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Changing the Purpose of a Corporation?

October 3, 2019

A whole bunch of CEOs felt compelled to purchase a two-page spread in the Wall Street Journal to articulate the purpose of a corporation. It’s not immediately clear why they did this, but it is clear that what they did will affect the social risks facing the oil and gas industry.

A few weeks ago I stopped, stunned, in my daily flip through section A of the Wall Street Journal. A two-page spread consisting mostly of CEO signatures. I quickly skimmed through the companies and found Blackrock, BP, Chevron, ConocoPhillips, Exxon Mobil, Marathon, Noble Energy, NRG Energy, Phillips 66, Sempra, Southern and TC Energy – and thought – What is this? A massive number of CEOs, through the Business Roundtable, had decided to publicly update the purpose of a corporation. The purpose is no longer to simply advance the interest of shareholders, but now to include the needs of a broad group of stakeholders including employees, communities, suppliers, and the environment.

Both of these things are true:

  • Corporations are under pressure to deliver financial results to shareholders, first and foremost.
  • The populist surge on the left and right of the political spectrum is daylighting a public unrest in the capitalist status quo: people want corporations to play a more meaningful role in our society.

But which role?

The problem

183 members of the Business Roundtable redefining the purpose of a corporation sends us another signal in the tea leaves of public pressure on oil and gas companies. Don’t be confused: this move isn’t the left once again pushing the right to do more. Instead, this is some of country’s most conservative (in a traditional sense anyway) leaders responding to the public’s seeming discomfort with the capitalist status quo. They are pushing themselves. 

But where?

The redefining of a corporation seems to respond to a deeper societal impulse: to care for one another. 

And this, of course, creates both an opportunity and a risk for your company.

Here are a few excerpts from the Business Roundtable purpose statement that are easy to miss if you skim it with status-quo eyes. Remember, these are articulated as the purpose of a corporation – not do-gooder actions for which you earn bonus points.

  • …supporting [employees] through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
  • Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.

It matters because:

As I have argued, a preponderance of U.S. citizens are increasingly prioritizing decarbonizing the energy system (or worrying about climate, or both). This new move to elevate the role of the corporation in society, giving it more beneficent responsibilities – further moves the needle on the expectations for companies to lead in addressing our greatest social challenges.

According to a new poll released in September, 67 percent of Americans feel that businesses should lead on addressing climate. The opportunity for oil and gas companies to lead comes with a massive risk. If you don’t lead, you are falling short of the public’s expectations – on many fronts.

The critical mistakes companies are making: 

Staring at the energy leadership void – wondering if it will go away.

Seize the day. If your company were to reassess your values and priorities in the context of your responsibilities to be a benevolent leader to your communities and stakeholders, what would you do differently? 

  • Step back. Look at the declaration and have a meaningful conversation among your leadership: Do these responsibilities align with our corporate values? What elements are genuinely a part of our culture? Where are we falling short?
  • Reassess. You’ve done a risk assessment… how do these new expectations of companies create new risks? For example, if diversity and inclusion is part of the purpose of your corporation, are you measuring your effectiveness when your stakeholders hold you accountable?
  • Reject clearly. If your company isn’t going to keep up with these changing public expectations of a corporation, you should be clear about it. The only thing worse than falling behind, is falling behind blindly.
  • Get to work. This doesn’t have to be particularly complicated. Reach out to us if you’d like help assessing and responding to the changing definition of a corporation.

Did you company sign on to the declaration? If yes, I’d like to hear about the internal conversations that got you there. How has your company thought about the new risks and opportunities this creates for you? Let me know your thoughts.

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