Change requires Change requires Risk Assessment

The Business Round Table comprises a group of 181 CEOs of U.S. corporations. In 1997, they defined what the purpose of a company is. The published definition described the sole purpose as maximising shareholder value, i.e. a total focus on profit. On August 19th, 2019, they revised it to a commitment to: “delivering value to our customers… investing in our employees…dealing fairly and ethically with our suppliers…. supporting the communities in which we work… generating long-term value for shareholders”.

It is a change in response to change. The public, consumers, and employees are less accepting now of the failures of capitalism: bankers getting bonuses and bail-outs, exploitation by companies of the opiode crisis, climate change, gender inequality, the widening gap between the über-rich and the working poor, to name a few.

This change is good. But change is change, and change always brings risk. All change should be assessed for risk. Where the change is instigated by the company itself, the risk is primarily one of unintended consequences.

The first risk is that the company might not be seen as sincere in this activity. It might be nothing more than a “virtuous side hustle” in the words of one sceptic.

Then, profits may take a hit, as they did for Nike when they created an ad featuring Colin Kaepernick, the American footballer who knelt at the national anthem in protest against police racism; but then their stand brought them support from customers.

Salesforce, which has been a leader in this area, suffered a glitch when it was revealed that its software was used by the US Border Patrol to deal with illegal immigration.

And then Jason Pérez, a California police officer, campaigned for a board seat on the California public service pension scheme, CalPERS, on the grounds that their ethical investment stance (primarily anti-tobacco) meant that the pension fund was under-funded, and so it had to be supported by the state, which meant that police officers didn’t get a wage increase… He won his seat, competing against the pension fund’s ethical guru.

Change brings risk. Always assess the potential impacts of change, and make sure you fully understand the risks.

Data Sources: Fortune magazine, The Economist magazine, The Guardian newspaper

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