As I reviewed this week’s Power Idea from Strategic Partner, Diane Janovsky, I was reminded that, in the end, it is about our purpose, not just about making money. Now, don’t be fooled by my comments because making profit is critical to the long-term success of all businesses. That said, we are all here for a reason…a purpose. Understanding that purpose and articulating it to all of your team members, and to all those who depend on your organization, is critical to having a long-term sustainable success. Enjoy Diane’s thoughts for this week.
It can be difficult to recognize the early stages of systemic change, but a large stone was cast into the business pond in January, and the ripples are likely to have a profound effect on organizations and leaders everywhere.
The “stone” was a letter to the chief executives of the largest public companies in the world from BlackRock, one of the most influential investment firms in the world. Penned by Laurence D. Fink, Founder and CEO of BlackRock, it signaled a significant shift in expectations of what constitutes excellent business performance.
The gist of the message was that the time has come to shift away from the concept that the only social responsibility of a business is to increase its profit. This is a philosophy that was famously articulated by economist Milton Friedman in the early 1970’s, and then gained momentum with the Gordon Gekko “greed is good” persona of the 1980’s, and the impact of day traders seeking short-term profits in the 1990’s. It has been the operating mode for Wall Street ever since.
Now, however, due to a number of factors, Mr. Fink believes that
“society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society”.
In other words, BlackRock is using a new yardstick to measure investment opportunities and influence performance. Favored companies will be those who strive for long-term value creation for all stakeholders including customers, suppliers and communities, as well as investors. This is truly a fundamental and extraordinary change from the focus on short-term quarterly profits. And although BlackRock’s letter targets public companies initially, Mr. Fink specifically notes that this applies to private businesses as well.
Some companies already subscribe to this long-term and more holistic approach, and in fact, research conducted on over 60 such organizations shows that they outperformed the S&P 500 by 14 times and the Good to Great companies by 6 times over a period of 15 years (FirmsofEndearment).
If indeed this is the new paradigm for doing business, then it will require a different set of skills and behaviors on the part of leadership to be successful. Two key concepts to understand are Purpose and Stakeholder Orientation.
Senior leaders must clearly define and articulate why their business exists and what value it provides to society. This is true whether the leaders are the owner of a small business, or the Board and executives of a large corporation. Having a higher purpose is fundamental to long-term strategy; it becomes the “north star” that guides all decision-making and also acts as a beacon to attract the best talent. Leaders must also be able to communicate purpose effectively and align the efforts of everyone in the organization.
* Stakeholder Orientation
Perhaps the most challenging shift in mindset for leaders comes with the need to balance the interests of the various parties who have a stake in the success of the business. It requires the ability to find win-win solutions in the complexity of multiple constituencies with competing priorities. Rather than approaching situations as a zero-sum game with winners and losers, leaders who are successful in the 21st century will find ways to tap into human potential and create new opportunities and growth.
In this vision of a new world of business, being a leader just got that much more challenging. Management still needs to enable performance and produce financial results, but that is not enough. As the BlackRocks of the world redefine success, leaders will need to be prepared for the changes that are required.
Are you ready?