Purpose – This Was the Buzzword of 2019 for The Corporate Sector & Investment Community. The “Purpose” Debate Will Continue in 2020

by Hank Boerner – Chair & Chief Strategist – G&A Institute

Another in the series about The Corporate Citizen and Society

As 2019 draws to a close — we look back at a year with a lively discussion about The Corporate Citizen and Society…and “Purpose” discussions…

The year 2019 began with an important challenge to corporate leaders from Larry Fink, chairman and CEO of the world’s largest asset manager, BlackRock (with more than US$6 trillion in AUM). 

The very influential investor writes each year to the CEOs of companies that his firm invests in on behalf of BlackRock clients. There are literally hundreds of publicly-traded companies in the BlackRock portfolio (managed and indexed funds).

At the start of 2018, CEO Fink wrote that every company needs a framework to navigate difficult landscapes and it must begin with a clear embodiment of the company’s purpose (in the business model and corporate strategy).

He explained to the many CEOs: “Purpose being not a mere tagline or marketing campaign; it is a reason for the company’s being – what is does every day to create value for its stakeholders.”

Then (in January 2019) Larry Fink explained in his start-of-the-year letter to CEOs as he expanded on the theme, Purpose is not the sole pursuit of profits but the animating force for achieving them.  And, profits are in no way inconsistent with purpose; in fact, profits and purpose are inextricably linked.

This 2019 communication to CEOs pointed out that the world needs their leadership (especially) in a polarized environment. Stakeholders are pushing companies to tackle social and political issues as governments fall short of doing that.

And (very important) Millennials, now outnumbering the Baby Boomers in the workforce, represent a new generation’s focus – on various expressions of, and clear demonstrations of corporate purpose.

The January 2019 letter of course created a buzz in the corporate sector and in the capital markets as people thought about the meaning and weighed in on all sides of the issue.  What many agreed with was that there were now clear signals that the half-century doctrine for the corporate sector of “shareholder primacy” was giving way to “stakeholder primacy.”

As the purpose discussion rolled on, in August 2019 the influential Business Roundtable issued a revision of its Statement on the Purpose of a Corporation, signed by 181 of the CEOs of the largest of American companies (firms both publicly-traded and privately-owned). 

Important step forward: the CEOs publicly committed to lead their companies for the benefit of all stakeholders: customers, employees, suppliers, communities, and shareholders.

The Roundtable’s Principles of Corporate Governance has been issued since 1978; from 1997 on this endorsed the principle of shareholder primacy (that corporations existing principally to serve shareholders).  The new statement, said the BRT in summer 2019, outlines a modern standard for corporate responsibility. 

The team at G&A Institute looked at the companies whose CEOs are members of the Business Roundtable (almost 200 in all), examining their public disclosures and structured reporting on “walking-the-talk” of “purpose” and “responsibility to stakeholders” 

What are the companies doing — and how are they telling the story of the doing — the walking the talk?

Our approach was to analyze the means of disclosure and reporting “on corporate purpose” and the focus on any related content of sustainability / responsibility / ESG / corporate citizenship reporting by the BRT member companies.  (The good news to share:  there’s plenty of relevant information on purpose in the leadership corporate reporting. You can read through the respective corporate reports to divine the meaning and expressions of purpose in the pages.)

The analysis is available on the G&A Institute web site – see this week’s Top Story for the headline and link to our Resource Paper. There are relevant links there as well.

What will the purpose of the corporation discussion be in the new year, 2020?  Stay tuned to the perspectives shared that we’ll have in our G&A Institute Sustainability Highlights newsletter and on this blog.

Best wishes to you for the holiday season from all of us at G&A!

BlackRock CEO Larry Fink’s 2019 letter: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

G&A Institute Releases Analysis of The Business Roundtable Companies’ ESG Reporting Practices
Source: Governance & Accountability Institute

Highlights:

 Governance & Accountability Institute’s research team examined the ESG / sustainability reporting practices of the BRT signatory corporations to examine trends and create a baseline for tracking progress and actions going  forward.  G&A released these initial benchmark results in a resource paper available on our website.

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