Purpose and (Not Or) Profit: Wise Words from Bill George
Pressure continues to mount on public companies to create social value. This is a good thing. For too long, the quarterly earnings expectations of investors and boards have tyrannized CEOs into an unhealthy focus on short-term financial results. A broader view of corporate responsibility to create value for society, not just customers and shareholders, leads to more long-term success for enterprises.
The reason for this is that earnings are earned by creating value. By focusing on creating broader value for society, a company can build longer-lasting relationships with customers, while also creating a platform for long-term business growth, as well as permission to operate.
Bill George, senior fellow at Harvard Business School and recent recipient of the Page Center’s Larry Foster Award for Integrity in Public Communication, recently added to the call for companies to take this longer-term social value focus in a thoughtful HBS op-ed. The former Medtronic CEO describes a virtuous circle that is initiated by purpose.
“It is the purpose and values,” he writes, “that motivate and unify employees worldwide, not merely a company’s financial goals.”
That, in turn, leads to superior performance: “If [employees] can align their personal purpose with the company’s purpose, there is a congruence that inspires them to do superior work, create great products and innovations, achieve the highest quality, and provide customers with superior service.”
That effort, supported by long-term investments aligned with the corporate purpose, results in customer satisfaction and loyalty, which produces “increased revenues and ultimately greater profitability—the basis for creating ongoing shareholder value.”
George concludes with this wise observation:
There should be no debate between the stakeholder value model and the advocates of creating shareholder value. Shareholder value is the result of having a clear mission and set of values that motivate employees to serve customers. Companies that start with the mantra of “maximizing shareholder value” ultimately destroy the very shareholder value that they are trying to create because they refuse to make the long-term investments required to create sustainable shareholder value.
For CEOs wondering if they can afford to focus on corporate purpose, the real question is, can you afford not to do so?