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Long-Term Performance

Of Purpose and Profit

This month in Davos, Switzerland, CEOs from around the world were talking about one thing: a letter sent by Larry Fink, CEO of BlackRock. It stirred controversy among many attendants at the World Economic Forum, proselytizing that pursuing purpose over profits is the key to unlocking the full potential of any business. Why should businesses need to worry about anything other than profit? Many would argue that financial growth is all that should drive a business. What could be more important?

It’s a question that’s been asked many times by our founder, Mac Van Wielingen, most notably in his 2017 speech at the Fraser Institute, where he proposes that long-term success depends on much more than just profit. “We are not maximizing one variable, we are combining, making choices, trading off and optimizing among four variables: profit, risk, time, and human experience.”

In a recent study by Deloitte, 40 percent of millennials “believe the goal of businesses should be to ‘improve society’.” As millennials will soon make up about 40 percent of all consumers, it is imperative that organizations examine how long-term sustainability, purpose-driven business decisions, and community investment fit into the bigger picture. Nothing states this louder than the fact that “64% of people globally expect CEOs to lead on social change rather than waiting for government intervention.”

Society needs corporate champions to lead the way down this untested, unfamiliar path. In his letter to CEOs, Larry Fink talks about the intimate relationship between purpose and profit in business. “Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.”  He then encourages CEOs to lead the charge on making a positive impact on society. “One thing, however, is certain: the world needs your leadership. As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity.” More and more leaders are realizing the interdependency of purpose and profit. If you need proof, read Baupost’s Davos letter orSeth Klarman’s interview regarding the leaders at Davos.

How can your organization prepare itself for a world that increasingly scrutinizes purpose? As Mac Van Wielingen proposes, corporate strategy is the key driver. At every turn in the strategy, ask if unnecessary short-term risk, social value, and environmental sustainability have been taken into account. By infusing the core of your organization with a culture of long-term thinking and social awareness, purpose-driven decisions will be made unconsciously, and social license will come naturally to your business.

Author

Viewpoint Research Team

Are We Heading Towards Another Financial Crisis?

Our founder, Mac Van Wielingen, often refers to the 2008 financial crisis as a critical point, as it “exposed significant corporate governance failings and led many to question the role of business in society.” There was a failure in strategic risk management and oversight due to a loss of focus on client interests, obsessive short-termism, and excessive financial leverage. In 2010, Viewpoint Research Partners was founded to explore the challenges through conducting and curating research. A decade has passed since Lehman Brothers filed for bankruptcy, launching the world into a global financial meltdown. In a single day, more than $600 billion USD in assets were wiped out, and 25,000 employees lost their jobs.

So what has changed since then?

The road to recovery has been a tough one. It has taken years for unemployment to return to pre-recession numbers, which has increased disparity in wealth. Middle-class income in the U.S. has only recently reached $61,000 USD, the level before the recession. Policy changes and new regulations have been implemented in response to the instability and the abundance of financial fraud that occurred, resulting in more global bank stability.

Are we at risk of stepping down the same path again?

It seems that there are similar conditions brewing, with increasing public polarization, and the increasing trade tensions and corporate debt. “Ten years on from the 2008 meltdown, the global banking systems seems more resilient to shocks, corporate profits are generally strong, and the bull market trudges along. But that in itself is a dangerous situation.” While there is no punchy one-line answer, organizations can protect themselves from repeating history by focusing on long-term performance and sustainability, and being open to new ways of governing business.

Author

Viewpoint Research Team