A year needs a score, but a decade needs a purpose

Decades reveal things that our normal yearly check ins can miss. I would characterise the 2010’s decade as one in which investment institutions and the companies in which they invested were very focused on the financials but started to take an interest in the concept of wider purpose.

The momentum in this theme (or meme?) suggests that we can expect the 2020’s decade may be one in which that purpose gets to be much more widely entrenched and influential.

Corporations and purpose

The transition from shareholder capitalism to purposeful capitalism is complex. It is also paradoxically simple.

The state we have emerged from is widely attributed to Milton Friedman’s 1970 article which mobilised thinking in corporations under a singular emphasis on shareholder value.

The supporting act in this that has played out for more than four decades has been the contribution of measurement which has been faithfully reciting the mantra that ‘figures don’t lie’. . This simplification gave organisations a convenient excuse for avoiding a lot of inconvenient challenges – like is our organisation fulfilling a useful purpose.

But this allure of the measured over the meaningful has been both unhelpful and unhealthy. It has created a simplification of the business realities to occur. This is that corporations and their institutional owners have been messing with a finite pool of natural resources without charge in an unsustainable fashion. Greta Thunberg’s statement at the UN Assembly that ‘we are talking fairy tales of eternal economic growth’ was accurate.

Within the natural resources heading lies corporations’ considerable carbon footprints – past, present and future. The responsibility of asset owners and corporations for some part of the climate change problem is clear-cut. As this becomes a stand-out issue in the 2020’s agenda, in my view the number one issue, it will be critical for organisations to play their part in contributions to its solution.

Corporations’ responses to this problem and other societal stresses are arguing for transformational changes to business models that make them purpose-centred. Here there is a new balance to be struck via working on a new corporate mix: societal contribution, employee experience and client value proposition, propelled forward by profits, supportive culture, and integrated thinking and reporting.

We need to see value in a new light in which well-being ranks alongside wealth creation. Complex – yes, but critical to the future.

This is already out there as a concept – the US Business Roundtable, the UK British Academy, and the letters from Larry Fink, founder of BlackRock, have been arguing in this direction.

Ideally the purpose of corporations should express a cause that is resonant – engaging, meaningful, and impactful and is respectful –  inclusive and serving. In addressing this sort of direction of travel organisations will have to overcome a lot of inertia.

They must direct substantial change on the fundamental priorities in their stakeholders – owners, employees, clients, society. They must settle on an alignment of collective vision and mission by socialising it deeply and widely. And they must adapt their strategies and communications to fit new priorities and the changing zeitgeist. This is massive change and it will surely take a decade to achieve the transformation, but it can be done in that time-scale.

The sources of soft power needed to achieve this will reflect how corporations respond to the pressures and incentives within the system. First, people want these sorts of changes as consumers and planet earth inhabitants; second governments want these sorts of changes to direct new focus into public policy tangles; and third the asset owners’ role in this is particularly critical. Some history helps to understand this.

Asset owners and purpose

Interpretation of asset owner fiduciary duty has been the parallel problem to Friedman’s shareholder capitalism. It has focused substantially on the measured short-term return not on the sustainable long-term outcomes.

The emergence of a new interpretation of sustainability is needed to advance a better purpose here. The big asset owner in owning the slice of the world economy (they are identified as ‘universal owners’) must confront the principle that future returns (a) will only come from a system that works; and (b) will only be valuable in a world that is pleasant to spend it in.

In short, the asset owner has an enlightened self-interest path to take to support the financial system and its components through an evolution to purposeful capitalism. It is a compelling case that it should use its soft power to generate that purpose in the corporations it owns.

The 2010’s launched the asset owner master class. I would cite Adrian Orr at New Zealand Super and Hiro Mizuno at GPIF, Japan as two particularly inspiring leaders of highly progressive organisations that have laid the foundations for purposeful asset owner practices.

The GPIF example is the best one on universal ownership as is covered in the HBR ‘Cold Call’ podcast which show-cases Harvard Business School case studies. This case was ‘should a pension fund try to change the world?’.  The conclusion is really encouraging. The class saw Mr Mizuno as the stand-out favourite of all their case studies and agreed that pension funds armed with universal owner thinking should try to change the world and might well be successful.

The above exemplars herald a new string of leadership- and impact-minded asset owners that in the 2020’s can bring greater purpose, well-being and wealth into the lives of the 4 billion of savers and investors on the planet (excuse the rounding) and the other 4 billion or so people that are downstream to their actions.

The simple reality is that these organisations in shining a light on a stream of problems can reveal them as a torrent of opportunities. They are too important to fail in this mission.