Contributor, Korn Ferry Institute
Daniel Goleman, author of the best seller Emotional Intelligence, and co-developer of the Goleman EI online learning platform, is a regular contributor to Korn Ferry. His latest book, Altered Traits: Science Reveals How Meditation Changes Your Mind, Brain, and Body, is available now.
It’s been a year since the Business Roundtable (BRT) published their statement on corporate purpose. Signed by 181 leaders from companies such as CVS, Amazon, Apple, General Motors, Pepsi, and Johnson & Johnson, the statement quickly became a milestone in the purpose movement, a commitment on behalf of some of the country’s most well-known companies to think more deeply about the future of people and the planet.
When I wrote about this event last August, I ended my article with a question: Beyond their signatures, how will these CEO’s transform their organizations to put purpose at the very center?
After all, we know there are good reasons for companies to embrace purpose. The Harvard Business Review has reported that purpose-driven companies outperform the market by 5%–7% per year. And according to PWC, 73% of employees who say they work at a “purpose-driven” company are engaged, compared to just 23% of those who don’t. Isn’t this enough of an incentive to make purpose a north star?
According to a recent op-ed in the Wall Street Journal, maybe not. Researchers contacted the companies whose CEOs signed the statement and asked, “Who was the highest-level decision maker to approve the decision?” Only 48 companies responded, and only one of those firms said the decision was approved by their board of directors. “What can explain a CEO’s decision to join the Business Roundtable statement without board approval?” the researchers asked. The most plausible explanation, according to the researchers, is that “CEOs didn’t regard the statement as a commitment to make a major change in how their companies treat stakeholders.”
While it’s tempting to see the majority of these signatories as “purpose-washing,” it may be helpful to take a step back and look at the whole picture. In a study on stakeholder governance, the Harvard Law researchers documented several ways in which corporate leaders have strong incentives to enhance shareholder value but “little incentive to treat stakeholder interests as an independent end.” Because of this, they argue that corporate leaders have significant incentives not to benefit stakeholders at the expense of shareholder value and therefore can't be expected to do so.
While last year’s statement on purpose opened a larger conversation on the role of business in benefitting society, it didn’t necessarily offer organizations a clear roadmap for pushing back against the status quo. It did inspire The World Economic Forum and people like Larry Fink, CEO of the investment firm BlackRock, to demand companies think harder about how they will grow profits while benefiting society over the long term. But the forum has not provided a clear roadmap. In the end, perhaps the Business Round Table statement served more as a conversation catalyst rather than a clear path to systemic change.
As any good coach or organizational psychologist will attest to, changing behavior takes clarity, commitment, determination, and time. Tangible or intangible, there must be incentives—clear benefits—in order for people to willingly face disruption and discomfort. My guess is that while many leaders see the greater benefit of serving people and the planet, they can’t always see a clear way to do that without letting go of the benefits they reap by focusing solely on their financial performance.
Last year’s statement was the first time the BRT defined what a commitment to purpose looks like: investing in employees through fair compensation, important benefits, training, education, inclusion, dignity, and respect; dealing fairly and ethically with suppliers; and giving back to the local communities and embracing more sustainable business practices.
One year, a global health pandemic, and a good hard look at racial inequality later, and it’s strikingly clear: that statement on corporate purpose is more important than ever. At the very least, it gave us new language around purpose. At the very best, it got some of the signatories facing the complexity of change before circumstances so readily forced them to.
Maybe the question is more like this: How much time and energy do we have for this these days? How do we incentivize leaders to put people and the planet at the very center of their decisions?