It’s not every day that something steeped in the landscape of business as we know it just…changes. That’s just what happened when the Business Roundtable gathered in late August of 2019 and declared their point of view that optimizing shareholder value was no longer the chief goal of an enterprise. Dr. John Kotter shared his reactions to the new Statement of Purpose of the Corporation–and what is needed to make it come true–in his op-ed published on MarketWatch. Curious to learn more, we asked readers of our newsletter to respond to a short survey on whether the Business Roundtable’s recent headlines are making an impact. Participants also had an opportunity to pose questions directly to Dr. Kotter.
We are pleased to share the survey data, along with many of Dr. Kotter’s responses to those questions. The engagement was so rich, he will be responding to additional questions asked in the coming months.
Survey Question | Have you heard about the Business Roundtable’s recent “Statement of Purpose of the Corporation,” also called its “Commitment”?
More than half, 55%, of respondents had heard of the Statement.
Survey Question | As you may have read, the Business Roundtable declared the purpose of the corporation is to enhance the interests of five “stakeholders” — customers, employees, suppliers, communities and owners/shareholders — instead of just one stakeholder — owners/shareholders — and their interest in maximizing shareholder value. How strongly do you agree or disagree with this change of purpose?
Of those respondents who had heard of the Business Roundtable’s statement, nearly all, 91%, agree that the purpose of the corporation is to enhance the interests of all five stakeholders–customers, employees, suppliers, communities and owners/shareholders–instead of just one stakeholder: owners/shareholders, and their interest in maximizing shareholder value. Of that 91% who agree with this purpose of the corporation, 74% strongly agree.
Survey Question | Why do you agree? (Check all that apply)
More than half of those who agree said the reason(s) they agree include:
Fewer, 36%, said their reasons include:
The new statement of purpose of the corporation, supported with the signatures of 181 major company CEOs, will help reduce the dysfunctional importance of quarterly earnings reports.
And 17% added their own reasons. Some representative reasons follow:
- This was already an emerging trend in Europe.
- Whatever we do, we need to have the consumer voice with more consideration and power. Community health and well-being needs greater consideration as we aim to stop the acceleration of decay and negative impacts on our planet and society. We need to do things differently!
- It is a smart move as any further Business growth will be linked to overall well being of people and communities.
- Michael Porter made this case many years ago. We’ve been applying it at our institution since 2010. It builds a healthy culture, attracts ethical and responsible employees, and our customers respect and expect it from us.
- It stresses the value of Servant Leadership, which builds an organizational culture that increases the total value of the goods and services offered and creates true synergism within the organization as well as between it and its various constituents.
- The obsessive focus on profits and market capitalization has contributed greatly to the dangerous trend toward widening income and wealth inequality that emboldens self-centeredness which is an underlying cause of most of the issues we face today.
Survey Question | Is there an effort underway in your organization to transform in order to address the five stakeholders’ interests more comprehensively?
22% of respondents reported that there is “definitely” an effort underway to address the 5 stakeholders’ interests more comprehensively. About a third said there was “somewhat” of an effort underway and 44% said there was “not really” any kind of effort underway.
Survey Question | Are actions progressing successfully in your organization to address the 5 stakeholders’ interests more comprehensively? (Check one that most closely applies)
Among those who said there was definitely or somewhat of an effort underway to address the 5 stakeholder interests, a plurality of 40% said it was progressing successfully “Somewhat for one or more of the 5 stakeholder groups.” A minority of respondents said it was progressing successfully:
- Definitely for each of the 5 groups (12%),
- Definitely for one or more of the stakeholder groups (20%) or
- Somewhat for each of the 5 groups (11%)
Q + A with Dr. Kotter
Dr. Kotter chose two survey respondents’ questions to answer initially, and we will continue the conversation next month with more Q+A about the Business Roundtable statement.
Participant Question | Should this new “purpose” of businesses, as stated by CEO members of the Business Roundtable, be taken at face value or is this more a public relations exercise or public posturing for an upcoming presidential election in the U.S.?
Dr. Kotter’s Response | It would be odd if a few CEO signatories were not thinking in those public relations or posturing terms. But for the majority of the group, the best evidence we have is that they are stating what they believe to be an important truth. For some of them, this insight has been coming through their personal experiences. Maximizing shareholder wealth as a focus has not worked well or at least adequately, and a broader focus has made their firms thrive more. For others, their reading of the future with an increasingly millennial workforce, and with increasing pressures on businesses to help more broadly with societal issues, has led them to conclude that this change in purpose is needed. For others, they have been watching more and more of their respected peers move in this new direction and have concluded that those others are onto something.
Participant Question | In light of your answer to the last question, why has it taken so long for such a pronouncement to be made?
Dr. Kotter’s Response | It could be a tipping point issue. That is, a decade ago not enough CEOs had enough experience with the problems of the shareholders maxim or enough experience with this new alternative. Millennials with their very different attitudes about corporate responsibilities were a much smaller percentage of the workforce. The number of CEOs with respected colleagues moving in a different direction was smaller. The verbiage in the presidential race was not as anti-corporate. And most fundamentally of all, the rate of change in the world was smaller, and thus the consequences were less for not paying great attention to how product markets, labor markets, supplier markets, and relevant communities were shifting.
Participant Question | What is the most significant change that companies can do to show immediate progress related to the recent directions defined in the Statement of Purpose?
Dr. Kotter’s Response | The restatement of purpose has significant implications on virtually all the activities within a business. The most impactful first step, therefore, may be simply a serious discussion about the implications of this broader view of stakeholders on the business’s activities. For many of the best run companies, not too much will change as a result of such an exploration because they have always taken, or at least today already take, this broad perspective. For other organizations, the changes will be greater, in some cases very significant and complex. Specific actions will vary but could range from: reviewing executive compensation to ensure it incentivizes long-term performance, not just short-term financial results; to creating more forums to introduce the voice of the customer; to reviewing employee benefit programs through a more holistic view not just a short-term cost analysis. The stockholder primacy in the last few decades has often driven an incredibly narrow focus on the quarterly reporting cycle. Quite possibly the biggest impact of considering all stakeholders in decision making will be a shift away from this very one dimensional, time consuming, short-term exercise.
Participant Question | In your Op-ed you mentioned the publication coming out in 1992, indicating what seems obvious to most except the C-Suite. Why do you think it has taken so long for the concept of full stakeholder inclusion to take on?
Dr. Kotter’s Response | As I stated in a response to another question in last month’s newsletter, it could be a tipping point issue. The last decade has seen much greater activism, customers who are sensitive to issues like climate change, a workforce that has different expectations, and some attention-grabbing headlines about the negative consequences of short-termism at corporations. All these combined with the accelerated rate of change and the corresponding need to pay closer attention to all relevant factors, especially key stakeholders, are putting a greater spotlight on what our 1992 study showed. It is becoming more and more a question of simply surviving let alone excelling.
Participant Question | Are the five parts equally important or is it possible that there is some kind of priority?
Dr. Kotter’s Response | The issue of prioritization only comes up if there is an immediate trade-off to be made in decision making – i.e., with $X available in the budget, should you increase employee pay or benefits or decrease prices to customers? While in the short-term, these trade-offs do exist, in the long-term they do not if your goal is to really excel. All stakeholders must give you an A grade. Anything less introduces risks that undermine excellence. Now there are a number of different theories about causality: some say that if you take care of your employees, everything else will sort itself out well; others say the same but emphasize customers or stockholders/profitability. But all these notions end up at the same place: some dynamic leads to well-cared-for customers, employees, owners, and any other relevant groups.
When the Statement from the Business Roundtable was first released a few months ago, we at Kotter were pleased, as it fit well with the kind of work we are doing with organizations. We strive to help our clients tap the potential within their organizations, as we have seen that so much more is possible when many people are acting in concert to produce better results for all stakeholders. Since the Business Roundtable Statement generated many discussions here at Kotter, we hoped to expand the conversations to you. It was gratifying and illuminating to see your responses to the survey and to learn that there are efforts underway to move more organizations toward the future in which all stakeholders are valued.
We look forward to continuing this conversation in the months to come, watching how this story evolves and hopefully inspiring you and your organization to help further shape what happens next.