After members of the Business Roundtable, 181 of the nation’s leading chief executive officers, redefined the “purpose of a corporation,” a lot of eyebrows were raised in Aug. 2019.
The CEOs announced a major change in their financial thinking – shareholder value is no longer their top priority.
Instead, they decided their salient missions are to invest in employees, provide value to customers, ethically deal with vendors and support communities.
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” said their statement. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
A famed CEO added his two cents.
“The American dream is alive, but fraying,” said Jamie Dimon, chairman and CEO of J.P. Morgan Chase and chairman of the Business Roundtable.
“Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans,” he added.
Pros and cons
The CEOs’ decision drew cynicism.
On the behalf of investors in the stock market, investment analysts and commentators questioned the move. They believe the announcement was designed to soften the image of capitalism for political reasons and it risks profit incentives to the demise of stock-market share prices.
My sense is that it was a strategic move by CEOs. It’s always a positive for a business to take care of its human capital and other relationships, as well as being socially responsible.
Personally, healthy relationships with all stakeholders from employees and vendors to the community was a profitable strategy for my business.
Meantime, not to get deeply involved in the politics, we can assume such a change requires the CEOs to rethink budgeting and biases.
So, what about your budgeting process? If you’re like many business owners, you unknowingly have biases that hinder good decision-making.
If you want to improve your budgeting process, you have to identify and address your biases and realize you’ll encounter difficult conversations with others in your organization.
You’re not alone. All businesses have budget dilemmas.
Budget meetings are exhaustive. Numbers are questioned. Assumptions are examined.
If you’re like many businesses every year, nothing really changes. Once again, you’re stuck on the previous year’s numbers and percentages.
Psychologically, this means your budgeting decisions are glued to the past. Your way out is to become objective.
Solutions to become objective
For instance, consider objectivity in determining sales targets.
Start by determining your sales targets by using objective data from several sources, and set standards for using your variables.
Consider your market share, your number of sales people and relevant facts. Compare the information to your chief competitors’ situation.
Construct and attune a forecasting model
Ask the following of you and your staff: “Let’s disregard this year’s goals and using standards we’ve determined, what should our goals be next year?”
Using all your variables, regression analysis should be your vehicle to determine your goals.
Essentially, you might assume that there’s a link between how many units you can sell in the economy of your dynamic marketplace and your revenue.
Regression analysis will give you an equation for a graph that will enable you to make a realistic determination from the data.
Challenge the conclusions
Let’s say you’ve determined your new goals. To keep an open mind, implement a company-wide philosophy using the “Principle of Contrary Action.”
In all that you do, keep a mental record. The next time you do something, try a different approach.
Now it’s time to strategize how to reach the goals. But you might be surprised.
In your deliberations, you might very well develop a vision plan that uncovers potential for sales you hadn’t anticipated.
From the Coach’s corner, editor’s picks for relevant articles:
Finance: You’ll Draw Strength to Win by Relying on 22 Values – Whenever a businessperson makes a financial decision that turns out to be productive, it’s based on values using a financial compass — knowing what to do and when to do it. If you use this financial compass with 22 values, you’ll be guided to financial success.
Best Financial Strategies for Your Business Plan – When updating your business plan as an established company or writing it as a startup, be sure to intensely focus on the financial section. Here’s how.
Finance: Zero-Based Budgeting Aligns Resources with Priorities – Zero-based budgeting (ZBB) is no longer just your average budgeting technique. ZBB means all expenses must justified for all functions and analyzed for company needs and costs. Here’s how to convert to ZBB.
Business Analyst Projects: Procedures for Effective Analysis – For success of your business-analysis project, naturally, you need to understand what’s expected so you can provide the necessary deliverables. You need to avoid the typical downsides in order to develop inevitable and reliable conclusions. For typical projects, here are the necessary procedures.
Even in Our Strong Economy, Build Your Emergency Fund – OK, so the economy is strong and sunny. But here’s a reality check: When businesses fail, probably 80 percent crash because of poor cash flow. Establishing an emergency rainy-day fund is not an option. Don’t get soaked. Here’s what to do.
“Good managers have a bias for action.”