The Business Roundtable is a massive step forward in the right direction, but not enough, as its really just a better-late-than-never nod to serving all stakeholders
- The Business Roundtable proclamation – the switch from maximizing shareholder return to improving the lives of all stakeholders as the “Purpose of a Corporation”
- The Business Roundtable is signed by 181 CEO’s from Apple, JPMorgan Chase & Co, Pfizer, United Airlines, Salesforce, SAP, BlackRock, Honeywell and ConocoPhillips, etc.
A fabulous first step
- Agreeing to change the true purpose of a corporation to serve all stakeholders
- Mandates that the organization will provide a fair return to owners and/or shareholders as a result of its aligned strategy, one that addresses the needs of other stakeholder groups before shareholders
The necessary next step is missing – a behaviour change is needed as is a playbook on how to change it
- One of the ways in which to change behaviour is to hold executives accountable to a new stakeholder scorecard (see download link)
- The executive compensation model needs to be changed too to help with behaviour change
Proposed Solution: The Stakeholder Scorecard – An Overview (Download here)
- Continues to use stock as the primary compensation incentive (however not aligned to maximizing shareholder return, but towards certain targets set against each of the stakeholder categories)
- Each stakeholder category has a corresponding weight (could integrate Board sign-off on all metrics and sub-targets.)
- If the target is hit, that’s good news for the executive. If it’s not, there are consequences.
- Category 1 - Customers and Team Members
o Customers (surveyed quarterly) on reliability, relationship, relatedness (§ References Dr. Mark Colgate’s work).
o Team Members (surveyed annually) – employee engagement, diversity in roles, addressing compensation gaps, learning and development
- Category 2 - Community and Society
o Community – volunteer hours, community investment, in-kind donations (§ References Marc Benioff’s Pledge 1% initiative)
o Society – GHG CO2 (tonnes), H2O (litres), Energy (kWh)
- Category 3 - Owners/Shareholders
o Revenue and profit (EBITDA)
- The Result – 20% weighting / stakeholder (as an example)
o The key is that each of the five stakeholders are assigned a weight
o Once the results are tabulated, the final scores are added up across all five of the categories to arrive at a final percentage summary
o The Board will have pre-approved an allotment of potential RSUs at the beginning of the fiscal year ( Example - every percentage mark could be equal to 1,000 shares, etc.)
Inspired Companies Insights
- The Business Roundtable is wise to redefine the “Purpose of the Corporation” to serve all stakeholders, but it must come with a playbook for change to be useful. It cannot simply be a definition, for behaviour never changes by definition only.
- What’s missing from the Business Roundtable’s definition is a corresponding behaviour change that force executives to manage to all stakeholders. The Stakeholder Scorecard approach is a good starting point.