With more companies finding business value in addressing social issues, the doctrine of short-termism may be coming to an end. (Photo: Anthony Delanoix / Unsplash)
Greedy. Dishonest. Destructive. Exploitive.
That’s how people describe corporate leaders today. The reputation of business hit an all-time low during the Great Recession and, arguably, it has never recovered. Scandals among banks and auto companies have made things even worse. Not only our business leaders but the role of capitalism itself is being questioned by political leaders of the right and left. Mainstream voices now decry capitalism as a nefarious force that needs to be leashed.
And yet capitalism is the only economic system that has proven to deliver growth, helping lift billions out of poverty and the only economic system that continues to create and maintain millions of jobs that keep the global economy running.
It’s true, though, that capitalism is creating ever more divergent winners and losers in a society that demands more equitable outcomes for all. Capitalism consumes natural and social capital at an unsustainable rate. The mantra of shareholder value has rendered many public companies myopic, pursuing quarterly gains at the expense of long-term value.
So how do we fix it? How do we retain the powerful benefits that capitalism can bring and restore its reputation?
Published last week, this year’s installment of Fortune Magazine’s Change the World List shows the way. These 50 companies and their leaders are willing to cast off decades of conventional thinking to re-envision how their companies are led, invest and grow for the long term. They are creating shared value—making a profit by changing the world for the better. And as this movement continues to grow around the world, some new trends are emerging:
Business is redefining its purpose
In our work with corporates at the Shared Value Initiative, we’ve been quietly amazed at the number of CEOs who want to leave a more important legacy than a record of quarterly earnings targets met. Increasingly, companies no longer see themselves only in terms of what they sell, but in terms of the societal needs or challenges they meet. And their employees wholeheartedly agree. Committing the business to a social purpose engages employees more deeply, gives more profound meaning to work and serves as a better way to attract talent.
But it's realizing that shifting purpose alone won’t cut it
A purpose without strategy is quickly exposed as words on the wall of the corporate HQ. Leaders use purpose as guardrails to help shift the focus on social impact from the periphery to the center of corporate strategy development. CVS Caremark, for example, committed to becoming a health care company back in 2014, tackling the problem of access to basic health services in the U.S. as its core purpose and strategy as the newly branded CVS Health. The purpose signals strategic priorities – expand retail clinics and pharmacy benefit management, innovate around community health, stop selling tobacco, and so forth. CVS has adopted a fundamentally different strategic direction from their pharmacy competitors and identified new avenues for growth and profitability along the way.
Moving social issues into corporate strategy is highlighting limitations
Companies quickly find, however, that they often lack a thorough enough understanding of societal challenges to create these strategies alone—and that has created a new role for nonprofits. As GSK has worked to develop and sell new drugs to meet the needs of low-income populations around the world, they have partnered with Save the Children to better understand the needs and distribution channels to reach these new markets. And Save the Children has similarly found that working with GSK gives it a new mechanism for meeting its mission at greater scale. This symbiotic relationship with the private sector is expanding to foundations, like Gates and Ford, and to development agencies, like DFID and USAID.
Fortuitously, the investor community is awakening to the opportunity
Perhaps the most surprising trend of all, however, is that the mainstream investment community is beginning to catch on. Investors have traditionally been skeptical that social and environment factors were material to financial performance. But, examples like CVS’s focus on health access – in contrast to its primary competitor Walgreens Boots Alliance’s emphasis on merchandising beauty products – helps in part explain why CVS’s stock has outperformed Walgreens by 50% over the last five years. And, the prominent advocacy of Blackrock CEO, Larry Fink, the popularity of the impact investment movement, and the influence of the Sustainable Accounting Standards Board (SASB) all show a growing recognition of the importance of long-term value creation for both business and society.
As the Fortune list makes clear, building a social purpose into corporate strategy is not just a passing fad. Instead, it’s an ever more deeply embedded approach to achieving competitive advantage.