Larry Fink’s annual open letter to corporate CEOs is fast-becoming a fixture at the start of the year. Fink’s views matter. They carry weight. He is, after all, the co-founder and now Chairman and CEO of BlackRock – the biggest money-management firm in the world with more than $6 trillion in assets under management. His 2019 Letter To CEOS is entitled: “Purpose & Profit.”
In it, Fink declares:
“I wrote last year that every company needs a framework to navigate this difficult landscape, and that it must begin with a clear embodiment of your company’s purpose in your business model and corporate strategy. Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being – what it does every day to create value for its stakeholders.”
Some critics of the growing interest in Business Purpose erroneously dismiss the pursuit of Purpose as a distraction from achieving profits, whereas it should be seen as a superior route to achieving sustainable profits over the long-term. As Fink declares:
“Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked. Profits are essential if a company is to effectively serve all of its stakeholders over time – not only shareholders, but also employees, customers, and communities.
Similarly, when a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability. Purpose unifies management, employees, and communities. It drives ethical behaviour and creates an essential check on actions that go against the best interests of stakeholders. Purpose guides culture, provides a framework for consistent decision-making, and, ultimately, helps sustain long-term financial returns for the shareholders of your company.”
Fink has subsequently been challenged to put his own money where his mouth is. The founder of the UK-headquartered think-tank Tomorrow’s Company, Mark Goyder, whilst endorsing the overall thrust of the letter, challenges Larry Fink:
“Here is the real test… Which investment products have you dropped because they do not reflect a focus on the long horizons that your clients are planning for? Have you examined the impact of short selling on the behaviour and long termism of the companies in which you invest? Have you significantly changed the basis of your people’s remuneration away from yearly targets and bonuses? How do you reconcile the short-termism of many of your funds with your stated belief in your 2019 letter that a focus on the long term is essential if companies are to serve society as well as their shareholders?”
Goyder goes on to observe: “Last year when I was discussing Fink’s 2018 letter with a group of CEOs and investors, one of them said, ‘Great letter. I wish he would send it to his own fund managers’. So, Larry, answering those challenges effectively would make your 2020 Letter to CEOs even more persuasive.” (“Larry Fink’s 2020 letter to investors gives us more questions than answers”, Goyder, 2019)
There is a growing interest in business purpose reflected in the work of organisations like Tomorrow’s Company and Blueprint for Better Business and in the writing of authors such as Anita Hoffmann (Purpose and Impact), John O’Brien and Andrew Cave (The Power of Purpose), Neil Gaught (Core: How A Single Organizing Idea Can Change Business For Good) and Dan Pontefract (The Purpose Effect: Building Meaning in Yourself, Your Role and Your Organization).
This growth in interest has not gone uncriticized. In a highly critical, on-line polemic, Gates Fellow and Cambridge doctoral student Maria Hengeveld argued that “Big Business Has a New Scam: The ‘Purpose Paradigm” and alleged that “Multinational corporations are luring millennial workers with empty promises and self-serving slogans.”
Business Fights Poverty founder Zahid Torres-Rahman responded to the Hengeveld article, suggesting some important benefits of purpose, but acknowledging that “there is a clear and deepening frustration amongst some with the rhetoric of “purpose.”” He urges that “those of us who believe in the power of business to do good,” should use articles like Hengeveld’s as “an opportunity for some honest self-reflection.” (The Purpose Paradigm: Solution or scam?” Torres-Rahman, 2019)
So, seizing the “opportunity for some honest self-reflection.”
As Chris Coulter, Mark Lee and I argue in our 2018 book: All In – The Future of Business Leadership, if companies want to truly embed sustainability, then Purpose has to be the foundational attribute. Purpose explains why the business exists. It cannot, however, be pursued in isolation. It requires a comprehensive Plan (Strategy) to bring it to life, which extends both across the business and its value-chain; a culture which supports it (innovative, engaging and empowering, responsible and ethical, and open, transparent & accountable); collaboration with a range of business and other partners to scale impact; and advocacy (speaking out and speaking up for social justice and sustainable development) to amplify and nurture the conditions that favour sustainability.
We have to get sharper, collectively, with a narrative that explains how Purpose and Sustainability inter-relate. Look out for a short note on this from a group of Purpose and Sustainability thinkers that Ben Kellard – now with CISL Cambridge Institute for Sustainability Leadership – is currently pulling together, in a personal capacity.
Purpose should be an explicitly stated vision and authentic belief that defines the value that the company seeks to create for itself and society, directs key business decisions in the way value is created, aligns everyone in the business towards a common goal, guides how the company engages its stakeholders, and provides the organization with courage to foster positive change. Or as an important paper, “The What, The Why And The How Of Purpose – A guide for leaders” published by CMI, says: Purpose is
“An organisation’s meaningful and enduring reason to exist that aligns with long-term financial performance, provides a clear context for daily decision making and unifies and motivates relevant stakeholders.”
Purpose needs senior leadership buy-in and to be supported by their evangelism – but also needs to be owned by employees generally. The uncovering of what is the purpose of the business cannot be contracted out nor rushed. It seems some of the most effective processes have started with employees having the opportunity to identify their own personal purposes. Once the business purpose is defined, it has to be fully socialised, with employees able to explore the implications for what the business will do – and also crucially won’t do. There has to be a clear link to values and behaviours. This is why new work which academics Charles Ebert, David Stillwell and Jaideep Prabhu from the University of Cambridge and Victoria Hurth from Plymouth University are starting to examine, how to check the Purpose pulse of an organisation, is going to be so important.
Personally, I always try to be a “glass half-full” type of person. I always tell my Cranfield students: healthy scepticism and challenge is good, but cynicism is corrosive. Collectively, we certainly need to “kick the tyres” on the debates and practice around business purpose. We also need to make a far better job of “joining the dots” and showing how important ideas fit together; but let us also build on the positive developments taking place.
David Grayson is Emeritus Professor of Corporate Responsibility at Cranfield School of Management. He is a member of the Circle of Advisers for Business Fights Poverty. He has written or contributed to numerous books on Responsible Business and Corporate Sustainability over the last twenty years. His latest book, co-authored with Chris Coulter of GlobeScan and Mark Lee of SustainAbility, is “All In – The Future of Business Leadership” (Routledge/Greenleaf Publishing – 2018)
David tweets @DavidGrayson_