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The Patagonia Model: CEOs Redefine Shareholder Value

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Who is the modern “shareholder”? Is it only an individual who holds shares of a company? Is it any business or person who is affected by that company’s decisions and actions? Or is it both? 

Business Roundtable (BRT), a group of 181 chief executives, may have the answer. On Monday, the organization announced it had redefined its “Statement on the Purpose of a Corporation” to include the promotion of “an economy that serves all Americans.” 

“Each version of the document, issued since 1997, has endorsed principles of shareholder primacy – that corporations exist principally to serve shareholders,” the organization said in a press release. The “standard for corporate responsibility,” however, has changed — and now demands that companies benefit “all stakeholders,” including customers, employees, suppliers, and communities. Through a modern lens, the members of this wide-ranging group could, in some ways, all be considered “shareholders” to some degree. 

“The American dream is alive, but fraying,” said Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. and chairman of BRT. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term."

While leaders should embrace Dimon’s new way of thinking, they should not overlook the latter part of his statement. Not only is creating a socially-responsible business, like Patagonia has, the “right” thing to do; it is also the key to thriving both now and for decades to come. Based on BRT’s updated statement of purpose, here are three steps for leaders who want to grow their businesses while serving all types of shareholders. 

1. Develop Ethical Supply Chains

Although suppliers are less frequently discussed in the media than employees or customers, BRT understands their importance — with the CEOs stating they “are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.” Supply chains matter to the public, too: Nielsen discovered that many global consumers are willing to “pay higher-than-average prices” for products with high quality and safety standards (49%) and products made with sustainable materials (38%).

As several authors wrote in Supply Chain Management Review: Supply chains are “where the rubber hits the road when it comes to ethics, whether that has to do with an organization’s sustainability and carbon footprint efforts or how it treats its suppliers and the communities in which it does business.” 

Patagonia has long been heralded as a champion of sustainable business practices, and its supply chain is no exception. It strives to protect migrant workers, ensure good working conditions in its factories, and choose suppliers who have reduced their environmental impact. It also offers a range of Fair Trade Certified items. Many believe Patagonia’s commitment to corporate social impact has helped it become a retail behemoth that generated $1 billion in revenue in 2017. “Doing good work for the planet,” CEO Rose Marcario said, “creates new markets and makes [us] more money.”

2. Invest in Employees

Improving the employee experience is another important consideration for leaders who would like to align their organizations with this modern view of corporate responsibility. As BRT states, this can involve increasing compensation and benefits, or expanding access to training and education that reskill employees for the future. Investing in employees is not an expense without return, either: It often pays for itself by helping companies attract top talent, reduce turnover, improve productivity, and increase preparedness for Industry 4.0. 

Eric Garten, co-author of Time, Talent, Energy, presented research findings in the Harvard Business Review that the companies who invest the most in their employees unlock “40% more productive power.” Employee satisfaction is often correlated with improved financial performance, as well: According to Glassdoor, a Norwich Business School study found that “a portfolio of companies with high employee satisfaction on Glassdoor significantly outperformed the overall stock market, earning 1.35 percent extra returns above the market.” 

One company that adheres to this philosophy is Managed by Q, an office management platform. Whereas its competitors hire cleaners and maintenance staff as contract workers, Managed by Q hires them as employees who receive paid health insurance, a 401(k), paid time off, and stock options. The New York Times reported that Dan Teran, the company’s CEO, believes “most American businesses, and especially fast-growing start-ups like Uber, have mistaken short-term gains for long-term value, undercutting the share of revenue that flows to workers in a way that will perversely hurt their bottom line.” Teran took the opposite approach — and earlier this year, the $249 million company was acquired by WeWork for an undisclosed amount. 

3. Support Local Communities

In addition to serving their employees and suppliers, BRT’s new statement declares that corporations should also support the communities and environment in which they work. This new perspective is perhaps a result of growing consumer demand, with Cone Communications reporting that 63% of Americans want businesses to “drive social and environmental change.”  

“Simply addressing issues within the business footprint is no longer going to cut it in the eyes of consumers,” said Whitney Dailey, director of marketing at Cone. “[Corporate social responsibility] is not a fad, a trend or ‘nice to have'. It's a business imperative that must be authentic and seamlessly integrated into the brand value propositions.”

Take Quicken Loans, which focuses on revitalizing and serving the city of Detroit through its Community Fund. It supports critical areas such as entrepreneurship, education, employment, and housing stability — in 2019, it invested $1.3 million to help nearly 600 Detroit renters stay in their homes. The company also gives unlimited paid volunteering time to all its employees. “On a daily basis, our team members are volunteering across the country, whether it’s teaching coding skills to middle schoolers from Detroit Public Schools, planting food in urban gardens, or serving meals to the hungry,” CEO Jay Farner told People. “We truly believe everything we do makes a difference.”

The remaining commitments included in BRT’s renewed statement of purpose are more familiar than the others: “delivering value to our customers” and “generating long-term value for shareholders.” Any leader already striving toward these two goals should note their efforts will be augmented by expanding the scope of their business to serve all Americans, just as it has with Patagonia. “CEOs work to generate profits and return value to shareholders, but the best-run companies do more,” said Tricia Griffith, president and CEO of Progressive Corporation. “They put the customer first and invest in their employees and communities. In the end, it’s the most promising way to build long-term value.” 

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