The sense of purpose in family-owned firms

“The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society. A company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders.”

– Larry Fink, Chairman and CEO of BlackRock

This powerful message, directed at the leaders of the world’ most important corporations, offers an ideal starting point for this post. In 2020 in his traditional year-end letter, Fink highlighted sustainability and purpose as two fundamental pillars of doing business today. In family-owned firms, these themes have always been a common thread to doing business.

Without a doubt, we’ve changed our understanding of business since the 1970s, when the Friedman doctrine first took root. In his view, a firm’s sole responsibility was to its shareholders, and its contribution to society was by virtue of its capacity to maximize shareholder returns. While partly true, this theory has evolved over the last five decades, as evidenced by the August 2019 Business Roundtable manifesto.

In this now-famous statement, the CEOs of major U.S. companies suggested a new definition of corporate purpose, advocating that a firm’s essential purpose extended beyond shareholders to encompass all stakeholders and society at large. The World Economic Forum advanced this notion by emphasizing the importance of stakeholder capitalism.

Since then, other preeminent corporations have joined the manifesto. Many are family-owned firms or listed companies that still bear the family name: Walmart, Ford, Johnson & Johnson, DuPont and Bechtel, just to name a few. This shouldn’t come as a surprise when you consider that family ownership and purpose have always gone hand in hand. It’s well known that these companies prioritize the long term over immediate short-term results and aspire to make a positive impact on society, far from a narrow focus on boosting the bottom line.

Looking beyond shareholder primacy

Today, 75% of the largest investors use environmental, social and governance (ESG) criteria when determining which companies they’ll invest in. For other primary reasons, global companies should incorporate purpose as a strategic priority, beyond shareholder primacy. Meliá Hotels International offers the perfect example of the power of purpose. Founded in Mallorca, Spain in 1956, this family-owned firm was hit particularly hard by COVID-19, which decimated the global tourism industry.

“I could have never imagined having to close 400 hotels in 18 days,” said Gabriel  Escarrer, Executive Vice Chairman and CEO of Meliá, at the “Dialogues With Responsible Leaders ” Forum organized in May 2020 by the SERES Foundation. “We’ve been forced to make some really tough decisions but I’m proud of how we handled it because we always stayed true to our values and sense of responsibility.”

At the onset of the pandemic, this international hotel chain began working on two main fronts: a contingency plan for the immediate future and a “day-after plan” when things returned to normal, even though no one knew when that would be.

The first task at hand was taking care of their employees through different country-specific measures. These ranged from advancing paychecks for furloughed employees in Spain still awaiting government assistance, to offering room and board in countries like the Dominican Republic and Vietnam, where the social welfare umbrella is minimal. The Meliá team also made sure to provide liquidity to their vendors, especially local suppliers with whom they had built strong ties over the years.

At the same time, the Meliá Group was able to reinvent itself at lightning speed: in Spain, it repurposed 12 hotels into medical establishments to treat COVID patients and facilitated 40,000 overnight stays for national healthcare and security workers. As Escarrer explains, they kept their value chain always top of mind and sought joint and collaborative solutions with their stakeholders. Even amid a global pandemic, their corporate purpose served as a beacon of light to guide their actions.

Besides helping firms steer their operations and strategy in complex and uncertain environments, corporate purpose also helps drive financial results, a topic we’ll explore further in future posts.

 

Post a comment

Your email address will not be published. Required fields are marked *

9 + 6 =