It’s Time for Companies to Do Less
Date: May 11, 2022
Every quarter, companies are asked to do more: more measurement, more transformation, more stakeholders, more ratings and rankings, more standards, more purpose, more advocacy, more equity, more revenue, more sustainability, and so on.
That’s not without reason. Real threats that were once just doomsday planning–or ones that we hoped were in the rearview mirror–are now the headlines of every newspaper.
Beyond the moral imperative, Gen Z and millennial consumers’ brand expectations are nothing like the generations before them. Investors are also demanding transparency as they seek greater clarity on where to invest for the long term. Regulators are proposing new guidance on climate-related disclosures and cybersecurity. As they pursue dignity and purpose, workers want employers to provide them with more than just a paycheck.
This proliferation may be part of the reason why most investors think businesses are not really taking their purpose seriously. How can any business really be making an impact on all the priorities and causes it says it espouses?
Companies are in this position because we see their potential. They have become society’s most trusted institutions. But in our quest to keep companies accountable, it seems we have created a system of unattainable expectations on matters immaterial to many companies.
No company can achieve quick success on all the things we have been asking of them in the past two years. Companies are more likely to set bold targets that are unattainable and then fail and lose momentum.
As business leaders scramble to react to news such as the proposed guidance from the SEC by building teams, gathering data, and creating new strategies, they risk burying themselves in spreadsheets and losing focus on how they can make a significant impact.
They may be sharing numbers to mark their goals, milestones, and metrics, but less often are they creating strategic plans to specifically address where growth can happen, what a transformative strategy looks like, and how to mitigate risk.
Instead, a business should focus on a smaller set of relevant issues that meet both moral and business imperatives. The company can plan to address different issues over time by setting incremental targets to understand what’s working, and then adjust accordingly.
Let’s readjust our expectations for companies and let them tell us where they can make a concrete difference. For example, we saw great outcomes when biopharma focused on making vaccines during the pandemic or when financial institutions focus on equitable access to capital.
Chief Executives for Corporate Purpose (CECP), along with leading investors representing over $20 trillion in assets under management, have developed a long-term plan framework that sets out nine themes to communicate precisely what is most important to a company—and ultimately how they can best make an impact:
- Competitive Strategic Positioning–long-term, medium-term, short-term value drivers.
- Corporate Purpose–the purpose and its alignment with the long-term strategy.
- Trends—like mega and market trends.
- Corporate Governance–executive and board compensation, role, and diversity of board.
- Risks and Opportunities–assessment of financially material ESG issues and risk management.
- Human Capital—how it’s managed over the long term.
- Long-Term Value Creation—the value of partnerships and improving the operational ecosystem .
- Financial performance—capital efficiency, leverage, and revenue growth.
- Capital allocation–having a plan for things like M&A, R&D investment, and excess cash.
There’s a clear business case for sharing concise long-term plans about a company’s purpose journey. Companies with a strong corporate purpose tend to outperform those without it.
By shining the light on progress in these nine areas, companies can clearly demonstrate what’s important to them and their stakeholders, along with how they are making an impact.
This kind of pared-down information sharing can bridge the credibility divide between companies and investors. A long-term plan helps answer the question of what outcomes and impacts are expected, targeted, and measured in relation to purpose.
If these companies succeed in the areas where they know they can make a meaningful impact instead of spreading themselves thin, the scale of these companies doing what they do best would be colossal.
By readjusting our expectations, we are certainly not exempting companies from their obligation to operate a responsible business, focus on equity, and ensure the well-being of their workers. Instead, we are shifting the focus to attainable, sustainable ways for each business to add value in its own unique way.
This article originally appeared on Fortune.com