Corporate CEOs must figure out the delicate balancing act between purpose and profits, with shareholders at the center, after the Business Roundtable set forth a new corporate standard in August.
Now all stakeholders–from shareholders, employees, suppliers to communities the business operates in, and its customers–stand on equal footing, a departure from the traditional “profits first” focus.
But “the shareholder is still king,” PVH Corp. CEO Emanuel Chirico said at the “WWD Apparel + Retail CEO Summit” on Tuesday.
A Delaware corporate law states that directors owe a fiduciary responsibility only to shareholders, though Chirico noted that the state’s business judgment rule does provide a certain amount of latitude for CEOs and corporate boards.
Prioritizing various stakeholder groups is where things get tricky, especially if there’s conflict between them, Chirico noted. Winding down a U.S. apparel factory in order to offshore production saves money but could decimate the community and devastate the workers left behind by the foreign flight, he explained.
But from a financial perspective, improving the performance of the company and its balance sheet would benefit shareholders.
How does one balance those two different priorities?
One way is to legislate change at the state and federal levels, as Sen. Elizabeth Warren (D-Ma.) is striving to do with the Corporate Executive Accountability Act she introduced in April, which holds executives at the helm of large corporations criminally responsible when their companies break the law.
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It’s clearly a path that doesn’t sit well with Chirico, who noted that America is home to the best, most efficiently run corporations, and having government interfere would be a mistake. That, he added, would be a “slippery slope to socialism.”
The better option is for companies is to define their unique corporate purpose and identify who the key stakeholders are, said Chirico, emphasizing that “companies should be measured by more than just their bottom line” or, for that matter, on just the “strength of their balance sheet.”
Which is to say that profits still matter—to a point. As Chirico explained, “Without strong financial performance, companies would not be able to make the investment in their stakeholder groups.”
But there’s another shift in the corporate landscape—one that’s encouraging businesses to evolve their priorities from short-term financial goals to longer-term targets. That is where there’s an opportunity for companies to align all stakeholder groups to the same focus on results achievable over a longer span of time.
Chirico said PVH has found a way to adapt to change while still staying true to its corporate values. PVH strives to keep its people at the center of everything it does, which has helped drive social and environmental change, including “improving the lives of the millions of people who work in our supply chain,” he added.
By defining a corporate purpose and staying true to those values, apparel businesses can capture the hearts of consumers who want to buy brands that support and align with their values, he concluded.