere combines its philanthropic dollars with pro bono assistance to these communities.

While these programs are relatively small in relation to the overall global footprint of the corporations in question, each provides a unique opportunity for leaders to gain deep insights into the real challenges and desires of communities, customers, and employees. Obtaining this level of understanding can help companies avoid the age-old problem of their providing what they want to give, versus what is actually needed.

Ultimately, we will know that CEOs are making good on their promise if we measure it. The challenge is that our economic measures only tell part of the story. This is evident from the findings of the Social Progress Index, a benchmark of national performance based exclusively on social and environmental quality of life indicators. By this measure, the United States is busting, not booming. We rank just 25th in the world on social progress and we are one of a handful of countries going backwards. As Professor Michael Porter of Harvard Business School, chief adviser to the Social Progress Index, puts it, “America is mired in a social progress recession.” The new bottom line for a nation pursuing inclusive, sustainable long-term growth must be GDP plus social progress. Business cannot deliver this alone, but it has a critical role to play.

Such a strong statement from the Business Roundtable feels like a watershed moment. Corporate America’s volte face means a new focus on employees and communities is possible. Whether corporations possess the know-how required to lead for all stakeholders is yet to be seen. But what we can see are incremental steps that should be watched closely in the years to come.

*Michael Green is CEO of the Social Progress Imperative. An economist by training, he is co-author (with Matthew Bishop) of Philanthrocapitalism: How Giving Can Save the World and The Road from Ruin: A New Capitalism for a Big Society.

Image credit: Alessandro D'Andrea/Pixabay