Corporate ‘Purpose’ Is No Substitute for Good Governance
In February 2017, Facebook Inc. CEO Mark Zuckerberg published a 6,000-word opus on his platform titled “Building Global Community.” In it, he lays out a compelling purpose for a global platform company like Facebook in an age of nationalists or politicians with protectionist agendas:
“The most important thing we at Facebook can do is develop the social infrastructure to give people the power to build a global community that works for all of us.”
Zuckerberg listed five ways to pursue that purpose: (1) supporting life experiences by building communities, (2) increasing the quantity and quality of information, (3) increasing civic engagement, (4) creating more-inclusive communities, and (5) keeping people safe.
In 2016, Facebook vice president Andrew Bosworth circulated a memo to staff acknowledging that casualties are a foreseeable and acceptable result of the company’s pursuit of its mission. This was quickly disavowed by Zuckerberg, as well as Bosworth himself, once the content became public. Even so, the memo had burbled along through the company’s communication channels unchecked for more than a year. This length of time matters.
In June 2017, Facebook’s board of directors decided to revise the guidelines for its own responsibilities, which includes this statement about the board’s first responsibility:
The Board acts as the management team’s adviser and monitors management’s performance. The Board also reviews and, if appropriate, approves significant transactions and develops standards to be utilized by management in determining the types of transactions that should be submitted to the Board for review and approval or notification.
The term “monitors management’s performance” is vague, and it might be tempting to interpret performance in strictly financial terms. However, a strictly financial interpretation, devoid of important human values or concern for nonfinancial stakeholders, has become a managerial anachronism. A more reasonable interpretation of “performance” for a 21st-century board of directors should include a broader range of concerns, such as, for example, communications by senior management that appear to tolerate trade-offs between the growth of user connections and the loss of life. Governing how the company pursues its mission is an essential role of a board of directors.
The company’s board typically sets the boundary conditions in which management pursues its purpose, giving structure and meaning to the pursuit of a given corporate purpose. Purpose is not some teleological concept of the corporate end-state, a raison d’être that — by itself — pulls forward the company’s activities. Purpose requires the steady hand of strong governance to assure that achieving a given purpose is done properly, within the boundaries of ethics and law.
Any corporate purpose, however laudatory or noble that mission may be, must be accompanied by strong governance. Facebook is still grappling with how to govern the clear relationship between growing user connections, increasing profits, and facilitating harm through its platform. Purpose without governance enabled WorldCom to lie and cheat to advance its (less than noble) goal of becoming the No. 1 stock on Wall Street. At the time, in 2002, WorldCom’s deceit was the largest corporate fraud ever.
Even when managerial motivations are authentic, purpose without governance can go awry. For example, many companies are beginning to integrate the UN-supported Sustainable Development Goals (SDGs) into the core of their corporate agenda. This admirable effort, discussed recently by Robert Eccles (Oxford) and Lila Karbassi (United Nations Global Compact), has a dark side: Some companies may make socially valuable contributions to the achievement of one or more of the SDGs while undermining the pursuit of other SDGs. Societal well-being is multidimensional, and corporate decisions have multiple, often unintended, effects. Eccles and Karbassi argue that advancement of SDGs requires that companies also abide by the broader UNGC’s Ten Principles, which set social and environmental norms for business. Governance needs to attend to the effects of management decisions on a broader range of stakeholders if they really intend to support efforts like the SDGs.
None of this is earth-shattering or novel. But, as more and more executives extol the virtues of their corporate purpose, stakeholders and shareholders alike should explore whether strong governance is a significant part of that corporate narrative.
What’s more, as companies adapt to shifting consumer preferences, abrupt arrivals of new entrants, and rapid technological innovation, the pace of corporate governance needs to change as well. Just as many companies have replaced the practice of periodic strategic planning with the practice of reviewing and adjusting strategic plans more regularly, so too should boards of directors meet more frequently than every quarter to review the company’s pursuit of its purpose. Like many other companies, Facebook’s board meets quarterly, with special meetings held on an as-needed basis. However, it’s not hard to imagine governance taking place on a more continuous basis given today’s pace of business and mounting threats from digital risks, such as data breaches. If this were to happen, the role of a board director may become more demanding, and that may influence board compositions of the future.
Boards may not necessarily need to add more regularly scheduled meetings. Instead (or in addition to quarterly meetings), they could encourage the creation of AI-based monitoring systems that identify events that trigger alerts to the board throughout the year. AI has other uses in the boardroom as well. This approach is especially relevant in the realm of cybersecurity. In more than a few instances, board directors have remained ignorant of cybersecurity incidents until they become public fiascos. Given the liability issues boards of directors face in the wake of data breaches, they should explore how to get ahead of this kind of problem with systems that alert directors when threats cross certain thresholds.