Last week, nearly 200 chief executives representing large American corporations pledged to fundamentally change the purpose of a corporation. Their goal is to redefine the role of business in society, pushing back against mounting criticism from both the left and right of the political spectrum. No longer is it enough for corporations to maximize shareholder value alone, ignoring other stakeholders — customers, employees, partners, and their communities. While these words are welcome to those of us who have long advocated for more focus on other stakeholders, I hope the CEOs will forgive my skepticism that this is anything more than a press release. With that said, I don’t want to be overly cynical. So here are the steps I’m watching for that would indicate companies are following through on their commitments to a more balanced form of corporate governance:
- Customers — “Delivering value to our customers.” One way for corporations to do this would be to take public stands in alignment with their corporate values on issues that matter to their customers. By no means are we saying that companies have to wade into every debate or political issue, but taking sides in some conversations has become unavoidable. Why? Because, globally, 64% of consumers “choose, switch, avoid, or boycott a brand based on its stand on a societal issue,” according to the Edelman Earned Brand 2018 report. CEOs who want to take their commitment to “exceed customer expectations” seriously must recognize that customers now expect the companies they do business with to mirror their values. CVS’s steps to reflect its customers’ values by removing all tobacco products from its stores and then refusing to work with any ad agencies that have tobacco clients are a good example to consider.
- Employees — “Investing in our employees.” Companies need to act to curtail the crisis of workplace burnout. Burnout is officially a medical condition now. Burnout rates have escalated in recent years, and nearly a third of workers say that their stress level is high to unsustainably high at work. Workplace stress is responsible for approximately 5–8% of annual healthcare costs in the US and costs corporations an estimated $300 billion annually as a result of accidents, absenteeism, employee turnover, and diminished productivity. What to do? From the top, organizations must start resetting norms around availability to respond to email or other communications in the evening, on weekends, or on vacation. Executives would do well to model this behavior themselves first. Initiatives such as Macy’s “Time Is Money” campaign that curtailed the number of meetings employees had by 4 hours per week gave employees time back in their work days to get work done, lessening the expectation to work at night or on weekends.
- Suppliers — “Dealing fairly and ethically with our suppliers.” Companies could start by committing to a living wage for employees at the suppliers and contractors they work with. Prominent apparel companies like H&M and Primark have made these pledges but haven’t followed through to ensure it’s actually happening. In contrast, companies such as Starbucks and Chobani, through their use of the Fair Trade USA program, have helped the farmers they work with to get stable and above-market prices for their coffee beans and milk, respectively.
- Communities — “Supporting the communities in which we work.” I will look for companies to take tangible steps to become more rooted in their communities. That should start with swearing off business relocation incentives. Estimated at $45 billion in 2015, relocation expenses paid by state and local governments are a deadweight loss, just moving companies and jobs around between different states and municipalities. Instead, take a page from Chobani, now the largest yogurt producer in America. It has revived the dairy industry in upstate New York and hired hundreds of refugees from communities near both of its production facilities in New York and Idaho. Its commitment to both old and new local communities is a wonderful example for other companies to emulate.
- Shareholders — “Generating long-term value for shareholders.” CEOs should know that taking better care of the previous four stakeholder groups doesn’t have to mean sacrificing shareholder value. But it does mean refocusing on long-term value creation, rather than short-term focus. In our research, we’ve identified so many business benefits from better customer experience and from better employee experience. That should build long-term value for shareholders.
The good news is that there are so many benefits from treating customers, employees, suppliers, and communities well. Some of the highest-performing firms have long committed themselves to these principles. And hopefully soon, they won’t be such a rare breed.