New research from the Drucker Institute, published in the WSJ, applied the Institute’s analytical framework to assess companies’ “effectiveness,” defined for this purpose as “doing the right things well.”  Notably, the authors of the article find a harmonious congruence—or is it a “harmonic convergence”?—between the “indicators” of effectiveness that make up their model and the various commitments for the benefit of all stakeholders in the Business Roundtable’s new Statement on the Purpose of a Corporation.”  What’s more, the authors suggest that their own framework was created to promote exactly “the kind of stakeholder mind-set that the Business Roundtable has now endorsed.” With that in mind, the authors highlight the group of companies led by CEOs who signed the BRT Statement to see how well these companies fared. While some have viewed the BRT Statement as mere “virtue signaling” (see the SideBar below), the article sets out to measure the extent to which the signatories put their money where their mouths are.  How did they do?  “Quite well,” but with “notable room for improvement.” 

Last year, the Drucker Institute (which, together with the WSJ, also produces the Management Top 250 annual rankings) assessed 752 large, publicly traded companies by applying a framework of “37 indicators across five areas: customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength.”  By comparison, the BRT commitments called for “‘meeting or exceeding customer expectations’; ‘investing in our employees’ by ‘compensating them fairly and providing important benefits,’ as well as offering training and education so they can ‘develop new skills for a rapidly changing world’; ‘dealing fairly and ethically with our suppliers’; ‘supporting the communities in which we work’; and ‘generating long-term value for shareholders.’”  

To perform the assessment, the Institute compared companies in each of the five categories and in “overall effectiveness,” with a range of 0 to 100, and a mean of 50.  Of the 181 companies with CEO signatories to the BRT Statement, 137 were included in the analysis. How did they do? Overall, the authors conclude, “on average, their performance was impressive, scoring in the top half of the 752 firms in every area that we explored.” On average, the BRT companies scored 53.1 in customer satisfaction, 53.0 in employee engagement and development, 57.2 in  social responsibility and 53.6 in financial strength.  For “overall effectiveness,” which adds “innovation performance” to the four categories above, the BRT companies’ scores averaged 57.4. What’s more, six of the ten companies that ranked highest overall were among the BRT companies.

But—of course there’s a “but”—many of the 137 BRT companies scored below the mean in critical areas, and sometimes well below. For example, 26 companies scored below 50 in—of all things—“social responsibility,” a category that the authors indicate is comparable to the BRT’s concept of “supporting the communities in which we work.” And six scored below 40, placing them in the bottom 20%. Similarly, in the category of “employee engagement and development,” 43 of the BRT companies scored below 50 and 10 scored below 40. Indicators in this category included wages, benefits and training.  With regard to “customer satisfaction,” 56 BRT companies scored below the mean, and 13 were at 40 or below. And, surprisingly, 65 (almost half) scored below 50 in “financial strength,” with nine below 40. This category involves “generating long-term value for shareholders.”

The Institute also examined how well the BRT companies performed on these same measures over time: “[O]nce again, the outcomes were strikingly uneven. Using historical data from 2012, we found that most of the Business Roundtable companies have seen their scores rise in the different areas that we assessed, but not all of them. In the past six years, 36 have suffered a slip in social responsibility, 45 a decline in customer satisfaction, 52 a decrease in employee engagement and development and 67 a falloff in financial strength.”

While signing the BRT Statement was a “significant step,” the authors conclude, “now comes the hard part: turning this vision into something measurably meaningful.”

Posted by Cydney Posner