What do we do in a world where everyone talks about purpose and corporate sustainability but few act on it? Business purpose is still mostly empty talk, used to attract new talent.
Let's be honest, when did you last meet a company that isn’t customer-oriented and focused on diversity? Every company has proudly published their values. The problem is, they all look alike. Earlier this year, an article from Harvard Business Review highlighted the uniformity of corporate value sets. Eighty-eight per cent of the companies surveyed had customer focus as their core value, while 90 per cent had a value set that contained the word integrity.
Unlike the many good intentions of long-term development, shareholders’ short-term focus is on cash out, profit optimisation and quarterly accounts. Therefore, shareholders and stakeholders often have a opposite agenda.
In the classic model, shareholders’ short-term thinking drives the company's direction is driven and profit strategy puts pressure on the leaders. For the modern leader, it’s therefore difficult to live the values they’re employed to give life to.
A well-known example of performance culture and short-term profit is the American energy giant Enron, which at the beginning of the 00s became known as the world's largest corporate bankruptcy. The primary reason behind the company's bankruptcy was the pressure from shareholders who affected the operation of Enron's internal performance culture, where they invented a so-called ‘rank-and-yank’ system. Regardless of the employees' overall performance, the 10-15 per cent worst performing by comparison was fired. It nurtured a narcissistic internal performance culture with a focus on short-term survival as opposed to long-term growth through learning and development.
The consequences of the classic model and the short-term focus have already been seen. According to the Danish Working Environment Information Centre, work is the most common cause of stress today, with 95 per cent saying work is part of the cause. According to the National Institute of Public Health in 2017, a fifth of Danes under 35 feels stressed in everyday life. Across the Danish labour market, the number people who feel stressed in everyday life has increased by more than 5 per cent per year since 2013. Figures are expected to rise significantly in the future. This means employees are moving away from performance-culture companies.
As a counterpart from shareholders, various initiatives are implemented to keep employees, such as individual retention bonuses. But it is also quite short-sighted. How many places do you see people changing jobs as the bonus time comes? Some places even talk about the revolving door principle of bonus time, where employees are out the door the same day they get their bonus. But who benefits from initiatives such as retention bonuses really? On the short economic path, they primarily benefit only shareholders. This does not leave a positive impact on either culture, motivation or the long-term development of the company.
What if shareholders changed their mindset to a model that would create value for all stakeholders involved – a model with collective value creation, which has also proved to be a better investment and business case?
There is a tendency towards a longer-term business model. As a younger generation enters the labour market with their optimistic outlook on the future and a desire for meaningful work, more employees face the demands of their employers. Bottom line, if one does not agree with the values that one's workplace delivers, then one finds another workplace in accordance with one's set of values. Therefore, it is frightening to see how little companies are doing to live and differentiate themselves through their values.
In our view, there is a need for a shareholder mind shift. Shareholders must stop and look inward. Do they live up to the values they care about?
A survey by Gallup shows that only 27 per cent of Americans believe in their business values - and of those who do believe in the values, only 23 per cent believe they can be transferred to their daily work.
In the classic model, there was retention through pay and bonus. Going forward, we need retention through long-term relationships and development. The development must be raised to a higher level than from quarter to quarter, when companies understand how to align stakeholder interests with business strategy.
The world today looks different than the world yesterday. As the situation is different, we also need to think differently and change the way we act. For many years, we have been able to create growth by focusing primarily on the interests of the shareholder and owners. Shareholders have always had a clear superiority. Stakeholders, however, now have that position. They leave if they are dissatisfied.
Another aspect is the exponential development of new technologies. If we remain performance-driven, technology will surpass people. Instead, we must support the technology as a partner. This means a value-driven management style and long-term relationships with all stakeholders, with a focus on common development, knowledge sharing and space for creativity.
An American study - Firms of Endearment - looked more closely at the so-called Conscious Capitalism companies, those that move towards a higher purpose, stakeholder focus, conscious management and conscious culture. The study showed that companies with a strong purpose performed better than companies with a profit focus. In fact, much better. Over a period of 15 years, the average return on the 22 publicly traded firms of endearment was more than 14 times higher than the 500 largest listed companies in America (S&P 500).
These 22 companies proved to be far more stable in crisis situations, such as the financial crisis in 2008. The value-driven organisations yielded a return of 1,681 per cent over 15 years, whereas the S&P 500 had to settle for a return of 118 per cent.
Quite simply, the company's primary purpose should be to create value for all stakeholders.
So, to find the business case in all the purpose talk, shareholders must consider:
We are moving towards a time when stakeholders are more driven by values than money and performance. But for us to get there, we need shareholders to stop tripping themselves and organisations' development because of personal greed.
The question is, can shareholders lift their nose from their performance-driven Excel sheets?