Reflections on Five Years of Pursuing Purpose and Profit

In August 2019, the Business Roundtable (BRT) announced a revised "Statement on the Purpose of a Corporation." It was a significant shift away from its longstanding focus on maximizing shareholder value as the primary objective. Instead, the BRT emphasized a broader commitment to creating value for all stakeholders, including customers, employees, suppliers, communities, and shareholders. On the fifth anniversary of the BRT’s announcement, leaders of the Yale Program on Stakeholder Innovation and Management (Y-SIM) reflected on its impact and future implications. The discussion featured insights from Ravi Dhar and Ted Snyder, faculty leaders of Y-SIM; Jon Iwata, Y-SIM practice leader; Alan Murray, Y-SIM executive fellow and former Fortune Media CEO; and John Seifert, chairman of Y-SIM’s Board of Advisors. The following has been edited for clarity and brevity.

Jon Iwata: Alan, five years ago this summer, Fortune ran a cover story reporting that the Business Roundtable had revised its statement on the purpose of the corporation. It got a lot of attention and is still referred to today. What was the significance of what the BRT did and what did you think it would change, if anything?

Alan Murray: It’s important to say that the Business Roundtable wasn't leading this trend. I'd been writing about it for five years or more, not because I was crusading or pushing for it, but because I was hearing about it in the conversations I was having with CEOs. They were talking very differently about their jobs than their predecessors did, particularly about their responsibilities to society. Something was going on that was dramatically different from what I had observed, having done this for four decades. And I think what the Business Roundtable did was ratify that. I mean, when you have an organization that works by consensus and is made up of the largest companies in the United States, and suddenly they're able to come together and say we all agree this is the right way to run a company—that you should pay attention not just to shareholders, but to all your stakeholders, including your employees, your customers, the communities they operate in, and the natural environment—that's what made it a big change.

Ted Snyder: Has that consensus held?

Alan Murray:  I think some of the commitments to the environment and to diversity, equity, and inclusion have gotten weaker in part because of political attacks. I have conversations all the time with CEOs, and they're clearly talking about it less. But I ask, do you still believe this? Are you still doing this? And the vast majority of the people I talk to say, yes, this is the way you have to run a company to create value today.

Ravi Dhar: One of the learnings from our CEO interviews is that they recognize this, that shareholder and stakeholder value are not as separate as maybe we teach in business schools. Long-term financial returns are not incidental or orthogonal to how we manage stakeholders. They’re a consequence of making the right stakeholder choices. And so when you focus narrowly on shareholder return, you often miss the point that financial consequences are based on employees with higher retention and engagement, customers who are loyal with lower churn. These all factor into stakeholder value creation, but also into shareholder value creation. Now, this is true in the long term. In the short run, there’s some disconnect. And I think that's an important part of the debate.

Alan Murray: Ravi, it's really interesting that you focus on the long-term aspect of this, because one of the things that struck me while I was working on the Fortune story was that the four people they had put forward to talk to me about this—Ginni Rometty at IBM, Mary Barra at GM, Alex Gorsky at J&J, Jamie Dimon at JP Morgan Chase—are CEOs of companies that have been around for a hundred years or more, and who by the nature of their positions and the position of their companies have to think about the long term. And I do think that's a big part of it. I mean, I sat in the C-suite of Time Inc. in its final days, and you could see lots of decisions being made that helped short-term profitability and hurt employees, customers, and long-term value all at the same time. But as the timeframe extends, shareholder and stakeholder interests converge.

Ted Snyder: Having been a student of Milton Friedman and staying fairly close with him for a long time, I've been reflecting on what he would think about what's going on now. And I think the only thing that he would really object to is the idea of long-term profit sacrifice by management. He would object to that, but he would not object to a recognition that the world has changed. Labor is differentiated, consumers are differentiated. Investors have preferences. You have to think about the government differently. As long as all of that was built into a framework for long-term value creation, I think he'd say fine. This was one of the insights that Jon and I had with the students last year. The students were like, oh, Milton must be a boogeyman, but in fact there's not that much daylight between his view and stakeholder capitalism.

Alan Murray: It would be so interesting to have this conversation with Milton Friedman. As a young reporter, I used to talk to him pretty regularly. He always returned my phone calls collect, by the way. It’s such a different business world than it was 50 years ago. There was a great study done a couple of years ago that looked at the value of the Fortune 500 companies as reflected on their balance sheets. In the 1970s more than 80% of that value is physical stuff. Do you have the plant? Do you have the equipment? Do you have the inventory? Do you have the oil reserves, whatever it is to create value. And in that world, you definitely are going to put a higher priority on the shareholders who are giving you the capital you need to create the stuff that allows you to create value. Do the same exercise today and what you find is more than 85% of the value in the Fortune 500 companies on their balance sheets is intangibles. It's intellectual property or brand value or things that are much more closely tied to human beings and talent. And so the way I think about what's happened here is that the companies are just having to become much more human, because that's where the value comes from.

Ravi Dhar: I think the fundamental misperception, including for some CEOs, is they see the focus on other stakeholders as CSR or value distribution, and value creation is kind of fixed. Business schools traditionally teach value creation strategy a little narrowly, focusing on consumers and competitors. What happens to employees or the environment is like, after I get the returns, how much do I spend? That's something maybe Friedman would say, that it’s up to the shareholders. But if you see this as reconfiguring how value is created in the first place, that's a different way of thinking about it. It really changes how you do innovation. I think good companies get that. This is why sustainability is failing in many companies. It's not tied to value creation. The CEOs are saying, if I can't monetize all that money I'm spending in some way long term, not necessarily short term, it's getting harder and harder to justify. So, I think this notion of moving from value redistribution to value creation when thinking of stakeholders is sometimes not understood well enough.

Alan Murray: If I tie that back to what has changed since August 2019, what I find is the companies who understand what Ravi just said, that this is central to value creation, have not changed at all. There were other companies that thought, oh, this is the latest flavor, or this is good public relations, who adopted it in a more superficial way. It wasn't central to their value creation, and so they dropped it. I think that's the distinction that's happening now, which is not entirely a bad thing.

Jon Iwata: Ravi, we've interviewed more than 150 leaders, most of them active CEOs. Which examples of value creation versus value distribution and CSR stand out to you?

Ravi Dhar: The CEOs who are doing this as part of value creation said, “You have to integrate this holistic approach into the operations of the business: how strategies are planned, how annual operating plans are done, how employees and the senior leaders are incentivized.” So, there's a lot of plumbing that has to be done. And that's hard stuff to do. Two very different companies that I thought were interesting: one is Mars, which is privately held. We saw that they were embedding this way of thinking into the organization all the way down to the business units, the top 200 business leaders, into the strategy, into the operating plans, into the incentives, into the metrics. And the second one we have just about wrapped up is Rio Tinto, which is a different case where it is about issues with the communities in which they operate, civil society, traditional owners of the land, and the social license to operate. They had a legal license to do certain things, but not the social license. And so the new CEO Jakob Stausholm has started to make changes to earn a long-term social license, to operate the company that allows them to create long-term value.

Jon, you were intrigued by the thought that many of the CEOs were going through “refounding” moments. I think that's an interesting thing to expand upon.

Jon Iwata: CEOs are often appointed during or perhaps because of dramatic circumstances. Digital disruption comes up a lot. Crises, such as what Rio Tinto had to manage. Sometimes the departure of a founder or charismatic CEO. Many of those are founding and refounding moments. And we found that those CEOs tend to do similar things. They deeply examine the fundamentals of the firm, its thesis. Why are we in business? What value do we create? Why would customers buy from us? Why would investors invest in us? Why would people work here? And those answers are often informed by the company’s history. They’re not looking back in nostalgia. They're looking for clues for what made the company great. What they find almost always has to be contemporized, and then the hard work, as Ravi said, is putting in place a holistic operating platform, a management system, based on the company’s purpose, culture, strategy, incentives, all aligned. You mentioned Mars and Rio Tinto. I would add Equinor, which used to be Norway’s Statoil, and Enel, the global energy company headquartered in Italy. Both are refounding cases.

John, through the Ogilvy Foundation you gave the original gift that made possible the research that we began back in 2019. What was your interest in this topic?

John Seifert: When you first spoke about this research, we talked about it largely through a brand and enterprise reputation lens. What interested me was getting beyond that to understanding how leaders lead and how companies work, and our focus not on the “why” of stakeholder capitalism, but how do you do it? As I think about those 150 interviews, maybe I was in on 75, 80 of them, I would say collectively, the needle has moved very little in the past five years. Just go through the list: customers, employees, suppliers, communities, and shareholders. I mean, you have a whole bunch of dissatisfied customers across industries who don't think they're getting the value. It seems to me employees are at a historical low in terms of confidence and trust in leadership in the workplace. Some of the companies are thriving, some of them are in distress, many of the CEOs are gone. Would you give the collective group a grade for the progress made in five years on the definition of the new purpose statement? Maybe it's a C. And the question to me then is, okay, does that make the agenda, the ambition, less relevant, or is it that they're really struggling in execution?

Alan Murray: I'm a little less pessimistic than John. I mean, there are missing pieces, the things that weren't addressed, taxation being one of them. Obviously taxes are an important part of the way that companies contribute to society. And yet there seemed to be a complete disconnect between the way CEOs were thinking about their responsibilities to society and the way their tax departments and tax lobbyists were dealing with Washington. CEO pay was another one. I mean, a lot of people think that CEO pay has gotten out of whack over the last few decades, but I think it's a lot to expect CEOs to lead the way in reining that in, and they certainly have not. So, there are some parts of a reasonable stakeholder agenda that just never took hold.

Going back to the point that Ravi made, this is about value creation. And the best companies continue to see that. One example is Walmart. What I love about Walmart is this is not a blue state phenomenon. Walmart doesn't even operate in Manhattan or San Francisco or Boston or Seattle. And yet you have a CEO who says, “I want to make this company the first regenerative company, and I want to make sure that we give our associates a fair shake, and I want to make sure that we get our suppliers, thousands of suppliers, to join with us in reducing emissions. And I want to make sure we have a positive impact on the communities we operate in.” And it's like the Milton Friedman debate. It's a different approach than Sam Walton took when he started the company, and they haven't backed off at all. I mean, the climate commitments they've gotten from their suppliers is almost like a regulatory program, but it's a regulatory program run by Walmart.

So, I think this is still advancing in the companies that view it as a method of value creation. Those who thought it was a way to protect themselves in the political environment found out, nope, didn't help there. It's not going to happen in a straight line. It's not going to happen maybe as fast as any of us would like it to. But any good CEO that I talk to today is thinking about value creation in their company in a much more holistic way and a much more stakeholder focused way than any of the CEOs I talked to 15 years ago.

Ravi Dhar: There are some unique challenges in the U.S., for example, if you look at the polarization in the country, whether it's consumers or employees. Our research at Yale finds that not taking a public position is often better simply because of the polarization. The people who disagree with you are far more likely to get upset. And we know this from satisfaction research. People who are mad are much more mad than people who are happy, are happy.

John Seifert: There isn't much in that Business Roundtable statement about taking on social issues. It doesn't say take a stand on political points. At its core, it says there's not just one stakeholder, there are multiple stakeholders. And we share a commitment to create value for them. Having worked with lots of companies outside the U.S., many European and Asian companies have a deep sensitivity to the governmental regulatory agenda. So, no surprise that a lot of European companies took a lead on sustainability and climate related issues because those weren't just the companies’ points of view. Those were the governments’ points of view.

Ted Snyder: I want to pose a hypothesis in that regard, and maybe Alan, you could comment. The question is, what's going to change going forward? The hypothesis is that there's going to be a rotation of stakeholders in terms of hierarchy and the government's going to become the most important. Why do I suggest that? It's because when we look at the long term and globally, while market economies have grown, governments have become systematically more important, more influential. And as Ravi talked about, the political landscape in many countries now is fractured. So what does this mean practically? Well, if you're an EV manufacturer, government is going to have a big role in import/export policy. If you're a firm doing AI, what are the rules going to be? And Alan, as you pointed out, the value creation isn't in physical assets, it's in these strategic options. And what can you do with your models and your expertise? And the government's going to hand out contracts for data centers. And the list goes on and on when you consider energy policy and climate policy. The question I had going into this call is, how political can it get? And I think “pretty political” is the answer. So back to you, Alan.

Alan Murray: It does depend on where in the world you're looking. In China, of course, there's stakeholder capitalism and there's one stakeholder who matters, and it is the government. So we're already there. And increasingly in Europe, I mean the climate moves in Europe are very much being driven by government regulatory action. Friedman always said your job was to maximize profit and obey the law. And if we're talking about social goals, it's the government's job to take care of those and they'll create the laws and you obey the laws and maximize your profit. And what's interesting about what happened a decade ago is a sense that the government was failing to do its job. The loudest CEO voices I heard started to happen in 2016. Well, what happened in 2016? First of all, you had the UK vote for Brexit after everyone with any position of expertise in that society told them, don't do this, including the CEOs of the major corporations. They said this will be bad for the economy, this will be bad for us. And they did it anyway. In the US you had this wild election going on where on the one hand you had Donald Trump repudiating the history of the Republican party as supportive of globalization and free trade and the values that had built our large companies. And on the other hand, you had a primary where a self-declared socialist, Bernie Sanders, came very close to knocking off Hillary Clinton. Hillary Clinton later told me that during the primaries, she said that she supported capitalism and that she's convinced that statement hurt her in the primaries.

I can remember conversations with Fortune 50 CEOs at that time who said to me, “If we don't figure out how to do this better, we're going to lose our operating license.” But they also said to me, “We have to take on climate, we have to take on inequality. We have to take on education and training because the government isn't, we have a dysfunctional political system that's keeping the government from doing its job.” So I do agree with you that history is pushing us towards things where the government should and will have a greater degree of involvement, but you need a functioning government. And it's not quite clear in the U.S. and in many other countries that we have that because of what polarization has done to our political systems.

Jon Iwata: I agree with Ted’s hypothesis. I’d add that we're returning to a world with trade barriers. If you've been around long enough like an IBM, Walmart and J&J, you remember a world of tariffs, subsidies and quotas, and you knew how to grow your business globally despite those restrictions. That’s how the multinational corporation came about. Also, we may be seeing a resurgence of organized labor. That is not something most C-suite leaders have had to deal with for quite a while, but it may again be a factor if so-called white collar workers feel threatened by AI. Collective bargaining may be appealing to workers who don't remember a time when unions didn't seem like a good idea. Are CEOs of today and tomorrow prepared for the complexities of these new realities?

I have a question for Ravi. We always ask the CEOs, what can business schools do better to prepare leaders? What have we heard and what are the implications for the academy?

Ravi Dhar: Let me mention a couple of things that we heard. One is soft skills. In executive education, the big demand often is not for finance or marketing or strategy, it’s for a form for leadership—holistic thinking, integrative thinking, how to get people out of the silos. Leaders often grow up in silos because that's how you rise to the C-suite. You become a leader in a functional area. And many CEOs made an interesting point. They define their job as setting the company’s purpose, culture, strategy and making sure that that holistic thinking is embedded into the next 200 leaders. Second is social license. This is not, as one of the CEOs said, about having dinner with the government or community leaders. Social license is a way of operating the company, taking it into account when making day-to-day decisions.

CEOs didn’t say much about functional skills. They felt that people who rise to the top have functional skills, but the need is for integrative, holistic thinking. Ted, when you became dean, there was some discussion that one of the good skills is how do you look around corners? How do you get people to anticipate change and how it's going to impact the business? And how do you teach those skills? Looking around the corner is not going to be in a typical MBA course, but it relates to integrative thinking.

Framing the problem is almost as important as the answers. This goes back to value creation. If I critique business schools, we often teach it very narrowly, focusing on consumers and competitors and maybe a little bit of the regulatory system, but we don't look at the overall ecosystem. So, even in many strategy courses, it'll be unusual to ask, “Hey, have you guys thought about how the employees would react to this? Would they be excited about this?” And I teach marketing strategy all the time, and I've been in strategy sessions taught by many faculty. It hardly would come up. In an organization behavior class, you’d talk about employees, but not value creation as much. Jon and I are leading a first year class, “The role of the CEO,” and we’re redesigning it, taking some of these case studies that illustrate holistic thinking and multistakeholder framing of a challenge, and we hope to have this available for other schools as well.

John Seifert: Ravi sparked a thought. If I had to recount all of the scar tissue I built up in 40 years at Ogilvy, it was working with companies that didn't have that integrated thinking model. They were overly siloed and just didn't look at problems in a holistic enough way. I do hope that this will become the core of what Y-SIM champions. I think it's the secret sauce.

Jon Iwata: We always ask CEOs, “When you lead an organization at the intersection of stakeholders, you can't make everybody happy. So does it lead to trade-offs or somewhere else?” And many said, “Be careful of the tyranny of trade-offs.” It’s easy to say that. But when they try to create value simultaneously for more than one stakeholder, it's hard. Why? Alan, you've heard me say that organizations are structured vertically and processes are sequential. Some of the interesting examples we found show ways to defy that orientation. Often it required the CEO’s intervention—forming a cross disciplinary, cross-functional team, and framing the problem for them as a multi-stakeholder problem: “You need to solve simultaneously for margins and carbon and customer need.” All these various constraints. And many CEOs say, sometimes with genuine astonishment, “They always figure it out!” I'll never forget a comment made by a Mars executive: “You don't want to assign one part of Mars to grow our chocolate business by getting more cacao beans in our supply chain and a different part of Mars solving for our carbon footprint. You want to give both of those jobs to the same team. Why? Because they'll have to think differently.” It will lead to, in a word, innovation.

Ted Snyder: I have one closing comment, which is a reflection on our initiative and on business schools. I'm not trying to be critical of business schools. I've enjoyed my career. But Ravi's exactly right. I mean, when we talk about strategy in business schools it's really narrow and it's about prices and quantities and typically investments and interactions between rivals on those very limited dimensions. So hopefully this initiative is going to bring the bigger strategy questions to the fore.

Alan Murray: Hear, hear.

Ravi Dhar: Where do we go next? Satya Nadella recently was talking about how Microsoft handles AI will be very important for its social license. What kind of decisions are business leaders going to make about AI, whether about intellectual property, employment, workers, all kinds of issues. With AI, you need to take into account that broader license of multiple stakeholders. We have an election coming up in a very polarized country. Whether you look at the left or the right, the goals are very similar. They want to create jobs. They want the next generation to do better than the present one. You won't see any differences in the goals, which is fascinating to me. You see a lot of differences in beliefs. How do we get there? What's the right way to get there? But understanding the commonalities—this is what companies have done for many years. Most good global companies have a lens to look at commonalities, whether it's about consumers, competitors, employees. What motivates them? How do we understand them? So, to me, the questions always will be fresh and new. And that's exciting as an academic because the context keeps changing. And this is what I find in research in general, new context gives rise to new questions where we don't have the answers.

Discussion Participants:

Ravi Dhar, Co-Faculty Leader, Yale Program on Stakeholder Innovation and Management; George Rogers Clark Professor of Management and Marketing, Yale School of Management; Professor of Psychology in the Department of Psychology, Yale University; Director, Center for Customer Insights.

Ted Snyder, Co-Faculty Leader, Yale Program on Stakeholder Innovation and Management; William S. Beinecke Professor of Economics and Management and former Dean of the Yale School of Management.

Jon Iwata, Practice Leader, Yale Program on Stakeholder Innovation and Management; Executive Fellow at the Yale Center for Customer Insights; Lecturer at SOM; and former IBM Senior Vice President and Chief Brand Officer.

Alan Murray, Y-SIM Executive Fellow; former Fortune Media CEO.

John Seifert, Chairman of Y-SIM’s Board of Advisors; former CEO Ogilvy Group.