Dear Business Roundtable: Please Consider This Scorecard With Your New Purpose of a Corporation

To The Gold Mine

Key Points

The Business Roundtable is a massive step forward in the right direction, but not enough, as its really just a better-late-than-never nod to serving all stakeholders

-        The Business Roundtable proclamation – the switch from maximizing shareholder return to improving the lives of all stakeholders as the “Purpose of a Corporation”

-        The Business Roundtable is signed by 181 CEO’s from Apple, JPMorgan Chase & Co, Pfizer, United Airlines, Salesforce, SAP, BlackRock, Honeywell and                    ConocoPhillips, etc.

A fabulous first step

-        Agreeing to change the true purpose of a corporation to serve all stakeholders

-        Mandates that the organization will provide a fair return to owners and/or shareholders as a result of its aligned strategy, one that addresses the needs of other           stakeholder groups before shareholders

The necessary next step is missing – a behaviour change is needed as is a playbook on how to change it

-        One of the ways in which to change behaviour is to hold executives accountable to a new stakeholder scorecard (see download link)

-        The executive compensation model needs to be changed too to help with behaviour change

 

Proposed Solution: The Stakeholder Scorecard – An Overview (Download here)

-        Continues to use stock as the primary compensation incentive (however not aligned to maximizing shareholder return, but towards certain targets set against each           of the stakeholder categories)

-        Each stakeholder category has a corresponding weight (could integrate Board sign-off on all metrics and sub-targets.)

-        If the target is hit, that’s good news for the executive. If it’s not, there are consequences.

-        Category 1 - Customers and Team Members

o   Customers (surveyed quarterly) on reliability, relationship, relatedness (§  References Dr. Mark Colgate’s work).

o   Team Members (surveyed annually) – employee engagement, diversity in roles, addressing compensation gaps, learning and development

-        Category 2 - Community and Society

o   Community – volunteer hours, community investment, in-kind donations (§  References Marc Benioff’s Pledge 1% initiative)

o   Society – GHG CO2 (tonnes), H2O (litres), Energy (kWh)

-        Category 3 - Owners/Shareholders

o   Revenue and profit (EBITDA)

-        The Result – 20% weighting / stakeholder (as an example)

o   The key is that each of the five stakeholders are assigned a weight

o   Once the results are tabulated, the final scores are added up across all five of the categories to arrive at a final percentage summary

o   The Board will have pre-approved an allotment of potential RSUs at the beginning of the fiscal year ( Example - every percentage mark could be equal to 1,000       shares, etc.)

 

Inspired Companies Insights

 

- The Business Roundtable is wise to redefine the “Purpose of the Corporation” to serve all stakeholders, but it must come with a playbook for change to be useful. It     cannot simply be a definition, for behaviour never changes by definition only.

- What’s missing from the Business Roundtable’s definition is a corresponding behaviour change that force executives to manage to all stakeholders. The Stakeholder    Scorecard approach is a good starting point.

Author:
Forbes
Published:
Sep
,
2019
Focus:
#Growth,
#Resilience,
#Employees,
#Agility,
#Trust,
#Statistics,