Following the recent ‘Purpose Statement’ presented by 181 top American CEOs, journalist Jasper Mulder, of Dutch communications and marketing magazine ‘Adformatie’, asked a few Dutch experts questions regarding the purpose of a corporation, what this statement means for marketing and communication in The Netherlands and the role of investors. Among the experts were Frank Körver, a member of the Dutch EACD coordination team, and Inge Wallage, advisor to the EACD.
181 CEOs of the largest US companies, including Amazon, Apple, Coca-Cola, General Motors and Procter & Gamble, signed the statement on "The purpose of a corporation", quite a revelation about the principles and purpose of companies.
Since 1997, the Business Roundtable has held the shareholder at the centre. Today, this is no longer the case. This so called ‘stakeholder capitalism’ means a company must also value people and their environment. The companies together represent a turnover of 7000 bln dollars, mainly in the United States. The pressing question is ‘What now?’
We asked experts in communication and marketing the following questions: “what does this statement mean in the Netherlands?” “In what way are companies going to ensure that these social interests will count as much as the shareholders?” “What roles do marketing and communication play in this? And “what do investors think?”
Could this statement be a tipping point?
Frank Körver, founder and partner of strategic consultancy Wepublic, was impressed with the statement, stating that the document is "A very important signal, even in 2019. The pressure put on those top managers had of course been significant. Consumers are increasingly taking actions with their purses. Moreover, top managers care about their reputation. No CEO wants to go down in history as the ‘bad guy’ and you don't want to be embarrassed at your daughter's party either". Companies will have to take responsibility and be accountable,” Körver argued. "That means listening, continuous dialogue and full transparency towards all stakeholders. If you do not meet expectations, you will be pursued and nailed to the cross. If you comply, there will be no praise. This way of working has become the new norm".
In his own practice, Körver observes that CEOs put increasing importance to the relationship with stakeholders, incorporating this into the company's strategy. He expects that this will only intensify in the coming years, although not everyone is on board yet. For example, Körver worked with a client where the CEO would stubbornly put the shareholder ‘in positions 1, 2 and 3’, while the entire organization and society were yearning for a different direction. “Extremely painful. Hopefully that thinking will soon be something of the past. Stakeholder value is the new bottom line. I am a convert!”
Nothing new, lacking climate
Not everyone is equally excited. Mayke Van Keep, of the company ‘The Issuemakers’, welcomes the promises of the 181 statement, but argues that this initiative should have come way earlier and "not only in 2019". She doesn't think it so innovative. “In Europe we have been working this way for quite some time. I can see that with our clients. Our company has been operating this way for over ten years”
Inge Wallage, former Director of Communications at Greenpeace International, and now director of the EACD, the Association of European Communication Directors, believes the 181 statement is meaningful from an American perspective. Wallage says, "I am an optimist." At the same time, she is critical. "A really important theme is missing, namely climate change. It is a positive sign that the corporate community wants to take local communities into account, but they forget the planet.” She recently read an article about the consequences of four degrees of global warming, and that it is unimaginable. “The subject of climate tends to be avoided, because it is too polarized in the US. Sadly, too many companies would drop out of the 181 statement if it was to be addressed".
Corporate responsibility already a precondition
Peeter Verlegh, Professor of Marketing at VU University Amsterdam, is not particularly impressed with the document. Consumers and society increasingly expect companies to be concerned about ‘the greater good’; a better living environment, respectful and fair dealings with employees, customers and suppliers. "Responsible business has become a precondition and this declaration confirms this," Verlegh argues. He believes it will be interesting to see what companies will do when more controversial questions are asked, that will require them to take a position. According to Verlegh consumers already expect brands to fit them. The same counts for employees, to an even greater extent”
Verlegh recently started some new research in this area, which shows that taking a political and social stance works more positively than negatively. “Think about Nike with Kaepernick, or companies such as Patagonia and Tony’s Chocolonely. Like many CMOs, I am particularly interested in the follow-up question: when does it work and when does it not work? And will we communicate about these types of topics? "
What’s next? What roles do marketing and communication play?
The experts asked believe these questions will be fundamental to the success of the ‘Purpose Statement’ by the American giants, because the declaration begs the question in what way it will be put into practice?” Is there a role for the marketing and communication function in this? According to Wallage business can be a force for good. “However, that requires the marketing and communication function to take a different focus. The function is often preoccupied with protecting a company’s reputation. Beautiful stories are written about sustainability and the environment, for annual reports, websites and the like. That is not what it is all about if you want a company to actually take care about the impact on people and the environment."
Get more concrete
Wallage says that a top communications professional is expected to ask critical questions, to contribute to real change for a company. “The communication function should be concerned with that. It should support the challenge of making those often-difficult choices and the behaviour of companies. The function can make it all tangible. The lack of specificity in the declaration is unfortunate. For example, I would really have welcomed it if they had put forward to start acting as a B Corp company. This is an independent international organisation that provides certification for profit companies with focus on people, the environment and society. They set very clear criteria. Now it seems we will have to wait and see what each company will ultimately do."
What about the investors, the shareholders, will they accept this?
The role of investors and shareholders of the companies is integral to the influence of ‘The purpose of a corporation’. Board chairmen may be alright with taking a step aside for stakeholders, but the question is whether the investors are willing to do so. They are often still focused on financial returns. One can observe positive actions in the financial world too. According to Verlegh many large investors have already set clear preconditions. “They don't want their money to end up in the arms or tobacco industry and want to avoid corruption. In addition, there are more and more funds that focus on social impact, such as green, fair business and diversity.”
“So, things are moving”, says Verlegh. Companies have already raised questions such as: do we participate in Pride or not? Do we have to produce climate-neutral or not? Are we in favour or against gun control? Closer to home in The Netherlands: do we allow the niqab in the bus or not?"
Frank Körver from Wepublic also points out that investors have increasingly supported the direction of the signed statement. Körver mentions Larry Fink, CEO of Blackrock, the world’s largest investment management corporation with over 6.5 trillion dollars in assets, who called upon CEOs to pay more attention to sustainability. “Magazines such as Harvard Business Review also regularly put forward that stakeholder focus pays off.”
Degradation of shareholders
However, according to the US Council of Institutional Investors (CII), investors are downgraded from owners to simple capital providers. If interests of society and employees must be represented, then this must be done through legislation, not by intervening in control within companies. The American journalist James Freeman contests that the ‘Purpose Agreement’ is vague and complains that shareholders are ‘the owners of the company’ and with the declaration they have been put last.
What is ownership?
Ingo Heijnen, member of the Hill&Knowlton Global Leadership Council, believes that Freeman and the CII are exaggerating. “In many ways they have lost their right to speak”, he says, because shareholders do not behave like owners at all. When you compare family businesses with listed companies, you immediately see the difference of management for the long term and a vision regarding the continuity of the business. Stock exchange listing means access to money, but it also means a quarterly rat race to deliver the results that shareholders want to see. This rat race has repeatedly encouraged managers to exaggerate results, mislead the public and at times commit outright fraud. That has nothing to do with value creation in the long term or continuity for a company, let alone with real ‘ownership’.” Heijnen believes that the Business Round Table initiative deserves applause and has room to succeed. “Let's hope that the owners of listed companies start thinking like real owners, putting the long-term interests of companies first."
Link to Dutch article
On 4th December we will organise our Annual Forum, this time in Geneva, where we intend to have a debate aligned with the above subject matter: the role of communication in light of the SDGs (Sustainable Development Goals). If you would like to contribute, please let Inge Wallage know.