Facebook, BlackRock, and the Case for Purpose-Driven Companies

George  Serafeim

Editorial | Harvard Business Review (website) | November 2017

Facebook, BlackRock, and the Case for Purpose-Driven Companies

Abstract

Purpose-driven companies have been shown to outperform their peers over the long term. But purpose-driven companies are also hard to come by. Why is that? Because purpose is costly. At the very least, it requires a credible commitment to that purpose. And credible commitments are those that come at a cost; in the absence of a cost, all companies can claim that they are purpose-driven, and as a result the commitment stops being credible. If Facebook was last week’s indication that corporate leaders care about more than short-term profits, this week’s comes from BlackRock chair and CEO Larry Fink, who on Tuesday sent a letter to the companies his firm invests in demanding that “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Mark Zuckerberg seems to agree and seems willing to pay a price to demonstrate it.

Keywords: Facebook; BlackRock; purpose; corporate purpose; corporate governance; leadership; ESG; Short-termism; Mission and Purpose; Corporate Governance; Leadership;

Format: Electronic

Citation:

Serafeim, George. "Facebook, BlackRock, and the Case for Purpose-Driven Companies." Harvard Business Review (website) (January 16, 2018).

Analyzing data from approximately 1.5 million employees across 1,100 established public and private US companies, we find that the strength of employee beliefs about their firm’s purpose is lower in public companies. This difference is most pronounced within the salaried middle and hourly ranks, rather than senior executives. Among public companies, purpose becomes progressively lower with more concentrated shareholders, especially among firms with high hedge fund ownership. These patterns can be partly explained by differences in CEO backgrounds and compensation: public firms, particularly those with strong shareholders, choose outsider CEOs at higher rates and pay them more relative to their employees. Our analyses suggest that these results are not driven solely by sorting effects, but appear attributable in part to the impact that firm owners have on their employees. In summary, shareholders appear to influence the strength of corporate purpose deep within organizations via the leadership and corporate practices they enable at the top.

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Facebook, BlackRock, and the Case for Purpose-Driven Companies

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