What’s the Purpose of a Corporation?

By September 20, 2019Beyond Supply Chain
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The sun rises in the east, one plus one equals two and the purpose of a corporation is to maximize shareholder value. All three statements were immutable facts in our daily lives …
until August 19, 2019.

On that day, the Business Roundtable (BRT), an organization that includes nearly 200 large corporations in the United States, issued a new purpose for the corporation:

    • Delivering value to our customers
    • Investing in our employees
    • Dealing fairly and ethically with our suppliers
    • Supporting the communities in which we work
    • Generating long-term value for shareholders

According to BRT, “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.”

Perhaps you didn’t notice this announcement at the time it was released. At first glance, it sounds like a lot of the things you’d expect corporate PR departments to say about their companies. So, should we buy it?

The cynic in me wants to dismiss it. Last week, I attended an event with several high-tech supply chain executives and the topic came up. The conventional wisdom in the room was that the BRT announcement was window dressing versus the dawn of a new era for business. But there was also a little voice in my head that said, “Maybe this is the start of a more thoughtful role for our corporations.”

Delving further into the backstory, many of the CEOs who signed were initially influenced by customer and employee pressures, though they seem to have internalized the importance of broader stakeholder engagement. On a positive note, some CEOs have noted that corporations shouldn’t just “do good as a side hustle.” Others are considering whether the “good works” done with one hand of their companies are negated by equivalent harm done by the other.

The latter seems to be a specialty of large companies. But there are also leading indicators that this new corporate purpose statement might have legs.

Just ask:

Employees — Poll any CEO or chief supply chain officer on their top priorities, and talent management will be in the mix. In 2017, Nielsen conducted a survey that asked the five generations in the workforce (Silent Generation to Gen Z) how important it is that companies implement environmental improvement programs. More than 80% of younger respondents (Gen Z and millennials) felt that investment in the environment was very or extremely important. Overall, millennials had the strongest response rate at 85% in the two “most important” categories.

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Why does this matter? According to a recent EY study, by 2025, the millennial cohort will account for 75% of the total workforce. Beyond environmental sustainability, people in this group generally seek out companies that reflect their personal values. Purpose-led organizations can win in this type of talent marketplace. A standing commitment to employee development can also be a differentiator.

Customers — Many of the supply chain executives we speak with at Gartner tell us that customers now include measures of social responsibility in their supplier selection criteria. Some customers use formal supplier rating services to verify that material environmental, social and governance risks are satisfactorily addressed. A score below a threshold level doesn’t mean less business, it means no business. The shift from pure shareholder value, measured every financial quarter, to also considering long-term customer value can also benefit companies pursuing strategies such as circular economy models. Early adopters are lowering the total cost of ownership for customers while boosting the total lifetime value to them as suppliers.

Shareholders — And what about those shareholders who share the spotlight with myriad other stakeholders? As it turns out, they are pushing for many of the same priorities. According to the Harvard Law School Forum on Corporate Governance and Financial Regulation, the “most significant change in investors’ voting behavior pertains to environmental and social issues.” The underlying motives are more risk management-based than altruistic, but they are driving changes nonetheless. This is evidenced by an “increased willingness of companies and proponents to work together to forge a solution, supported by a record proportion of environmental and social proposals being withdrawn prior to the (proxy) vote.”

Supply Chain — We’ve Got This

As an organization, supply chain tends to employ the majority of people in large, product-based corporations. It is also, typically, the largest steward of natural resources. Finally, supply chain plays a critical role in both the delivery of positive customer experiences and financial results. Who better to deliver the promise of our more purpose-led corporations?

Stan Aronow
VP Distinguished Advisor
Gartner Supply Chain
[email protected]

Please contact me directly with any comments, questions or suggestions. I welcome your feedback.

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