Purpose – It Was the Buzzword of 2019 for the Corporate Sector & Investment Community. The Debate Will Continue in 2020

The year 2019 began with an important challenge to corporate leaders from Larry Fink, chairman and CEO of the world’s largest asset manager, BlackRock (with more than US$6 trillion in AUM).  He writes each year to the CEOs of companies that his firm invests in on behalf of the firm’s clients. There are literally hundreds of publicly-traded companies in the BlackRock portfolio.

At the start of 2018, CEO Fink wrote that every company needs a framework to navigate difficult landscapes and it must begin with a clear embodiment of the company’s purpose (in the business model and corporate strategy). “Purpose being not a mere tagline or marketing campaign; it is a reason for the company’s being – what is does every day to create value for its stakeholders.”

Purpose, Larry Fink explained in his January 2019 letter to CEOs as he expanded on the theme, is not the sole pursuit of profits but the animating force for achieving them.  And, profits are in no way inconsistent with purpose; in fact, profits and purpose are inextricably linked.

The 2019 communication to CEOs pointed out that the world needs their leadership (especially) in a polarized environment. Stakeholders are pushing companies to tackle social and political issues as governments fail short of doing that. And Millennials (now outnumbering the Baby Boomers in the workforce) represent a new generation’s focus – on various expressions and demonstrations of corporate purpose.

The 2019 letter created a buzz in the corporate sector and in the capital markets as people weighed in on all sides of the issue.  What many agreed with was that there were now clear signals that the half-century doctrine for the corporate sector of “shareholder primacy” was giving way to “stakeholder primacy.”

As the purpose discussion rolled on, in August 2019 the influential Business Roundtable issued a revision of its Statement on the Purpose of a Corporation, signed by 181 of the CEOs of the largest of American companies (firms both publicly-traded and privately-owned). The CEOs committed to lead their companies for the benefit of all stakeholders: customers, employees, suppliers, communities, and shareholders.

The Roundtable’s Principles of Corporate Governance has been issued since 1978; from 1997 on this endorsed the principle of shareholder primacy (that corporations existing principally to serve shareholders).  The new statement, said the BRT in summer 2019, outlines a modern standard for corporate responsibility. 

The team at G&A Institute looked at the companies whose CEOs are members of the Business Roundtable (almost 200 in all), examining their public disclosures and structured reporting on “walking-the-talk” of “purpose” and “responsibility to stakeholders”  Our approach was to analyze the means of reporting “on corporate purpose” and the focus on any related content of sustainability / responsibility / ESG / corporate citizenship reporting by the BRT member companies.  (The good news:  there’s plenty of relevant information on purpose in the leadership corporate reporting.)

The analysis is available on the G&A Institute web site – see this week’s Top.  There are relevant links in the analysis as well.

What will the purpose of the corporation discussion be in the new year, 2020?  Stay tuned to the perspectives shared that we’ll have in this newsletter and on our blog, Sustainability Update. 

Best wishes to you for the holiday season from all of us at G&A!

BlackRock CEO Larry Fink’s 2019 letter: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.