The shift to stakeholder capitalism is forcing companies to reconsider the relationship between performance and purpose.
It’s hardly earth-shattering to suggest that new communications technologies, environmental and social justice movements, and economic disruptions, to say nothing of the powerful social and economic impacts of COVID-19, are transforming the relationships between business, society, and governments.
With the shift from “shareholder” to “stakeholder” capitalism, and the corresponding increase in expectations around transparency, equity, and your organization’s values, the bottom line is no longer the bottom line.
Sure, performance still matters, and successful businesses deliver market value, or they don’t survive. But increasingly, your stakeholders – from investors and customers, to employees, partners, regulators, and others – also want to understand why you do what you do (your purpose) and what contribution that makes to the communities you operate in.
I was reminded of this recently when I read an interview with Lynn Forester de Rothschild, Founder and Chair of the Coalition for Inclusive Capitalism. In it, she talks about the notion of the common good and what it means for business. While she believes that most C.E.O.s and boards of directors are willing to do their part to increase social and economic inclusion, or fight climate change, that willingness doesn’t always translate into corporate action. By way of example, she cites a conversation she had with a senior government official from a previous U.S. administration. He told her that “in his four years in office, only one C.E.O. asked to go and see him about an issue of the common good. Everyone was coming in to push what they needed for their own book [of business].”
Having worked in government this resonates. You could fill a whole day, and then some, with meetings with people who are more than happy to tell you everything government can do to help their business or organization. But, while government is there to help solve problems, the most compelling stakeholder conversations I can recall are those in which the person raised an issue that had broader impact, beyond the usual “what we’re asking for from government will create jobs, etc.” argument, to create a greater benefit.
Like de Rothschild, I believe most business leaders do want their organizations to contribute to addressing society’s biggest challenges in whatever way makes most sense for the business. But two things separate the “dreamers from the doers.”
First, the doers understand that increased stakeholder expectations isn’t just a risk to be managed, but also an opportunity for businesses willing to seize it.
Second, they recognize that it’s not about what you say, it’s really about what you do, and the values that underpin the actions you take.
Sounds simple, but sometimes when talking with others they see purpose as a communications tool and their commitment to it is no deeper than a brand campaign. But when purpose is tied to real action, action that contributes to the common good, we see stronger corporate performance, better engagement with stakeholders, and positive impact on reputation. The question for business, then, is: are you ready to invest in “doing?” Your answer will reveal a lot about the risks and the opportunities ahead for your organization.