Purpose management, where the focus is to address the needs of a company’s several stakeholders and not just its stockholders, is addressed in this video. It also touches on why it has become more common and necessary in recent years.

If such purpose management is of interest to you, ValueMap can help you in four ways

       a.  Define your stakeholders—that is, identify all who are significantly affected by your business. 

       b.  Identify the significant value flows to and from these stakeholders and, where possible, their magnitudes.  As we have discussed before in our prior video nests, these flows can be positive or negative.

       c.  Formulate and test business strategies and their business models that best serve your purpose

       d. And fourth, when necessary, be better prepared to make the trade-off decisions you will sometimes need to make between and among your stakeholders.  These might be issues such as how you treat your employees during a pandemic, or how much you are prepared to invest in establishing and meeting goals for your business’s carbon footprint, or how best to meet more needs of your customers while still maintaining adequate margins, or even whether you should modify your brand because some of your customers believe that it offends one or more of their values.

So to give you a sense of how to construct a ValueMap that reflects your business if it were managed for a purpose in this sense, I’ll show you two contrasting examples in the consumer products industry.  One will represent a typical company managed in the traditional way; the other will be of a specific one in this industry that is pursuing purpose management—Unilever.

But first a little background on purpose management.

For most of the past half century it was believed that the duty of business management—its one only duty—is to maximize shareholder value. This was a principle endorsed by Milt Freidman and other economists.  They said it had been proven to be best for economic development because it induces more innovation and growth than any other system.  And among other things, it had made the US the richest country in the world by far.  

  • But this simple view of management’s duty has been carried too far in more than a few cases.
  • A particularly extreme example you may have heard of is a pharmaceutical company called Valeant that about ten years ago began to pursue an aggressive strategy of acquiring many smaller companies.  Almost every time it did so, it immediately raised their drug prices, and also cut their expenses–especially in R&D.  These actions dramatically increased profits. Its stock price zoomed. (Show) Its shareholders were of course delighted with such a performance. But many patients taking its medicines—arguably important stakeholders–could not afford their price increases which in some cases went up by 500% or more.  Some of the patients went bankrupt. Others died when they could not continue taking their required medicines.  When the several other serious consequences of this performance became evident, the stock price crashed (show), the CEO was fired, and to repair its reputation, the company even had to change its name.  What’s left of it is now called Bausch Health.
  • But in addition to concerns about excesses of this extreme sort by a few companies, in the past dozen years there has been a conjunction of three developments that have raised further doubts about managing a company just for the benefit of its shareholders.
  1. One of these has been greatly increased income inequality, as recently demonstrated by Thomas Piketty.  In the developed world, and especially in the US, the vast majority of the fruits from economic and productivity growth in the past 20 years has gone almost entirely to the 10% of persons with the highest incomes, while income for the other 90% has stayed pretty flat.  A result is that in the US last year, 1% of the population owned more than 40% of its private wealth.
  • The second is that especially in the US, there has been an increase of political polarization along with what has been termed crony capitalism resulting in a government whose effectiveness in keeping markets free and open–which economists assume and endorse–has sharply declined.
  • And the third is that the world environment has seriously degraded and it appears that unless something is done, it will continue to do so.
  • Because of these three developments, as well as others, managing just for the interest of stockholders has become a hot topic.  There is concern and some fear that the US, and the world, may be heading toward a splintering that threatens our economic systems with their complement of businesses, and possibly even our democratic political systems as well.
  • But a strong case has been made in a recent book titled “Reimagining Capitalism” by Rebecca Henderson who is a professor at the Harvard Business School, that this unattractive potential future can be avoided.  How? If business leaders take the lead in changing the way they run their companies by having a purpose that is focused on stakeholder values, not just shareholder value. Henderson compiles a body of evidence that businesses that pursue such a multi-dimensional purpose will be more successful than those that do not, and, perhaps ironically, will also better serve their shareholders in the longer term.  Her thesis is that business leaders are best able to effect such a change, and if they do we can avoid the feared potential economic and political catastrophes.

Another recent book in a similar vein by HBS professors Joe Bower and Lynn Paine entitled “Capitalism at Risk” contains many examples of companies that are successfully pursuing this path and describes how they are doing it.   So now let’s come back to ValueMaps.   In Part 2 of this video nest, I will develop two of them in the consumer products businessThe first one will represent the approach most companies in this industry have been employing for years.