Crisis and purpose: Giving corporations permission to do what’s right

Critical takeaways

  • The US Business Roundtable recently stated that in addition to creating value for shareholders, companies also have a responsibility to create value for society.
  • Kith believes that this is the right thing to do for society but that this also benefits companies as far as their crisis readiness is concerned.
  • A clearer social purpose will grant a license to operate, increase good will and help generate speed in a crisis, all of which will help companies weather a crisis or critical moment.  

 

There’s been a great deal of discussion in corporate strategy circles concerning the Business Roundtable’s recent statement concerning the purpose of a corporation. The organization’s August statement took many by surprise as it explicitly stated that corporations have obligations towards society that they must meet if they want to do well.

 

“Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

 

This was a significant change from the organization’s previous focus on shareholder returns and understandably generated a great deal of press coverage and discussion.

 

As a crisis communications and reputation management firm, we spend a great deal of time thinking about our clients’ missions, values, and what they stand for. Then, we encourage them to live up to their values in a crisis and help them communicate these to the public.

 

This is why I think that the Business Roundtable’s announcement was not only the right thing to do for society but it will also significantly strengthen businesses themselves. This focus on a social purpose will make organizations much more crisis ready and better able to weather the storm when things go wrong.

 

Consider our equation for crisis success. This is rooted in an understanding of mission and core values plus an understanding of the chain of command, which creates the speed necessary for success.

Imagine a corporation which states that its mission is simply to return as much value to shareholders as possible. Even when they wanted to act ethically and responsibly, they wouldn’t be adhering to their mission. So while they might be doing the right thing, this disregard for their mission would cause confusion, affect their speed, and subsequently jeopardize their crisis response. 

 

Now consider an organization that has social responsibility built into its mission, alongside generating shareholder value. This will make it much easier for the business to stay true to its mission when faced with a crisis. This puts them in a much stronger position to be fast and successful.

 

So I think that this encouragement for companies to be socially responsible will stand them in good stead when things go wrong. However, I also believe that acting in the better interests of society helps them be better prepared before a crisis hits too.

 

“Society gives each of us a license to operate,” IBM CEO Ginni Rometty told Forbes this August. “It’s a question of whether society trusts you or not. We need society to accept what it is that we do.”

 

This license to operate opens the door for corporations to build their reservoir of goodwill which, in turn, allows them the benefit of the doubt if and when a crisis event impacts them. Being a responsible citizen is one of our seven levers businesses can ‘pull’ to build their reputation, but we believe that this requires genuine commitment and a sustained series of good acts and positive behaviors. 

 

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Articulating the obligation for businesses to create societal benefits gives corporations the permission they need to pursue these worthy acts. 

 

So, from a crisis perspective, the Business Roundtable’s statement will help corporations prepare for and respond to crises more effectively. This is in addition to the broader societal benefit this change of focus should generate.

 

However, doing good isn’t necessarily a new idea. In the Business Roundtable’s statement, Tricia Griffith, President and CEO of Progressive Corporation was quoted saying, “CEOs work to generate profits and return value to shareholders, but the best-run companies do more.

 

This has always been my experience and companies that I thought were truly crisis ready always did more. Whether that’s Patagonia which enjoys astronomical levels of trust or Home Depot which I saw stick to its values and do the right thing time and time again. Great companies have always done more.

 

However, these firms used to be the exception: places where the executives had managed to buck the relentless push for returning increased shareholder value to also build an excellent reputation and do what’s right. Now, with the Business Roundtable’s statement, every firm has the permission they need to do the right thing to serve both their shareholders and society as a whole.

 

This change of focus is ostensibly selfless – generating greater societal good – but it also rightly selfish: it improves companies’ license to operate, reputation, and their ability to manage a crisis. So I thoroughly applaud the work of the Business Roundtable and look forward to seeing more and more companies take up this challenge of doing more good. Not only is it good for society, but it’s also good for business.