Last month the Business Roundtable issued a “Statement of Purpose of a Corporation” which revised a previous statement issued decades ago stating that the primary purpose of a corporation was to increase shareholder value. The new statement of purpose, which was signed by almost 200 CEO’s of public companies, says, in part, “we share a fundamental commitment to all of our stakeholders" and then lists them as customers, employees, suppliers, communities and shareholders.
If this feels familiar to those of you practicing Lean … it should. When you read the details about what the commitment is to each of the stakeholders, for those of us in the Lean world it’s easy to see that these are the outcomes that we try to achieve in our companies.
Customers: they are the reason for our existence. Our goal is to create value for our customers by delivering quality products and services that solve their problems.
Employees: they are the people that create value for our customers. They are the one resource we have that can increase in value as we invest in their education and training. They are the people that will carry us forward in a rapidly changing world.
Suppliers: having successful, profitable suppliers that help us satisfy our customers’ needs is critical to our own success.
Communities: companies that invest in communities in order to make them vibrant, increase the probability of attracting employees that want to live in those communities, which in turn increases the quality of the people that are attracted to our company.
Shareholders: people and institutions that risk their capital to provide the financial resources needed for the company’s existence and growth are essential and they deserve a fair return on their investment.
The Wiremold Company began its Lean Strategy in 1991 and its story has been documented in many books and articles (including my own book Real Numbers, co-authored with Jean Cunningham.) As part of this strategy we focused on each of these stakeholders:
Customers: we communicated with our customers in order to understand their real problems and rapidly respond with products and services to help them solve those problems. Regarding new products and services our mantra was “we want our competitors chasing our tail lights”.
Employees: we developed a kaizen culture whereby the person doing the work was considered the expert regarding his/her problems and was intimately involved in creating solutions to those problems. In order to allow employees to share in the company’s success we paid a market-based wage, plus we had a profit sharing plan that distributed 15% of pre-tax income to all employees, paid in cash quarterly. In addition, the company’s match to our 401K plan was in Wiremold stock in order for employees to share in the long-term growth of the company. During the 1990’s, while on our lean journey, the average total income of employees increased about 7% per year, compounded…greatly exceeding our local labor market average.
Suppliers: we eliminated the game of pitting suppliers against one another based on price and reduced the number of suppliers based on which ones were willing to do business on the basis of lean principles.
Communities: Every year the company made substantial contributions to The Wiremold Foundation, which supported worthy organizations in the community. In addition, employee charitable payroll deductions went into another Foundation whose Board was comprised of employees that decided which local charitable organization to support. In addition to financial support, many employees were actively encouraged to become involved with community and professional activities.
Shareholders: In addition to a regular quarterly dividend, plus a “special year end dividend” based on each year’s profits, shareholders enjoyed a steady increase in the value of their shareholdings.
As the Chief Financial Office of The Wiremold Company I can attest to the fact that our Return on Investment (ROI) increased by 500% during the first ten years of following a Lean Strategy. Focusing on all stakeholders does not diminish shareholder value; it enhances it.
I commend the Business Roundtable for recognizing the importance of all stakeholders in a capitalist system. However, their statement did not address the “how to” of achieving their new statement of purpose. I would advise that those companies, indeed all companies, study the concepts, principles and practices of Lean in order to define their own path to successfully transforming themselves into organizations that value all those that contribute to its success.