Ep. 86 | The Business Roundtable’s New Focus
On August 19, 2019 the Business Roundtable announced it had redefined the purpose of a corporation. For as long as there have been business degrees, the purpose of a corporation has been to maximize shareholder value. But now, the Business Roundtable has shifted that emphasis to customers, employees, vendors, community as well as shareholders. This week we dive into the meaning behind the statement.
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Patagonia, Ben & Jerry’s, and 30 other companies tell the Business Roundtable CEOs to put up or shut up
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Allison Hartsoe: 00:01 This is the customer equity accelerator. If you are a marketing executive who wants to deliver bottom line impact by identifying and connecting with revenue generating customers, then this is the show for you. I’m your host Allison Hartsoe, CEO of ambition data. Each week I bring you the leaders behind the customer centric revolution who share their expert advice. Are you ready to accelerate? Then let’s go. Welcome everyone. This is Allison Hartsoe, host of the customer Equity Accelerator and CEO of Ambition data. This week there were two major news stories that you absolutely should not have missed if you care about customer centric thinking, but good news, I’m going to share them with you over a two part program. So first is a story about the business round table. Now if you don’t know who they are, you’ve soon, well cause that’s the first one I’m going to cover. Second is a really compelling story that I will feature next week about target marketing gone radically wrong.
Allison Hartsoe: 01:11 So that’s going to be an exciting show. Tune in next week for that. For now, let’s dive into today’s feature story about the business round table. First a little context. Now, if you’re a regular listener to the customer equity accelerator, then you’ll know one of our core principles is about surfacing the value of the customer within an organization. We often do that with customer lifetime value, but the overall actions or applications of this math are rightfully called customer centric. Sadly, in some companies which I have personally experienced, the phrase customer centric is more hyperbole. Here’s a quick tip about how you can tell. If you listen carefully, the word customer is always used as an aggregate when it’s used in a more theoretic framework. For example, we put the customer at the heart of our business or with the opening of this new store, we’ve created an outstanding customer experience.
Allison Hartsoe: 02:15 These always make me grit my teeth a little bit because it’s much harder but a very worthy challenge to honor the heterogeneity of your customer base. And when we talk about customer centric thinking, we’re really talking about honoring the full spread of the customer base. And why does that matter, particularly for this story coming up? Well, it matters because 90% of the consumer businesses out there and probably 90% of overall businesses, there is a very small percentage, 20% or less of customers that actually drive the business through regular repeat purchases. These are the customers who love you and love your brand. Whatever you’ve done, it’s working for them. They’ve built a solid relationship and they want to continue it. Now a separate group of customers have an irregular cadence of purchase behavior that’s often driven by coupons or events or other marketing heavy activities. And finally the bottom group are long gone customers that simply haven’t removed themselves from your email list, but you’re hoping that if you email them or advertise that to them enough, they’ll come back and be good customers again.
Allison Hartsoe: 03:28 And inevitably you might get one or two out of that group, but you won’t get a lot. And that’s the, uh, that’s the concept that customers who aren’t good customers generally have a really good reason for not being a good customer. And I’ve recorded several episodes about that before. If you see at the beginning episodes of the customer equity accelerator. Now these are very general groupings and we can get a lot more detailed, which I won’t do here, but when we say we’re putting the customer at the heart of the business or we’re creating a great customer experience. Exactly who is that for and what is the expected return? Because true customer centricity is a longterm strategy addressing specific customers by listening to them, then learning from them for mutual benefit.
Allison Hartsoe: 04:16 Again, it’s a longterm strategy. Now contrast that with the pressure from Wall Street to hit quarterly numbers. Ideally similar numbers that they use to measure industries as a group. How many stores were opened? What’s the revenue per unit? What’s the expected financial return on a new product launch? Did you hear the word customer in there? I did not, and this is the heart of the problem and why last week’s news was such a big deal. Classic business thinking reflected by Wall Street treats the customer as a byproduct of store locations and product launches. It’s as if we customers are a bunch of sheep munching on coupons and being herded around by ads and emails. Modern business thinking on the other hand knows that the world has changed to be customer led. And now this has been reflected in a statement from the business round table, which is led by Jamie diamond, head of JP Morgan Chase.
Allison Hartsoe: 05:18 Now the business round table, if you don’t know, this group was founded as the March group in 1972. The members were and are exclusively CEOs who meet on a regular cadence to consider public policy issues such as controlling construction costs or uh, in 1977, they were responsible for defeating the Consumer Protection Agency that was planned by Ralph Nader and lots of other issues that basically help business maneuver as a group and shape public policy. Back then it was the CEOs of US steel, Alcoa, General Electric, dupont, Exxon. But today the members include CEOs of almost every large company you can think of, large Pharma, financial companies, manufacturing, and many more. It includes about 200 companies such as 3m, Abbott, blackrock, Bristol Myers Squibb, Boeing, Home Depot, IBM, Johnson and Johnson, Lockheed Martin, Marriott, Macy’s. You get the idea. Lots of large companies. Now you might remember from your basic business studies, one of the core concepts that they teach at business school is shareholder value.
Allison Hartsoe: 06:38 It’s basically the idea that any business exists to create money for its shareholders. That is its primary responsibility to give a good return on investment to the shareholders. So you invest in a business and it gives back to you. Compare this to the philosophy of China’s Alibaba founder Jack Ma, who’s famously quoted as saying, customers first, employees second, shareholders last. Now with this in mind, here is the full statement issued by the business round table that updated the purpose of the corporation. Now all commentary and emphases are mine. This is the statement of the purpose of a corporation. Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free market system is the best means for generating good jobs, a strong and sustainable economy, innovation, healthy environment, and economic opportunity for all.
Allison Hartsoe: 07:45 Well, this is basically nice positioning. You can’t easily say no to much of this. Who doesn’t want good jobs, opportunity and innovation. You know, nobody’s going to stand up and say, no, I don’t want good jobs. Right? So this is, this is just table setting. And they go on. Businesses play a vital role in the economy by creating jobs, fostering innovation, and providing essential goods and services. Businesses make and sell consumer products, manufacturer equipment and vehicles, support the national defense, grow and produce food, provide healthcare, generate and deliver energy, and offer financial communications and other services that underpin economic growth. Okay, they’re basically covering their entire membership base in this paragraph. While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stake holders. We commit to. Okay and now the good stuff in about five points. Delivering value to our customers.
Allison Hartsoe: 08:52 We will further the tradition of American companies leading the way in meeting or exceeding customer expectations. Number two, investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that helped develop new skills for our rapidly changing world. We fostered diversity and inclusion, dignity and respect. Third, dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to other companies, large and small that help us meet our missions. Fourth, supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses. And last fifth, generating long term value for shareholders who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders. Each of our stakeholders is essential.
Allison Hartsoe: 10:06 They go on to say, we commit to deliver value to all of them for the future success of our companies, our communities and our country. And that’s it. That’s the end of the statement. Okay, so what should you take from this? Well, I think it’s very indicative that shareholder value was moved to point number five. So remember customer value is point number one, employee value number two, suppliers are number three, community is number four and number five is of course shareholder value. The commitment to deliver value to all is present, but it doesn’t say equally. So I do think the order that they’re listed is actually quite relevant. Also note the emphasis on longterm value for shareholders, which I think is a subtle or maybe not so subtle pushback on the short term, quarterly pressure from Wall Street. Now what’s wrong with that? Nothing’s wrong with this statement on the surface, and I have to say I’m personally pleased to see a statement like this come out because it is a step in the right direction.
Allison Hartsoe: 11:13 But if you are the organizers of the B Corporation movement who were featured in fast company last week, they make an excellent point. That one, they’d been doing this all along and two, their version is legally binding in I think 37 states. So they went and took out a full page ad in the Sunday New York Times. It says in big bold letters, let’s get to work. Dear business round table CEOs, we are part of a community of certified B corporations who walk the walk of stakeholder capitalism. We are successful businesses that meet the highest standards of verified, positive impact for our workers, customers, suppliers, community, and the environment. We operate with a better model of corporate governance, benefit corporate governance, which gives us and could give you a way to combat short-termism. Again, another pushback on Wall Street and the freedom to make decisions to balance profit and purpose, a good call on their part.
Allison Hartsoe: 12:23 As you know, with continued resistance from investors on this new definition of business, we’ve got work to do to help them see that stakeholder governance builds trust and builds value. More importantly, it also ensures that the purpose of capitalism is to work for everyone and for the longterm, let’s work together to make real change happen. That’s pretty sharp and it’s signed by Patagonia, Allbirds data.world Ben and Jerry’s Stash tea. And of course I’d be remiss if I didn’t mention that Stash tea and Stumptown both come from Portland. Yay. Those aren’t the only companies on the list. But in addition to being B Corp’s, what do all those companies have in common. Velocity, I personally believe that one year of customer centric business thinking is worth about three years of traditional product centric thinking. Ages ago when I worked in the DOTCOM age, we talked about Internet time, what an internet company could do in a six month period of time represented what would take a traditional company at least a year to do.
Allison Hartsoe: 13:35 So I always thought the ratio was two to one then, but now I think the ratio is more like three to one, three years of traditional product centric thinking against one year of customer centric thinking. And that is because to be truly customer centric is to be the result of digital transformation. It’s to be data-driven, individually customized, immediately responsive, all the things that are the promise of those transformation efforts. It is to listen, learn, and then lead your competition. And you can see more about this in our fundamental ambition data philosophy and the customer centric maturity curve that I invented. Now, small pitch. We help companies move up this curve every day and we know what it takes, so feel free to check that out at your leisure. Now Will Wall Street take head of this thinking and start weighing in on longterm thinking instead of pushing for that quarterly mark?
Allison Hartsoe: 14:37 I honestly don’t know. I’d like to think so, but change in any case is a result of many forces coming together until a tipping point is reached and the new becomes the new normal. Ultimately this is just one more force from the Business Roundtable and the B Corp organizations pushing in the right way. Now if you want to talk more about this subject or perhaps find a way to become more customer centric, you can always reach me@allisonatambitiondata.com or at ahartsoe on Twitter or Allison Hartsoe on Linkedin. As always, links to everything we discussed are at ambitiondata.com/podcast I will include the links to the business round table and the fast company article that I referenced in this piece and anything else that is relevant to that particular news story, which was just great. Just amazing last week, so great to see some progress from the business round table. I hope it turns into something that is as serious as what the B Corp’s are doing. Thank you for joining me today. Remember, when you use your data effectively, you can build customer equity. It’s not magic, just a very specific journey that you can follow to get results.
Allison Hartsoe: 15:57 Thank you for joining today’s show. This is your host, Allison Hartsoe and I have two gifts for you. First, I’ve written a guide for the customer centric CMO, which contains some of the best ideas from this podcast and you can receive it right now. Simply text, ambition data, one word, two three one nine nine six and after you get that white paper, you’ll have the option for the second gift, which is to receive the signal once a month. I put together a list of three to five things I’ve seen that represent customer equity signal, not noise, and believe me, there’s a lot of noise out there. Things I include could be smart tools. I’ve run across articles, I’ve shared cool statistics or people in companies I think are making amazing progress as they build customer equity. I hope you enjoy the COO guide and the signal. See you next week on the customer equity accelerator.