Purpose or Pure Pose?

Martin von Broock, Andreas Suchanek

Some 180 CEOs of American corporations issued a shared purpose statement. What value do such declarations of intent have?

“We commit to deliver value to all of [our stakeholders], for the future success of our companies, our communities and our country.” This is the final sentence of the short purpose statement. Put more concisely, the sentence could also be read as: The economy must promote the good of the people. This is also the key message of the Code of Responsible Conduct of Business, published in 2010 and signed by more than 50 decision-makers in German companies, associations, and trade unions that the WCGE helped to bring about. Back then as now, the question is: what is the value of such collective purpose statements?

First of all it is worth noting that the Business Roundtable that adhered to the doctrine of shareholder value for the past decades has adopted a new rhetoric. And there is good reason for a shift in their “understanding of the game”: In view of progressing climate change, increasing social disparities, and possible risks linked to digital transformation, a growing number of people, especially in America, seems to view the economic system and the direction in which it is currently heading as part of the problem. As a consequence, calls for more government intervention including a system change have grown louder. To successfully deal with this criticism, corporations will need to cooperate. If they want to preserve their liberty, they need to restrict the use of their liberty where legitimate interests of shareholders are violated in the pursuit of maximizing profits. The shift away from the shareholder focus can be interpreted in this light.

On the other hand, shareholders have voiced their doubts of the published purpose statement. Experts from politics and the science community criticize the initiative as “toothless” because there have not been any concrete ideas for how to implement the principles put forth. “Talk is cheap,” said Adam Seth Litwin, professor at Cornell University. One might add that what costs nothing is worth nothing.

It is now actually up to the corporate world to prove that they attach value to the purpose statement. If the signatories are serious about their intention to build trust and maintain their freedom, it will not suffice to take a pure stance. Their credibility depends on their ability to walk the talk. The value of the statement can be measured by applying the following criterion: To what extent are the signatories willing and prepared to invest into their own trustworthiness? Will they stand behind their principles when it will cost them money? That would mean to actively tackle controversial issues (as done in the above-mentioned Code of Conduct) and manage expectations: If you declare to give up the dominance of the shareholder value principle , you need to convince investors. If you commit to paying your employees a fair wage, you need to take a clear stance in the debate about minimum wage. If you strive to establish fair relationships with your suppliers, you must look beyond national borders. (In this sense, the commitment clearly falls short when it refers to “Americans” and “our country” only).

But the value of the purpose statement does not only depend on what signatories will do. It can also have an impact if stakeholders themselves take initiative and measure CEOs by their word. After all, the presentation of the statement already received a lot of media attention. From now on, the self-selected principles can serve as a yardstick in any staff meeting, shareholder dialog, congressional hearing, and media interview. This will increase pressure put on CEOs to make the commitment voiced in the statement visible in their everyday work. They will have to demonstrate that their words have any value. If they fail, the chances of future trust-building initiatives to succeed would be doomed. And of course, a failed initiative would be grist to the mill of all those who already demand tighter restraints on the economy (from outside) and more. In such a case, the purpose statement would have done a disservice to its original intent.

With that in mind, the value and effect of such initiatives should not be underestimated or negated per se. With the purpose statement, the signatories have raised the bar to a level that they alone cannot control. But they can (and should) demonstrate that their commitment has real value.