Becoming A “Purposeful” Board
When we think of inspirational words, we often think of those from great leaders: the Rev. Dr. Martin Luther King, Jr., Mahatma Gandhi, Mother Teresa, Winston Churchill. We don’t often think of contemporary corporate titans, whom we assume are too busy thinking about financial strategy, tumult in global markets, and long-term gains to take pen to paper (or fingers to keyboard) to give us inspiration and insight into the pressing issues of our times.
But Blackrock chairman and CEO Larry Fink is no ordinary corporate leader, and again this year he defied the image of the global financier as merely a calculating monetary tactician, though Blackrock manages some $1.7 trillion in investment funds.
In his 2019 annual letter to CEOs, provocatively titled “Purpose & Profit,” Fink again stressed his belief that “attracting and retaining the best talent increasingly requires a clear expression of purpose.” Purpose, he wrote, unifies management, employees, and communities, and drives ethical behavior. “Purpose guides culture, provides a framework for consistent decision-making, and, ultimately, helps sustain long-term financial returns.”
The letter is a follow-up to Fink’s 2018 letter, where he wrote that “society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
I’ve been thinking a lot lately about Fink’s letters, and not because so much of their thinking mirrors my own. I’ve served on several nonprofit boards, including Teach for America and the Salvation Army; nonprofit boards, by their very nature, always carry a lofty sense of higher purpose as part of their collective missions. What’s more interesting, as reflected in Fink’s letter, is how we are now seeing private and corporate boards taking up this mantle, looking inward to ask what they should be doing — or at least doing more of — to make the world a better place.
A Change in Attitude
We’ve come a long way from the days of Milton Friedman admonishing companies to remember that “the business of business is business.”
Today, even the term “corporate social responsibility” is becoming passé, replaced by an even stronger call to action for corporate intervention in societal good. In a thoughtful article last July for the Harvard Law School Forum on Corporate Governance and Financial Regulation, several analysts from Deloitte explored the idea of “corporate social purpose,” the trend of companies addressing a host of issues that would have never made it onto the end of an annual meeting agenda just a few years ago. These include the human rights of the supply chain and vendors; diversity; providing safe working environments, particularly for women; and safeguarding the environment.
A common understanding of the need for philanthropy is not merely driving this action, it’s become just as much a profit-centered strategy. As the Deloitte authors point out, “Companies appear to increasingly recognize that corporate social purpose can be leveraged to facilitate value creation, competitive advantage, and other benefits that can add to the bottom line.” Among the possible payoffs: brand differentiation, talent engagement, risk mitigation and innovation.
Of course, some of this is coming due to outside pressures.
Take, for example, the California Public Employees’ Retirement System (CalPERS), which has become increasingly vocal about how and where its pension fund is invested, and recently began an activist campaign for more women on corporate boards. While some boards may bristle at such demands (i.e., “I don’t want anyone dictating to me how to run my business”), most are listening, for one simple reason: the CalPERS pension fund is currently worth $330 billion. Those who still cling to Friedman’s mantra risk losing significant investments in the future.
And also losing talent. Millennials — those born between 1981 and 1996 — are a very unique breed in the American workforce, one we haven’t really encountered before. And they’re now rising into management. Those who are the most talented, savvy and well-educated have the pick of the litter in a strong economy such as this one. A strong corporate social purpose can be the tipping point for deciding organization for which they eventually choose to work. Millennials “really believe in this idea that it is important for companies to give back and to be involved in local community efforts,” Neal Hartman, a senior lecturer at the MIT Sloan School of Management, told CNBC last year.
The Future is Now
In the end, a board’s fiduciary duty is to understand and prudently manage risk, as well as the affairs and assets of the corporations they oversee on behalf of and in the best interests of the shareholders who elected them. As more situations come to the forefront that may not have typically been high on board agendas —climate change, sexual harassment, the Wild West that is artificial intelligence —the companies that embrace their new roles as agents of corporate social purpose will be the winners in the marketplace. That includes the battle for top talent, the battle for public image and perception and, most important, the battle to produce a great bottom line.
This article orginally appeared in the First Quarter 2019 issue of Directors and Boards. You can access it there here.