by Andrew Leigh, Featured Contributor
“IF YOU DON’T know where you’re going any road will do” remains as true now as when it was first coined thousands of years ago in China. The latest report from the Aspen Institute in Washington DC throws more light on the destination organisations’ want to reach—namely their purpose. [1]
Based on in-depth interviews with executives, a serious divergence in views emerged about company purpose. This might explain why building ethics into a culture can be an uphill struggle.
The Results
Slightly more than half of those executives who took part said they felt strongly the main purpose of a corporation is to serve shareholders’ interests. This is a fairly narrow interpretation of purpose and not every executive subscribes to it. Even more executives studied felt strongly the primary purpose of the corporation is to serve customers’ interests. Those who believed the destination or purpose of the organisation was to increase shareholder values, also saw the firm as the moral centre of the universe. In that sense they saw it as a positive force.
In contrast, those who rejected shareholder primacy viewed the corporation as only one segment in a multi-layered fabric of society. For them the organisation was not the moral centre of the world. They believed wealth creation was merely a by-product of change, entrepreneurship, and innovation.
For anyone championing shareholder value the corporate destination is clear—win a high stock price or reward “owners” of the business. For those who see the destination as entirely non-monetary and long-term what matters is the value to society of what the company does. For example, Google’s aim to “organise the World’s Information” or LinkedIn’s wish to “connect the world’s professionals to make them more productive and successful.”
Another revealing part of this study concerns numeracy and its role and influence on destination. This means a focus on quantification rather than qualitative approaches to achieving corporate purpose. Those who say what’s most important is shareholder value attached considerable weight to numerical calculations and having clear rules for action. “Rejectors” on the other hand saw wealth creation as a result, not a purpose. They preferred approaches which are more resistant to measurement, such as “serving the community”.
The power of numeracy has played out in endless corporate scandals and ethically shameful episodes. Because numbers tell a conveniently clear story expressed through dollar or pound signs, some people in organisations have felt justified in taking ethnically dubious actions. They see the ends as justifying the means. This has proved damaging to society, organisations and to individuals.
For example, the recent GM failure to recall cars with a faulty component occurred because managers let numbers take precedence over humanity and “doing what’s right.” The resulting irresponsible corporate behaviour led to consumer deaths and replicated almost exactly the Ford Pinto fiasco of the 1970s. Then too, the ubiquitous cost-benefit analysis triumphed over customer and society interests.
Likewise profits from selling insurance consumers did not actually need were mouth-watering and at the time seemed to make absolute numerical sense. Only later did the misrepresentation and unethical sales practices erupt into severe reputational damage, costly fines and expensive reparations.
The Insidious Short-term
The influence of shareholder value continues to exert tremendous leverage on the destination of the organisations. It does so through offering clear signposts such as ROI, profit Centres, and various financial indicators. The clarity and certainty of these is far harder to achieve with broad concepts such as acting ethically. According the the Aspen study those who champion shareholder value and the corporation’s purpose and those who don’t, both deplore the short-termism dominating so much corporate activity. If there were more long-term metrics companies would be more likely to take into account “…respecting the interests of employees, respecting the interests of communities, respecting the interests of countries in which they operate, respecting the interests of the environment, that actually do become part of the long-term that add to the long-term value of the company, rather than being at odds with it.”
Executive taking part in Aspen Study
The report ends with possible ways to counter short-termism such as
- Gear incentive arrangements including compensation packages, for the longer term
- Investigate a way to monetize the matters that are currently regarded as “abstract” in order to compete for attention or complement concrete metrics like the stock price
- Alter or simplify the tax code
- Promote the partnership between a clear and formal declaration of mission and a thorough alignment with that mission
- To counter the pernicious effects of short-termism foster transparency by demanding better communication skills among corporate managers
Any Road Won’t Do
Organisations often seem to suffer from conflicting aims and confused destinations. This report brings to life some of the underlying causes and what might be done about them. Lack of clarity by those managing companies about what they should most value means ethics in the corporate culture may be muted or even ignored. Leaders in search of a more responsible organisation may reasonably conclude from this report that one way forward is to make sure the company purpose is both clear and understood at all levels. Finally, this report argues it should be possible to reconcile the needs of those who cling to maximising shareholder value, and those who take a broader, more inclusive approach.
Source
1 Unpacking Corporate Purpose: A Report on the Beliefs of Executives, Investors and Scholars, The Aspen Institute Business & Society Program, May 2014
