The process of corporate reputation management continues to change rapidly, driven by digital technology, economics, politics and values of newer generations in the workforce. One of the largest shifts in managing corporate reputation has been the increased focus on so-called intangible corporate assets (those that can’t be quantified on a balance sheet), especially talent and corporate social responsibility, now described as “purpose.”
If you were around the business, as I was, in the 1980s and 1990s, you know that among the components of corporate reputation, financial performance functioned as the primary factor in determining how public companies were evaluated and ranked. Companies that generated consistent growth and profits were ranked highest in most reputational rankings. When they hit the financial skids, they quickly dropped in the rankings.
In those days, talent/quality of workforce, and citizenship/corporate responsibility were considered “soft” reputational components. Then the Great Recession struck. Beyond massive layoffs generating an unemployment rate of more than 10 percent at its peak, the Great Recession forced boards and C-suites to recognize that their employees actually were critical to business success. Hence, employee communications emerged as a key component of corporate communications (to keep employees “engaged” with their jobs and management’s business strategy).
The other mega-change following the recession, was the rise of the Millennial generation in the workforce (now about 35 percent), which brought into play different values that were, in my view, influenced by two factors: The recession’s impact, and their experience with critical environmental and societal issues like climate change and inequality in how racial minorities and gender majorities are treated (attitudes fueled by social media discussions). Their trust in institutions was eroded and their collective viewpoint (to the extent there is one) evolved to one where companies must not only generate profits, but, more important, should deliver a purpose beneficial to society at large. Millennials would select the companies they worked for at least partially based on the social purpose the companies represent.
In terms of recognition of its impact on corporate reputation, purpose took a giant step forward when Larry Fink, the CEO of Blackrock, the world’s largest asset management company, singled it out in his 2018 annual letter to the CEOs of companies Blackrock invests in (his viewpoint became a cover story in Barron’s, for example).
He elaborated on purpose in his 2019 letter: “Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.” He noted: “Purpose unifies management, employees and communities. It drives ethical behavior and creates an essential check on actions that go against the best interests of stakeholders. Purpose guides culture, provides a framework for consistent decision-making, and, ultimately, helps sustain long-term financial returns for the shareholders of your company.”
Or, as Mark Benioff, founder of cloud giant Salesforce has stated: “The business of business is to improve the state of the world.”
So, purpose has a business function that is increasingly recognized by the broader investment community. The next step in the investment community is to develop a common methodology to measure the “impact” in so-called “impact investments” (investments with a socially beneficial purpose beyond making money). Among others, U2’s Bono (as the investor!) and private equity giant TPG are attempting to do that through their Y Analytics venture, while hedge fund manager Paul Tudor Jones previously launched nonprofit Just Capital to rank U.S. companies based on the social value they provide in the JUST 500 index. S&P Dow Jones Indices recently announced the launch of The S&P 500 ESG (Environmental, Social, Governance) Index to integrate those criteria into the performance of the S&P 500 companies.
Welcome to the new world of corporate reputation management, where change is part of the oxygen we breath each day! More on this in the future.