The latest version of the Business Roundtable’s Statement on the Purpose of a Corporation is intriguing, according to Tim Syfert, a clinical professor of business at Grand Valley State University’s Seidman College of Business. At the same time, Syfert remains skeptical about the updated pledge signed by 181 CEOs that acknowledges that corporations need to look beyond just the interests of shareholders and also consider the interests of employees, suppliers, customers and the communities where they do business. Syfert spoke with MiBiz about the Business Roundtable’s revised statement and whether it will result in any change to corporate behaviors.
What do you make of the 2019 version of the Statement on the Purpose of a Corporation?
There are certain things I agree with and certain things I am skeptical about. It makes complete sense. The only issue I have with it is this (idea of corporate social responsibility) has been around since the ’50s. Why does it take so long for some of the major companies to go, ‘this makes sense?’
Howard Bowen in 1953 wrote a book about corporate social responsibility, and then in the ’70s there was more of a social context put into running organizations, and around 1976 there was even more meat put around it. That’s why I think it’s a great idea, but my skepticism is around ‘green washing.’
Back when corporate social responsibility started out and sustainability became big, a lot of companies said, ‘Well, we’re sustainable’ because they knew that was important to the community, to customers, etc. But they really didn’t do much to embrace it. They gave it lip service.
What are the CEOs really saying here?
I think that they’re acknowledging the things that they should be looking at and focusing on, and I think they understand the importance of each aspect of the triple bottom line. They’re finally acknowledging after 50 years the benefit of doing this. But again, acknowledging it and putting their money where their mouth is are two different things.
What specifically makes you skeptical?
I’ll give you a great example. In Grand Rapids, Cascade Engineering is a B Corp (short for benefit corporation). A B Corp actually commits to things that were discussed in the Roundtable (statement) and they have to get their performance verified. They have a legal contract, and there’s public transparency. When I saw this, I went to the list of businesses that signed this and I started with the first four. I went to the B Corp list, and none of them are on it. That’s why I am skeptical because if you truly embraced this, you would put your money where your mouth is. You would become a B Corp. To me, that’s the total embracing of the concept, as opposed to potentially just giving it lip service.
What would you like to see happen?
You look at annual reports and you look at the shareholder statements by the CEO or the chairman, and you want to see those things echoed and then you want to see action items in the goals and objectives of the company. Until we start seeing that, that’s where my skepticism lies. I think it’s a great first step, but you have to implement it and you have to be checking your performance against it to really make that change.
Do you have any optimism about the statement?
When it comes to helping students understand strategy, I am more of a Michael Porter fan. I believe an organization needs to provide value to customers and then that value to customers gets exchanged, hopefully, into profits for the corporation. In the statement, it talks about how the shareholder, at least in the past, needs to be the primary focus, and I still do think that that’s the case, but what I do like is the discussion of employees, communities (and) the environment because all of those have a cost-benefit relationship.
As guiding principles, how might what’s included in the Statement on the Purpose of a Corporation get put into practice?
Right now, within the next two years, Millennials will make up 50 percent of the workforce and Millennials often vote with their choices. They want to be associated with companies that have purpose. So focusing on the Millennial, you want to keep them, you don’t want to have brain drain occur and they leave.
In terms of the community, it’s also like a symbiotic relationship between employees, community and the company in the sense that they all need to work together. If any one of those things break, it causes issues. When I say it causes issues, it raises costs for the organization. If it raises costs, it goes against the premise for the shareholder because their profitability or return might get decreased.
How do corporations that signed the statement reconcile the changes from past statements with their fiduciary duties to shareholders?
I still believe that the focus has to be on the shareholders’ return, but at the same time those other aspects play a focus into cost benefit. I don’t think that those executives that signed would have signed it unless they saw a cost benefit. They’re not going to do it just because they want to be good people. They do it because they want to run a profitable organization.
Where does that cost benefit lie for a corporation that lives by these principles?
With employees, if over 50 percent are going to be Millennials and they like to be associated with companies that have purpose, keeping them and making them happy is not going to be an issue. They’re going to work hard and they’re not going to leave the company. If they don’t agree with it, they leave the company and then it costs more money to hire somebody new than it does to keep existing employees.
Same with suppliers. They too have PR arms of their organizations that say, ‘You know, we’re associated with a company like Cascade Engineering that believes that the triple bottom line is important, so therefore we’re feeding into that and likewise we will do the same.’
There’s again that symbiotic relationship where if one part of the relationship fails or isn’t doing well, then it adds cost to the organization.