Elevating Purpose to the Pantheon of Profit

October 16, 2019 LRN Corporation

Are we nearing the tipping point for the way we practice capitalism? It seems we are at an inflection point, after another high-profile chief executive went public with a call to change the way companies conduct business.

Marc Benioff, founder and co-CEO of Salesforce, wrote an opinion piece for The New York Times this week calling on “businesses and executives to value purpose alongside profit.”

Benioff writes: “To my fellow business leaders and billionaires, I say that we can no longer wash our hands of our responsibility for what people do with our products. Yes, profits are important, but so is society. And if our quest for greater profits leaves our world worse off than before, all we will have taught our children is the power of greed.”

The Business Roundtable, which has periodically issued Principles of Corporate Governance since 1978, made news this summer when it released an updated statement on the purpose of a corporation.  

Signed by nearly 200 CEOs, the statement breaks away from previous iterations. In addition to generating long-term value for shareholders--the main tenet of every version since 1997--the statement calls for companies to invest in employees, deliver value to customers, deal fairly and ethically with suppliers, and support communities and the environment.

In essence, corporations should be led to benefit all stakeholders, not just shareholders.

Not everyone agrees. The Times' Andrew Ross Sorkin reported shortly after the Business Roundtable that while some point to the importance of a company’s bottom line over its purpose, the reality is that these are not mutually exclusive themes. Benioff agrees, saying successful businesses "can and must do both.”

Research shows companies with high levels of purpose outperform the market by 5% to 7% per year, which is on par with companies that have best-in-class governance and innovative capabilities. Companies can grow faster and deliver higher profits by absorbing that purpose into their corporate culture.

LRN research shows a link between moral leadership and improved performance when leaders focus on human progress, improving the world, and speaking out for principles. According to the 2019 State of Moral Leadership in Business report, 94% of managers and executives who lead with moral authority are seen as effective at achieving business goals.

Overall, these leaders set up the conditions for success by removing barriers and freeing employees to contribute their best efforts.

LRN's Emily Miner recently discussed how CEOs can move forward as moral leaders. Moral leadership is scalable; if people at or near the top model it, it flows up and down the organization, she wrote.

If CEOs continue to continue to call for a new purpose–and take the steps to act on it–the possibilities for companies, and the greater good, are endless. So are the possibilities for greater business success.

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