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How CEO Unity Is Driving the Responsible Company Model

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The pursuit of creating a better, more ethical business ecosystem—a mindset that needs to be embraced by CEOs and other senior leaders.

Ethisphere Institute’s chief executive officer Tim Erblich recently shared his insights on how companies are working to advance business ethics following the big news this week: The release of a new Statement on the Purpose of a Corporation by the Business Roundtable.

Brian Peters

Erblich highlighted his disappointment after reading the August 19th editorial in the Wall Street Journal that proposed the new ‘Statement on the Purpose of a Corporation’ was a political move to get ahead of ‘rising socialism’. According to Erblich, “such an analysis was feeding a false narrative, and out of alignment of the realities of the 21st century.”

The statement, a pledge, if you will, has seen 181 CEOs from companies across the nation commit to the following principles:

  • Deliver value to our customers
  • Invest in our employees
  • Deal fairly and ethically with our suppliers
  • Support the communities in which we work
  • Generate long-term value for shareholders

“Every day at Ethisphere we see the hard work done by leading companies to take on some of society’s most pressing issues-ranging from education, re-skilling employees, human rights, climate control, mental health and ESG matters. This is smart business,” Erblich said. “Data shows that this approach not only promotes stronger companies and communities, it also boosts the bottom line – and that is great news for everyone.”

In fact, research conducted by Ethisphere’s, produces the annual “Ethics Premium”, tracks how the stock prices of the publicly traded companies who earn the status as a World’s Most Ethical Companies® honoree compare to the U.S. Large Cap Index. Ethisphere found that the honorees outperformed the large cap sector over five years by 14.4 percent and over three years by 10.5 percent.

Ethisphere, has some powerful allies on the “purpose” soapbox. Two years ago BlackRock CEO Larry Fink wrote his now famous Letter to CEO’s, which he followed up with a similar correspondence in 2019, setting the preverbal CEO world on fire. His eyebrow-raising call for business leaders to consider that “Purpose is not a mere tagline or marketing campaign; [but] it is a company’s fundamental reason for being,” sent shockwaves throughout the investing community. After all, it’s not every day that a cat gives cheese to a mouse or a dog befriends the postman. This was big news in its counter intuitiveness. Fink took it even further, saying that profits and purpose are inextricably linked.

With the emergence of the CEO pledge, affixed with the signatures of nearly 200 top CEOs, including the likes of Michael Dell, Chairman and CEO, Dell Technologies, Aflac’s 30-year CEO Dan Amos, Fink himself, General Motors’ Mary Barra, IBM’s Chairman, President and CEO Ginni Rometty and JP Morgan’s Jamie Dimon, it would be hard to deny that conducting business with a purposeful mindset is now mainstream. After a worldwide financial crisis often viewed as caused by greed and sloppy governance, the people have spoken and businesses are authentically listening.

“I think today more than ever, it is important that CEOs and Board members publicly say that that this is part of our long term and short term success, particularly when trying to attract the right type of employees, which is what these CEO’s, who have signed onto the Statement of Purpose are doing,” Erblich said. “It's also about attracting the right type of investors, those who focus on the long-term, and those who care about society, versus those totally focused on short-termism..”

In fact, research like the Edelman Trust Barometer, concludes that corporate responsibility is essential, in a similar vein as Fink. In fact, in their 2019 survey, Edelman found that 76% of respondents say CEOs should take the lead on change rather waiting for the government to impose it, and 71% are looking for leadership from their employer on societal issues. Of course, this presents a double-edged sword, as more CEOs will want to take a stand, but in doing so, are they potentially putting off those potential customers or investors who may not agree with the position he or she takes? A dilemma for sure, but what is certain is that fence-sitters may find themselves in their own indecisive dog house with customers and investors. Such is the life of today’s CEO.

For instance, companies such as Aflac, DELL Technologies and IBM have done great work to enhance communities around the globe - and they all incorporate social responsibility as part of their overall business plan.

IBM has created an innovative grade 9 to 14 schools’ model that is influencing national and global actions to create public-private partnerships with the power to transform economies.

Aflac, which started as a cancer insurance company 65 years ago has supported childhood cancer initiatives for 25 years, to the tune of $136 million.

At DELL, advancing sustainability cultivating inclusion to address societal challenges and transforming lives through technology are all part of the tech giant’s vision for 2030. According to Dell, unconscious bias exists. Under the initiative, “Many Advocating Real Change (MARC)” the company provides mitigation strategies to identify and eliminate bias. To date, all Dell executives have completed MARC training and the expanding the program to all team members.

PepsiCo and Coca-Cola are other examples of companies working together to tackle society’s most challenging issues. Earlier this year, the companies broke its ties to the Plastics Industry Association as both companies have pledged to reduce plastic waste and fix U.S. recycling. “You are going to see the private sector take on some of these bigger challenges and I think those companies that do will emerge more financially successful,” said Erblich. According to reports, Coca-Cola says that by 2025, all its packaging will be recyclable, reusable or compostable. Pepsi is working to have its products be recyclable, compostable or biodegradable by 2025.

“Take companies like Milliken, which has close to 2,000 chemists and scientists that work for them, and they're taking on plastics in the ocean. Voya is another great example which spun out of ING and the company has made diversity and disability inclusion a key measurement of how they operate,” Erblich said. “I think that they're taking on society's biggest issues, and doing it in a way that makes you want to do business with that company.”

Diversity and inclusion—at one point—was moving at a glacial pace but there year we have seen a slight uptick on this front. Data from the companies that have met the rigorous criteria to become Ethisphere World’s Most Ethical Companies® honorees, show that among the 2019 honorees, women hold over a quarter (28.1%) of the director positions. This is striking when comparing the gender gap relative to other companies. Among the S&P500, women hold only 21% of board seats while 15% of all board seats globally are taken up by women according to Deloitte’s most recent study of Women in the Boardroom.

“This is something we consistently measure and when you have a culture where people feel safe to raise their hand and raise their voice in a productive way, companies benefit from that,” said Erblich.

Which takes us full circle to his primary point. When 181 CEOs of diverse companies can agree, there is likely a high level of authenticity in what they are agreeing about. Whether generated by business concerns, altruism or both, purpose today is not a press release; it is an expected mandate, and it correlates with the ultimate performance and success of the company. CEOs are driving the model, and as Erblich notes, there is a premium associated with ethics and responsibility.