The Purpose-Driven Business - What You Need to Know

 The purpose-driven business – that is, going beyond Milton Friedman's doctrine of maximizing shareholder value - is not a fad. And it’s not restricted to the US. Public relations powerhouse Edelman conjured up a special version of its annual Trust Barometer. That’s its "Geopolitical Business" one, which you can read here.

The data has been derived by interviewing 14,000 in 14 nations during April and May 2022. The finding is unambiguous:

77% on average believe that improving societal issues is a primary business function.

That reality has introduced new risks for business. For instance, trust in the enterprise is directly at stake. Edelman provides the concrete example of doing business with Russia. Those which continued with that experienced a 38% falloff in trust. Those who halted relationships gained a 31% uptick in trust.

So, Edelman confirms what has been the undertow in business leadership and management since the term “ESG” (Environmental Social Governance) had been coined in 2005.

First in slo-mo then more rapidly that force had all the makings of developing into a tsunami. Business values as we have known them would be swept away. Currently palpable among global and US corporate leaders is intense angst about “Becoming the Next Disney.” Here is The Washington Post’s analysis of some of Disney’s ESG-generated woes.

In Spring 2020, law firm Paul Weiss observed what might be described at The Overwhelm. That’s because ESG principles impact every organizational function. Yes, constituencies, ranging from employees/shareholders to communities/media, are co-creating the new purpose of business. 

Amid the escalating disruption, Paul Weiss chairperson Brad Karp launched the first-ever in the legal sector Sustainability – Environmental Social Governance (ESG) practice. His edge in formulating that has its roots in both his own social-justice initiatives and the legacy of the law firm in calling out and addressing wrongs in society. 

The Paul Weiss ESG practice mission has been to help

“… companies navigate the legal, business and political ramifications of development and implementing EGS initiatives. We advise on matters such as stakeholder engagement, corporate governance, crisis management, corporate social responsibility, sustainability, diversity and inclusion, ethics and compliance.”

Overlaid on ESG is the investment piece. That’s big and getting bigger. According to Bloomberg Intelligence the value of Sustainable or ESG investments can exceed $41 trillion by the end of this year and $50 trillion by 2025. If public companies want to continue to attract investment they have to integrate ESG principles.

Obviously, that is creating new risks. In a January 2022 analysis in Corporate Counsel zeroing in on where ESG is currently, Karp, along with Paul Weiss’ Chief Sustainability Officer David Curran, reports:

“… companies are increasingly held accountable by the public and shareholders for ESG performance. The number of successful ESG campaigns [such as proxy battles] increased … buoyed by support from large institutional investors and advisory firms such as Institutional Shareholder Services (ISS) and Glass Lewis.”

A lousy grade on ESG performance can trigger not only a drop in the stock price. In addition, the public company could become an acquisition target. Independence is in play.

It’s not hyperbolic to assert that all business issues have become ESG ones. There is no bypassing that. As the Edelman research screams out: Businesses which are assessed as doing the right thing are trusted. Those ignoring those values could be negatively impacted in every aspect of their operations.

The rub: What are the “right values?” The consensus keeps fragmenting.

Connect with Editor-in-Chief Jane Genova at janegenova374@gmail.com. She is a corporate writer and had done assignments for Edelman. Now and then she does freelance communications work for law firms such as Paul Weiss.

 

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