What do Lego and Patagonia have in common? Both work hard at creating items that fit with each other? Maybe. More importantly, both are successful, private organizations that believe in a purpose that goes well beyond profits.
Many organizations – businesses in particular – espouse a belief in a “higher” purpose. Heck, even the field of accounting has made the shift and now offers Triple Bottomline Accounting that considers financial, social and environmental performance. This is an encouraging development but how realistic is it – really? When push comes to shove, how equal are the three? More pointedly, if the financial performance isn’t performing to shareholders’ satisfaction, won’t there be pressure to shift focus and resources from the other two? Likely. That’s the challenge of being a publicly traded corporation.
Many articles and stories lament the challenges publicly held corporations face given the short-term focus of most investors. Heck, there’s even a term for it – short-termism. In a 2017 McKinsey&Company report, 87% of the companies studied “experienced pressure from investors to demonstrate strong financial performance within two years or less, while 65% of executives said that short-term pressure from investors has increased over the past five years”.
The problem is not just with investors though. I remember vividly my Ivey MBA days and how we began every single Finance class. As our professor, turned to the board to write our response, he would ask “And what is our objective?”. In unison, the entire class would respond “Maximize shareholder wealth!” True story.
I know what you’re thinking – “typical MBA’s! All they care about is mergers, acquisitions and profits. Thank goodness for entrepreneurs.” Right? After all, study after study attributes the primary drive for starting a business is to “be your own boss”. But how many secretly dream of cashing-out big by taking their company public? Bloomberg Reports has called 2019 the Year of the IPO (Initial Public Offering) as companies like Lyft, Uber, Pinterest and Slack “have all singled their intention to go public”.
And the cycle continues.
So back to Lego and Patagonia – two privately held corporations. Are they exposed to that same pressure?
According to a 2015 Fast Company interview with Jorgen Vig Knudstorp, President of The Lego Group, he “only has to worry about THE shareholder – Christiansen’s heirs” and instead focuses on “two official objectives: that Lego continue to create innovate play experiences and reach more children every year”.
Yes, a private organization is sheltered from the forces that seek to corrupt and amplify all that is wrong with society today. But what matters more is what lies at the heart of that private organization.
Take Patagonia. Since its founding in 1973, Patagonia has grown to a $1 billon clothing company with a simple focus. As CEO Rose Marcario put’s it – “Doing good work for the planet, creates new markets and makes [us] more money”. In that order.
Purpose before profits.
Nothing new with this statement. In fact, the Deloitte Millennial Survey 2018 shows 40% polled believe the goal of business should be to ‘improve society’.
So maintaining private ownership is a good start. But unfortunately, not the solution. But more on that in a future blog.
edited June 10th, 2021 – originally posted August 7th, 2019