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).

In 2017, JetBlue, the airline founded on the mission to “bring humanity back to air travel,” became one of the first companies to report performance according to the Sustainability Accounting Standards Board (SASB) standards and was first among airlines to adopt the recommendations of the Task Force for Climate-related Financial Disclosures. Despite operating as a smaller player in an industry dominated by few legacy competitors, JetBlue leadership saw themselves as a driver of industry progress. However, was JetBlue’s leadership “relevant sustainability leadership”? Moreover, how could developing metrics and improved performance on material sustainability issues be used as an instrument for change management? JetBlue wanted to achieve best-in-class performance on SASB metrics, as company officials believed sustainability was more than simply a risk mitigation tool. Was it? If so, how could JetBlue receive credit from investors, and competitors, for their sustainability leadership?

Earlier this year, Tesla shareholders approved likely the largest compensation package ever awarded to a CEO—for a CEO who clearly doesn’t need the money. Elon Musk is already incredibly rich and also doesn’t seem particularly motivated by further wealth. So why do it? In fact, the design of the compensation plan and its announcement were not about compensation at all. They were about signaling a credible commitment to Tesla’s purpose: to become a clean energy giant that helps address climate change by transforming mobility. To get there, Musk needs not only the normal sort of investor confidence, but also for investors to buy into his radical vision for the company.

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

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