Introduction to Purpose, Inc. Podcast with Michael Young
Welcome to the Purpose, Inc., the podcast where we discuss corporate purpose and stakeholder capitalism. I talk to business leaders and writers, thinkers, analysts and critics about the evolving role of corporations in society. I'm your host, Michael Young. This is episode zero of the Purpose, Inc. podcast and by that, I mean I'm going to use this episode to summarize for you, the listener what it is that I hope to do on this podcast, lay out some of the key questions that I want to investigate. I'll discuss my approach to the subject matter, tell you a little bit about myself so you can get a sense of where I'm coming from because I think that informs my approach to the subject matter definitely, spend some time talking about the current context, the territory if you will of purpose in early 2020, the first month of the decade if you will, the year and the decade. And then sort of just kind of wrap that all up in a bow for this first episode.
So, right to the goal. My goal here is to explore corporate purpose, stakeholder capitalism, look at the various environmental, social and governance issues that are impacting how corporations are now looking to manage and also tell their purpose stories. It's definitely an expansive topic with a lot of dimensions and the main question that I want to investigate on this podcast which is essentially all an elaboration of the central question which is whether, how, where and to what extent can businesses cast and recast themselves as constructive social actors. So, obviously we'll want to get to a definition of purpose. I'll ask around for various viewpoints on that topic. I know some people in the field that work in and can answer that question. How does purpose manifest? Well, how do you know it when you see it? What constitutes success? How do we know if a purpose driven organization, how do you know if it's working? Is it the same for every business? Does it vary by type? How does it vary by geography, by country? I definitely hope to get some global viewpoints on the podcast. I want to talk about who the players are. What role do they play? How do those roles vary? What are the responsibilities between executives, employees, boards of directors? What role for investors, asset managers, customers, civil society? And what are some examples where individuals are getting it right and where it's not working?
I definitely want to unpack the governance and reporting frameworks that seek to create more transparency and accountability, anything from UN sustainable development goals, the GRI, Global Reporting Initiative. Recently, the SASB and the TFCD have gotten some new life, Sustainability Accounting Standards Board and the Task Force on Climate-related Disclosures. I want to look at the ESG rating agencies and methodologies and then really investigate, so next investigate how organizations activate their purpose. How is it communicated? Who are the audiences for corporate purpose? How should it be communicated? What are the best channels? And again, how well, when and where is that working? And then finally, I'd like to engage with the critics of corporate purpose who are leveling charges and criticisms against the overall validity of corporate purpose. So, that's it in a nutshell, the questions and the framework of what I want to get after in this podcast.
My Approach to the Material
Maybe just by way of approach, I intend to get engaged very broadly with the issues and ideas of purpose without trying to elaborate a particular position or point of view. This is definitely not an opinion podcast. My hope is that I can be analytical, expository and critical in equal measure, definitely not trying to find absolute agreement on any topic or win a debate. I think there's a lot here and so I hope to engage broadly with the subject matter both internally, those doing the work inside and alongside corporations, those helping to find new modes of corporate purpose and then as I said also the critics who say this is the purpose, CSR, corporate philanthropy is nothing more than hand waving and woke-washing to distract the citizenry from the baleful consequences of the corporations’ visit upon workers, communities and the planet. So, hearing from both sides.
My Background and Political Views
A little bit about me and my background. I live in the San Francisco Bay Area. I'm married. I have four children. I’m the founder of a marketing services group called Millwright Holdings. There are a couple of marketing agencies inside of those, inside of that entity, one of which Actual Agency helps in the production of this podcast. Politically and philosophically, I consider myself a liberal and by that, I mean I adhere to liberalism which should not be immediately confused with American leftist politics but rather the moral philosophy based on liberty consent of the government, equality before the law. Nor should that be confused with right-wing libertarianism of the Randian variety. So, pretty much down the middle of the plate if you will. And so, like most liberals, I support individual rights, civil rights, human rights, democracy, secularism, gender equality, racial equality, LGBTQ equality, internationalism, freedom of speech, freedom of press, freedom of religion.
An Ardent Capitalist
And yes, I am an ardent capitalist and I think that's an important thing to note here and as a capitalist and a liberal, I'm opposed to the excesses of capitalism, things like anti-competitive behavior, unregulated monopolies, rent-seeking, regulatory capture, crony capitalism. All of those are antithetical I believe to capitalism and I do think the government has power while it should be limited, it should be directed to protecting human freedom and human flourishing. But it also should include taxation and regulation and policing of market failure.
As a result, I don't believe in capitalism as a neoliberal free-for-all. I think that government has a role, and as a resident of the planet, I want to see progress on reducing and eliminating the negative externalities.
By that I mean, the unpriced negative externalities of capitalism specifically pollution, environmental degradation among others. There are lots of other negative externalities, tax avoidance, discrimination, inequality but certainly the big ones. So, I want to see progress on those and I think we are making progress or we can but we need to make more. In terms of my general curiosities, I would say I'm possessed of a lot of curiosities. I tend to have some divergence, sometimes conflicting viewpoints on different topics. But I do consider myself fairly well-read in politics, economics, political philosophy, geography, critical theory. I finally earned a Bachelor of Science with honors from the University of London where I studied international relations at the London School of Economics.
The State of Corporate Purpose in 2020
So, let's talk about the landscape here broadly in purpose in 2020. I'm recording this in late January of 2020. But to zoom back if you will and talk broadly about the corporation and the role of corporations in society. And so, if we go all the way back to Adam Smith in the 18th century, the dominant ideology in Western capitalism has been and continues to be that economic activity should be determined by the free market, that prices, the distribution of wealth and policies of the state should align to maximize wealth and private gain. But quick side note, I think Smith is not alone in this, been widely and maybe wrongly caricatured by many particularly on the right as someone who saw no role for government in economic life and that is just a misreading of Smith. Broadly, he was not one-dimensional by any stretch of the imagination on the role of capital and the state. He definitely protested mightily against the abuses of monopoly capitalism in his day, the British East India Company in particular and mainly because he viewed that organization as amoral and willfully opposed to the Enlightenment principles he held dear of human equality. And so, he did criticize that company in particular for its monopolistic anti-status, anti-free market tendencies. But the breadth and depth of Smith's criticism of monopoly capitalism and state capture is definitely beyond the scope of this episode and probably this podcast and it is well documented elsewhere. But I just wanted to kind of start there because again when we're speaking of capitalism, I think we should think about capitalism broadly and historically as well.
So, if we fast forward to Milton Friedman in his 1970s famous argument article about capital or business, he said that the business of business is business and that any wider considerations beyond shareholder value would be value destroying. And so, certainly since Friedman, the sole aim of the corporation has been viewed as producing an increasing rate of return for shareholders and that is it and that has been the orthodoxy in Western capitalism. And it doesn't take much to realize that Smith's view was very simplistic. He put supreme faith in the capacity of markets to deliver results. He ignores a wide range of externalities and just says that companies should focus on that core competency, maximize financial returns. If managers do that, then we leave it up to shareholders to vote with their capital and/or consumers to vote with their feet and their dollars. And so, the problems of society should not be considered within the boardroom.
But that has certainly begun to change and as recently as 2018, Larry Fink of Blackrock famously wrote in his letter to shareholders that, “Society is demanding that companies both public and private serve a social purpose and to prosper over time, every company must not only deliver financial performance but also must show how it makes a positive contribution to society. Without a sense of purpose, no company either public or private can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.”
And then in 2019, the Business Roundtable, a group of large company CEOs in the U.S. issued a declaration on the purpose of corporation which said, “to serve all stakeholders moving away from shareholder primacy.” And so, we started to see in the last couple of years new models and recognition for the role of the corporation starting to take hold and even Marc Benioff in 2019 said that capitalism as we know it is dead and the Milton Friedman style of capitalism has to be about more than just making money. So, there's definitely a renewed focus. Kind of talk of the stakeholder CEO companies are starting to get on board with this, the notion of purpose. Consumers, employees, investors, boards of directors are definitely demanding more action. But the question could arise is this anything new. So, the talk of stakeholders is not new. It's been around for a while. We've heard companies over the past several decades talk about stakeholders and more broadly but change has been slow and while most CEOs can pitch triple bottom-line talks, circular economy, wax eloquent about diversity inclusion and stakeholder capitalism, many critics, and maybe not unfairly, have said that corporations while making those noises still turn a blind eye to the negative externalities that they're responsible for creating.
But that again is beginning to change. A 2019 survey by Accenture asked CEOs whether they thought businesses should be making a greater contribution to social goals. Third quarters of them said that they should but 21% of those CEOs said that businesses are not currently playing enough of a critical role in achieving UN sustainable development goals which was kind of the basis of what they meant by social good. So, CSR, corporate social responsibility has been around for a while and it continues. And that can be anything from planting trees or funding a particular charity to actually helping attach to a specific social good and there are lots and lots of examples of those. I won't go into them specifically now. But some of that has been criticized as corporate philanthropy without much purpose. So, and today again back to the investor standpoint, the new framework, or not new but the really dominant framework, now is for looking at company behavior and risk is through the lens of ESG, environmental, social and governance if you're not familiar with that. And I plan to dive into that in some great detail on the podcast.
But investors are now looking at organizations through the ESG lens to think about corporate exposure to a range of risks along those three dimensions, environmental, social and governance. And there's definitely increased focus by asset managers to measure organizational risk. The G in governance has long been dominant so investors looking at governance as the key risk factor. But E and S are now starting to carry more weight and if we go back to Mr. Fink at Blackrock, they announced in 2020 that Blackrock would be increasingly disposed to vote against management boards if companies did not disclose climate risk and their plans for managing that in line with key industry standards. So, that's $7 plus trillion in assets talking right there. Blackrock went on to say that they are going to pull back from thermal coal producers in their actively managed equity portfolios by mid-2020, a move that would lead to the sale of about $500 million in assets and Blackrock is going to expand the range of its sustainable investment products and double the number of exchange-traded funds that address ESG and governance challenges.
Critics definitely lashed Blackrock for not going far enough, also for its inconsistency over time in its voting record relative to climate change. So, whether they've actually lived up to that claim. But be that as it may, it's a big move by the world's largest asset manager. I do think it's going to have knock-on effects across the investment community as many look to Blackrock as a leader in this space. So, we are making some progress albeit slow in external pressure on corporations. The micro-prudential move has been every company looking at its own risk profile and trying to get that right. We're starting to see some macro-prudential moves by Blackrock and by others. But largely on the sidelines have been governments particularly the U.S. government in terms of real action.
So, where are we in 2020? There's this new urgency as I said and that's really based on the fact that it's pretty clear we've been mortgaging our environmental future and service to our economic present and we can see the consequences of those choices in the current climate emergency. There's a lot in the levels of inequality among other things. So, capitalism is not working as well as it should. Economic growth is uneven. There's a lot of inequality. There's a lot of environmental suffering going on. And governments should be enacting reforms to deal with this but politics in many places and in many cases is gridlocked and unstable, certainly in the United States. And again, back to the critics of corporations, largely the course has been that corporations are using purpose initiatives as low-cost virtue signaling and in some cases that may be true, saying one thing but lobbying for another and not really taking those issues seriously.
But ultimately, I think the days of obfuscating and hiding are pretty much over. The role of business in delivering better, maybe not perfect, but better social and environmental outcomes is definitely in the spotlight. There's no question about it. From an investor standpoint, a stakeholder standpoint, consumers as well are not really going to—it doesn't seem that consumers are going to diminish their demands for corporations and businesses to act with greater responsibility. It's only going to increase and splashy gestures aren’t really going to cut it. Speaking of virtue signaling, we know from evolutionary biology and economics which imported that notion that for a signal to be valid and virtuous, it has to carry a cost. So, there is no zero cost virtue signaling. In order for it to be a true virtue, it has to carry a cost. Otherwise, it's just going to be PR and fakery and I think the consumers, employees, stakeholders have a much finer lens on that. So, businesses need to step up and they are stepping up their commitments and actions to tackle some of these big macro issues. And I think they are, not every company every day but more companies more days of the week are trying to get this right.
And just to say categorically that business leaders are not sitting around boardrooms, lighting cigars from oil-soaked birds, right? That's not what they're doing. Businesses want both consumers and employees who are young and educated and affluent and those are precisely those who embrace socially liberal politics and have evolved environmental commitments. So, if organizations want to attract young talent, which they do, and they want to maintain a connection to their consumers, they're going to have to get this right. So, that's going to be some of that macro pressure that is going to continue to be put on businesses. And 2020 really feels like a year and a decade or the beginning of a decade where we're going to start to see some real change and we need it. We need action. We need change. We need new ways of collaborating. We need new business models, new forms of measuring investments and new ways to engage and talk about this.
To summarize, we are definitely seeing the growing weight of stakeholder expectations on businesses and while many see the political system as broken, expectations for change are growing, the cost of failure is high, tolerance for empty gestures is lower than ever and corporate words need to be backed up with material concrete action. Maybe not perfect action, right? It's not going to be perfect. But walking, not just talking about it but doing something. And so, I do believe that we will see movement, corporations, government, stakeholders, all working together to tackle these issues and I think the key word there is working together. I said at the top, I am an ardent capitalist but I don't intend to suggest that market-based capitalism is perfect or all-wise. But at the same time to misappropriate Churchill, market-based capitalism is the worst form of economic organization except for all the others that have been tried from time to time. Capitalism is the system we've got. It's not perfect but we're not going to move away from capitalism anytime soon despite what we might be hearing on the left at least in this election cycle in the United States.
If we're serious about this which I know we are, we're going to have to continue to have an honest, frank, open discussion about how to deliver the required change and work together on solutions. So, my sincere hope is that on this podcast, I'll be able to provide at least a well-rounded survey of corporate purpose, sustainability, stakeholder capitalism and all that goes with that. Looking forward to engaging with people who are working to advance corporate purpose as well as those who are challenging businesses on this issue. So, I'm excited to embark on this journey with you. I hope you find the discussion worthy and worthwhile. And again, I'm Michael Young, your host of Purpose, Inc. Thanks very much for listening.
The Purpose, Inc. podcast is a production of Actual Agency, helping innovators communicate in a changing world. More at www.Actual.Agency.