Stock buybacks and executive pay are back in the headlines nearly three years after the Business Roundtable’s historic statement on purposeful business. Experts say inroads are being made elsewhere.
Has corporate purpose with the goal of the betterment of the world been nothing but empty rhetoric?
Nearly three years after 181 CEOs of global corporations signed the Business Roundtable’s revised statement on corporate purpose, the question demands to be asked. It was supposed to usher in an era when corporations would act in the interest of all stakeholders — employees, customers, the general public and communities — rather than only shareholders.
Yet based on recent actions, you’d be forgiven for wondering if all most corporations cared about was still its owners and share price.
President Joe Biden recently took aim at corporate America for using profits to buy back millions of dollars in stock, rather than, say, to improve income inequality or invest in job creation and sustainability projects.
Companies like Alphabet, Apple, Amazon, Bank of America, Home Depot and Visa have all repurchased massive amounts of stock in recent months. The general public may not understand the practice, which helps to boost share price because it limits stock inventory, but if there are additional reasons beyond making executives and investors richer, corporate America is failing to make the case.
Starbucks is one of the few brands to come out against the trend. Howard Schultz's first act on his return as CEO was to pause the coffee chain’s share-buyback program.
"This decision will allow us to invest more into our people and our stores — the only way to create long-term value for all stakeholders,” he wrote in an open letter to Starbucks employees, customers and others.
Exxon Mobil, meanwhile, earned $23 billion in 2021, its highest annual profit since 2014. With $10 billion of that profit, the oil and gas company said in February it would repurchase shares over the next two years. But how is it using these profits to move away from fossil fuels and achieve net-zero emissions by 2050? The specifics seem unclear.
Meanwhile, CEO compensation has returned to record highs. Are these companies also reporting significant pay bumps for their lowest-paid staff to help them keep up with record inflation? Corporate communications on this seems next to none.
Companies are also facing big questions if they choose to continue to do business in Russia despite the country’s increasingly brutal invasion of Ukraine. Yale business professor Jeffrey Sonnenfeld and his colleague Steven Tian created a “hall of shame” of multinational companies still operating in Russia, despite the devastation it has leveled on Ukraine. Well-known brands graded a “D” in their response include AstraZeneca, Hyatt, Mondelez-Nabisco and Subway.
Those graded ‘A’, meanwhile, include eBay, Heineken, Krispy Kreme, Netflix and TJ Maxx.
Zach Kouwe, EVP at Dukas Linden Public Relations, says it doesn’t appear that corporations are making business decisions based on the new definition of corporate purpose.
"CEOs, who are the ones responsible for executing on a corporation's promises, need to show that they are constantly thinking about all of their stakeholders,” says Kouwe. “It means acting more human, with compassion and humility while having awareness of the issues and areas where the company can improve.”
“It's actually quite simple, but it's not easy to execute, especially at a large corporation,” he says. “In too many cases, CEOs and boards fall into the trap of maximizing short-term profit in order to help the stock price or continue beating quarterly earnings. That's an incredibly short-sighted strategy."
Alison DaSilva, MD for purpose, CSR and ESG at Zeno Group, has worked in this space for 25 years.
“I’ve seen different valleys and peaks, and right now is a very interesting time,” she says. “You can’t let your communications get ahead of your behavior or your actions.”
She points to the issue of climate change. “What we’ve seen is this abundance of non-meaningful commitments, like ‘We’ve committed to being a net-zero operation by such-and-such a year,’ That’s a significant problem,” says DaSilva. “What needs to instead be communicated is, ‘What is your path to get to net-zero? And what have you actually done so far to get there?’”
“People want to see action, otherwise there’s going to be backlashes,” says DaSilva, in reference to accusations of purpose washing.
She says corporations also need to do a better job of “connecting the dots internally, with different functions and leaders,” so that actions match the rhetoric from a comms and reputation point of view.
“That is why you sometimes see a corporation take a stand on an issue like voter legislation or gender rights, only to then come under criticism because they support a politician who advocates against that stance,” explains DaSilva.
Carreen Winters, chief strategy officer at MikeWorldWide, says the “idea that stakeholder capitalism sets up a binary choice between serving shareholders or serving other stakeholders is a false choice. This should be a conversation of ‘and’ not ‘or’ that creates tension around how to prioritize the various stakeholders that makeup ‘stakeholder capitalism.’”
While she says it is “certainly important to ask questions about how signatories of a commitment like [the Business Roundtable’s corporate purpose statement are progressing], to be fair, we should expect the move towards stakeholder capitalism is more of an evolution than flipping a switch of 100-plus years of hard-wired focus on shareholders.”
“Isn’t financial success what fuels a company’s ability to be a better employer, a more involved community citizen and a leader in sustainability?” Winters asks rhetorically. “Positive change in the world isn’t free — and it isn’t cheap. Profitable businesses are the ones that are in the best position to make change.
“The companies that are doing it well, and getting the most credit, are the ones that are bold and the ones that move quickly. They report on their progress and are candid about their shortcomings,” she adds.
ESG claims
Fortunately, pros say there are catalysts that will bring more accountability to corporate actions versus what they say.
The Securities and Exchange Commission, for instance, has indicated ESG statements should adhere to the same rigor as financial disclosures, says Andrew Merrill, a partner at Prosek Partners, which last year acquired a large stake in ESG and sustainable finance consultancy Blue Dot Capital. Those who make misleading ESG or purpose claims could face hefty fines.
He also says their clients, private equity and hedge funds, are being asked by institutional investors to demonstrate their commitment to ESG.
“They are looking for the firms to not just talk, but walk the walk,” says Merrill. “On their commitment to ESG, it is no longer sufficient just to say, ‘Look at our glossy ESG report that we did last year.’ Investors want to know how ESG is actually woven into their investment process, the selection of portfolio companies that they invest in and the investment committee process.”
“I think what’s also interesting is we’re seeing a lot more attention on boards to actually measure progress on this front,” adds Merrill. “We are going to see increased attention on metrics and measurement and accountability.”
PRWeek reached out to several in-house leaders, including those at companies who signed the Business Roundtable’s 2019 corporate purpose pledge. Only a few responded. One high-ranking comms exec said companies need to be thoughtful about how they use company cash, and communicate the reasons behind it.
One catalyst? Activist investors. They can play a role on both sides of the coin.
British fund manager Terry Smith, for instance, accused Unilever of being too focused on “sustainability credentials” versus financial performance.
“The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert – salads and sandwiches),” he quipped.
Diane Primo, CEO of Purpose Brand, says companies like Unilever should double down on their positioning, explaining it is looking at long-term growth for its stakeholders, including shareholders.
“Activist investors, by nature, are focused on the short-term value of a company,” says Primo. “But if you look at Unilever’s performance in the market, they've outperformed it over the long term. It is also important to note that companies ranked as ESG leaders outperformed the broader stock market.”
She raises a second talking point for companies under attack by activist investors for stock performance.
“The public is told to diversify and hold onto their investments for the long-term,” Primo says. ”So why should we expect the same of our companies to manage the companies to manage themselves that way?”
However, other activist investors are, in fact, focused on keeping companies accountable to their broader purpose.
Ironically, it could be the shareholder community that finally creates a tipping point on corporate purpose. Billionaire investor Carl Icahn, for instance, has criticized both McDonald’s and Kroger for its treatment of animals, and took aim at the “egregious wage gaps” between Kroger CEO Rodney McMullen and other employees.
“That isn’t something we saw even two years ago, an investor going after a company for its CSR versus financial performance,” says Merrill. “You’re going to be seeing a lot more of that.”