Purpose And Shareholder Value: Have Your Cake And Eat It Too

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As the interest in social consciousness grows, businesses must learn to incorporate those principles into their purpose.

Every company has a similar end game: profitability. After more than 20 years working in marketing and communications, I’ve noticed how dramatically brands have shifted their messaging. For a very long time, companies were almost entirely focused on profit and it showed. Today, we’re thankfully in a more conscientious time with companies now balancing profit, sustainability and purpose. This means considering all stakeholders, instead of just shareholders. While purpose and shareholder value may seem at odds with one another, they can be achieved simultaneously. In fact, one recent study showed that consumers are four times more likely to purchase from a company that has a strong stated purpose.

Many companies promote their environmental, social and governance (ESG) goals to attract new investors and draw in socially conscious consumers as part of their company purpose. Let’s take a look at how purpose and shareholder value are becoming better aligned.

Your company’s purpose is its ongoing pursuit towards the future. It sets internal and external expectations for what people can expect from your company. Many businesses develop and use a purpose statement to guide every action, interaction, reaction and transaction they make.

When I think of a really good purpose statement, Allstate Insurance comes to mind:

“We empower customers with protection to help them achieve their hopes and dreams. We provide affordable, simple, and connected protection solutions. We create opportunity for our team, economic value for our shareholders, and improve communities.”

The Evolution of Shareholder Value

In a 1962 article published in Fortune magazine, the CEO of Indian Head Mills described the purpose of business as:

The objective of our company is to increase the intrinsic value of our common stock. We are not in business to grow bigger for the sake of size, nor to become more diversified, nor to make the most or best of anything, nor to provide jobs, have the most modern plants, the happiest customers, lead in new product development, or to achieve any other status which has no relation to the economic use of capital. Any or all of these may be, from time to time, a means to our objective, but means and ends must never be confused. We are in business solely to improve the inherent value of the common stockholders’ equity in the company.

If a company made a public statement like this today, it wouldn’t be in business for long. The idea of being solely dedicated to increasing value for shareholders no longer aligns with current business or consumer culture. The attitude expressed in the Indian Head Mills purpose statement is at odds with our current social values.

What’s more, a singular focus on shareholder value can lead to acute business and societal problems, like pollution, wealth inequality, a myopic view of growth, and lack of innovation. Since the 1960s, the business world has evolved to recognize the value of customer happiness, diversity, and protecting our environment.

In 2019, the Business Roundtable group issued a bold statement on the purpose of a corporation. In sharp contrast to the quote from 1962, more than 100 leaders from large companies dedicated themselves to delivering value to customers, investing in employees, being fair and ethical in business partnerships, supporting local communities, and creating long-term value for shareholders.

How Does Purpose Increase Shareholder Value?

Many people are growing more and more socially conscious and are becoming more selective with how they spend their money because of it. It boils down to this: consumers want the companies they do business with to reflect their core values. As the interest in social consciousness grows, businesses need to learn how to incorporate those principles into their purpose.

Businesses with a strong purpose statement and proof of socially conscious programs are more likely to attract these customers and investors, which means purpose supports the goal of increasing shareholder value. ESG factors are a primary consideration for many investment groups, so many businesses will tie their purpose statements to ESG goals. Setting ESG goals that are unique to your company will help you fulfill your business purpose.

If you have trouble setting or meeting ESG, consider adjusting your mindset:

1.  Change Your Business Perspective

It is easy to come to work and do the same thing every day. Chat with your employees, survey customers, create a new management team, and look at businesses outside your industry. When you see your business from a new perspective, you might notice inefficiencies or problems that you couldn’t see before.

Once you see those inefficiencies or problems, start looking at how to solve them. These new ideas can help you create ESG goals that will help your business fulfill its purpose.

2. Solve a Problem

Create a list of “problems” you have within your company (if you don’t think you have any, you might need to go back to changing your business perspective). Perhaps you are spending more on energy consumption than you would like or putting a lot of resources into dealing with waste. Create an ESG goal to work towards solving these sustainability problems.

Creating more sustainable products can even help your bottom line. McKinsey & Company reports that products marketed as sustainable attract five to six times as many customers as the average product. Consumers are even willing to pay more for sustainably produced products.

3. Take Risks and Explore New Frontiers

Tackling new projects and setting challenging goals might make you feel uneasy, especially when your business is on the line. However, you need to take smart, calculated risks rather than jumping blindly into the unknown.

Do your research and take risks that have the potential to benefit your business in a significant way. Prepare for setbacks along the way and keep your focus on your goals and business purpose.

Share It with Stakeholders

Now that you have a new understanding of the importance of company purpose, it is time to share your new goals with your customers. By focusing on ESG goals and making other positive changes, you should attract new clients and business prospects that share the same values.  In doing so, you will stay relevant with today’s business culture and have a strong foundation for tomorrow as well.

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