We are at the point of no return and even Larry Fink, CEO of BlackRock, has seen the light! He titled his 2018 annual letter to shareholders “A Sense of Purpose” and makes the point that “we are seeing a paradox of high returns and high anxiety”.
The global economy is now so divided between have’s and have not’s that the shades of grey that justified profits at all costs have polarised into black (the evil capitalist villain) and white (everything that could possibly be ‘wrong’ in the world).
Unless companies radically and fundamentally change their ‘purpose’ to something other than executive remuneration and stockholder returns, they will lose their licence to operate from the stakeholders that actually matter – civil society, the environment, governments and the woman on the street.
The time for #ReputationWithPurpose is here and every company needs to be authentically engaged in how it can help solve the many social issues facing the planet.
It’s time to get with the programme and here are my top five things every CEO needs to know this year:
1. Leaders with a sense of purpose are more successful
New research has shown that actually having a sense of purpose, not a specific set of characteristics, is the key to successful leadership. However, according to a report in HBR, less than 20% of leaders know what their individual purpose is and even less can actually spell it out.
“The process of articulating your purpose and finding the courage to live it – what we call purpose to impact – is the single most important developmental task you can undertake as a leader.”
2. Hurry up and find your purpose because the CEO Activism trend isn’t going away
Activist CEOs are not only shaping policy but also driving revenues for their businesses because consumers respect leaders and by extension their organisations, for being brave, taking a stand and making change happen!
In his piece, The New Politics of Business, Doug Randall, CEO of The Protagonist, sums it up best: “The days of businesses operating in a silo are over. Consumers have grown to expect that the brands they interact with participate in conversations happening in the world at large. Brands are powerful, and they can significantly influence the narratives they engage with. Getting involved in controversial narratives makes brands, and the communities around them, stronger. It’s just imperative you understand how those narratives may impact your organisation, for better or for worse and be prepared to answer for them.”
3. All of the above is the Millennials’ fault, but best you learn to love them because they going to make or break you!
According to the Reputation Institute, Millennials now represent 27% of global spending power (and increasing daily!), 15% of them define themselves as Activists (#ahem) and 85% of them use their phone more than 40 times per day (although I bet your usage is similar!).
Even more relevant here is that reputation is more important to them than previous generations! Top reputation ranking companies score 2.5 bps higher amongst Millennials.
Translate this into bottom line: 1 bps = 2.6% increase in market cap … you do the maths on your own business …
4. Sustainability is now an economic issue and not just a bunch of greenies
How much research do you need to see to prove the point that sustainable companies deliver better financial results? Well, my friends at Arabesque Asset Management have done the hard work for you and commissioned the University of Oxford to review 200 pieces of academic literature on the topic. Their report From Stockholder to Stakeholder makes for fascinating reading, but I know you don’t have the time, so here are the highlights:
Sustainability is one of the most significant trends in financial markets for decades.
90% of the studies on the cost of capital show that sound sustainability standards lower the cost of capital of companies.
88% of the research shows that solid ESG practices result in better operational performance of firms.
80% of the studies show that stock price performance of companies is positively influenced by good sustainability practices.
Based on the economic impact, it is in the best interest of investors and corporate managers to incorporate sustainability considerations into their decision-making processes.
Active ownership allows investors to influence corporate behaviour and benefit from improvements in sustainable business practices.
The future of sustainable investing is likely to be active ownership by multiple stakeholder groups including investors and consumers.
5. You need to learn to manage your shareholders
I’ve read the most interesting articles recently on Agency Theory and the implications it has for corporate governance. Once again, the Harvard Business Review explains it way better than I ever could, so please take out half an hour to read the whole article.
The basic premise is that the traditional agency theory model is flawed. Shareholders do not ‘own’ the company and therefore shouldn’t direct what the company does. It argues for a company centric approach in which the executive team and Board are responsible for creating value for all stakeholders. The only problem with this view is that it depends on competent and ethical executives and we have seen clearly that this is not always in place.
I believe we are moving into a time of increased shareholder activism which sounds like a good thing but isn’t always. Fund managers are not always right and they also have bonus targets to meet.
So I guess the only adult thing to do is to engage actively with your shareholders, within the bounds of the applicable regulations, and if they don’t get your #ReputationWithPurpose vision then do as Howard Schultz of Starbucks recently did and tell you shareholders to invest elsewhere.
About the author
Jessica Yellin’s communications experience spans both internal and external – from investor relations and crisis management to influencer engagement strategies and best practice in the use of data to drive reputation analysis and monitoring.
She has pioneered a new approach to #ReputationWithPurpose and is working with Corporate South Africa to transform the economy into a more conscious form of capitalism.