This article was published in Scientific American’s former blog network and reflects the views of the author, not necessarily those of Scientific American
When nearly 200 CEOs from some of the nation’s largest corporations got together recently, they faced a big challenge.
Across the United States and in much of the world, there’s great distrust of corporate leaders—a distrust that’s growing along with CEO pay and levels of inequality. As Scientific American has reported, “economic inequality negatively impacts nearly every aspect of human well-being.” Many workers are finding that the system is rigged against them.
The result of the meeting of the Business Roundtable was an official end to the organization’s stance, in place since 1997, that “corporations exist principally to serve their shareholders.”
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Instead these CEOs, representing many household name businesses, issued a “Statement on the Purpose of a Corporation.” In it, they vowed a “commitment to all of our stakeholders,” which includes “investing in our employees,” through fair pay, important benefits, and training, as well as “dignity and respect.”
The reaction was swift. News media pounced on the announcement, and many readers weighed in with well-deserved skepticism. “Absent constraints by government, businesses will continue as always, putting profit before all, damn the consequences,” read one letter to the editor in the New York Times.
As CEO of Gapingvoid, a firm focused on helping corporations improve their workplace cultures, I understand this wariness. For decades, many companies have professed support for their employees while leaving them out in the cold.
But a new paper we’re publishing can give people hope. CEOs have powerful reasons to transform their workplaces in ways that make employees feel valued and respected. Doing so doesn’t just help the corporate bottom line dramatically. It also brings tremendous rewards to the CEOs themselves.
In our research, we pieced through surveys and data to determine what happens when companies create cultures that are equally focused on employees and customers. We call these “High-Purpose Cultures,” and describe them as embodying the kind of purpose in which “everyone feels aligned and connected to being part of something larger.”
The benefits to businesses that do this were well established. As Scientific American reported in collaboration with SC Johnson in 2017, “human-centric cultures” cultivate “trust among employees builds productivity, loyalty and, ultimately, profits.”
We wondered what these changes bring to executives. We found striking results.
First, these CEOs receive higher compensation—and not just because corporate profits go up. They receive higher pay as a percentage of revenue. The CEOs we analyzed who instill and oversee High-Purpose Cultures earned total compensation of about .16 percent of company revenues. At the other end of the spectrum, CEOs from companies with poor culture scores, overseeing Low-Purpose Cultures, earned about .07 percent of total revenues.
Next, CEOs who build High-Purpose Cultures receive more desirable news coverage. We analyzed the number of times these leaders are mentioned in traditional media outlets. Then, we assessed the quality, reach and relevance of those outlets. Finally, we ranked the sentiment of each article on a scale of 1 (most negative) to 5 (most positive). These CEOs trounced others. We also found that they’re much more likely to be included on lists of “most respected” CEOs.
Perhaps our most interesting finding involved the popularity of these CEOs amid concerns about economic inequality. These days, many CEOs’ reputations are taking a hit because many people see them as overpaid. The data we examined showed that this effect is mitigated when CEOs lead High-Purpose Cultures. In those cases, people generally remain more positive about the CEOs even with their relatively higher salaries.
These findings offer important lessons to business leaders. Our research showed that executives can’t simply give lip service to valuing employees. To reap the rewards of a High-Purpose Culture, they need to take concrete actions. Employees can tell the difference. They know whether leaders make decisions on a daily basis that reflect a true commitment to what’s best for employees.
The research also offers hope to those who espouse the principle of psychological egoism—the belief that ultimately, people are most deeply motivated by self-interest. CEOs want higher pay, respect and prestige. Many also want positive media coverage. So even though the executives didn’t add themselves to the Roundtable’s list of stakeholders (customers, employees, suppliers, communities and shareholders were included), they can in fact be the greatest beneficiaries of High-Purpose Cultures.
Whether those hearing of the CEOs’ official new commitment respond with hope or cynicism, the result should be the same. Looking out for the welfare of all these groups is also the best way for CEOs to look out for themselves. In short, today’s executives can do best by doing business right.