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CEO Daily: Monday, 10th July

Good morning

What is the purpose of a corporation? That’s a question we explore frequently in CEO Daily. And now our friends at EY have offered up some interesting data on the answer.

They went to 1,470 top executives in ten different industries and 12 different countries, and asked a simple question: “Which of these best characterizes your organization’s purpose?” Respondents were given the following options to choose one answer from:

-Maximizing shareholder value

-Bringing value to customers

-Creating value for employees

-Creating value for a broad set of stakeholders, including society and the environment

-An aspirational reason for being that is grounded in humanity and that inspires a call to action

Let’s leave aside that last option for a moment. While it sounds lofty, I’m not entirely sure what it means, and I wonder how well it traveled across cultural borders. It seemed to resonate most in the U.S. (where 12% chose it), Japan (10%) and South Africa (11%), and scored worst in China (less than 1%). But in every country, it was an also-ran.

The stakeholder approach, on the other hand, was the hands-down favorite in China (67%) and Brazil (60%), and did reasonably well in Japan (37%). In the U.S., it was chosen by 27% of respondents.

At the other end of the capitalist spectrum, shareholder value came out strongest, not in the U.S. (16%), but in Singapore (28%), Hong Kong (25%), the U.K. (21%), and, surprisingly, France (21%). Who knew?

Employees fared best in Australia (25%), Hong Kong (22%), and India (22%). They fared dismally in the U.S. (4%).

So what do American executives see as the main purpose of their organizations? Bringing value to customers, which was chosen by 41% of U.S. respondents, more than in any other country except South Africa (45%) and India (41%).

These “forced choice” survey questions are a bit artificial, since every company must at some level satisfy shareholders, customers, employees and society, or risk going out of business. But it’s an interesting exercise in priorities. And it’s worth pointing out that the Milton Friedman view of shareholder primacy came out on top in only one country: Singapore. The current system may be tilted toward shareholders, but if so, the people running businesses don’t acknowledge it.

How would you answer the question? I’m eager to hear from CEO Daily readers on this one.

Meantime, more news below.

Alan Murray


Top News

Markets Unfazed by Fractious G20

The G20 summit ended with some partial concessions to the U.S. administration over trade protection and energy measures, but the group was unable to gloss over a clear rift with the U.S. over the Paris Climate Accord. The summit avoided any diplomatic disasters big enough to unsettle financial markets, which continue to take their cue this morning from a U.S. jobs report strong enough to allow the Federal Reserve to proceed with its gradual tightening of policy (along with other signs that global growth is ticking along nicely). The dollar and bond yields are still rising, while gold hit a four-month low and oil prices remain under pressure after yet another rise in U.S. drilling last week. Bloomberg

Trump Faces New Russia Allegations

The New York Times reported that Donald Trump Jr. met with a Russian lawyer, Natalya Veselnitskaya, last summer, having been promised damaging information about Hillary Clinton. Trump Jr.’s brother-in-law Jared Kushner and Paul Manafort (who was Trump senior’s campaign manager at the time) also attended. The news adds to suspicions of collusion between the Trump campaign and Russia during the election campaign, and Trump Jr. offered two conflicting accounts of the meeting to the NYT over the weekend. At the G20, the President had continued to insist that “nobody really knows” whether Russia interfered with the 2016 election, a view at odds with the intelligence community and (as UN ambassador Nikki Haley said this weekend) all of Capitol Hill. His proposal to create a joint U.S.-Russian cyber security unit met harsh criticism across the political spectrum. Fortune

Iraq Celebrates After Re-Taking Mosul From IS

Three years after falling to the self-styled Islamic State, Iraq’s second city Mosul was retaken by government troops backed by U.S. and coalition air forces. The dramatic fall of Mosul had put IS into the international spotlight, but its recapture does not restore the status quo, as much as set the stage for a showdown between the Shia-led government in Baghdad and Kurdish separatists in northern Iraq, who want independence as a reward for shouldering the burden of fighting IS on the ground. The U.S. has actively supported Kurdish militia to grind down IS in Syria too, but supporting their desire for a state would deeply antagonize Turkey, Iran and Iraq. Reuters

Musk Soothes Nerves With Peak at Model 3

Elon Musk released pictures of the first Tesla Model 3, in what appeared an attempt to soothe nerves after a jarring week. Its share price has fallen 18% from its peak in June, with a downgrade from Goldman Sachs responsible for much of the damage last week. The current share price is still more than 40% above Goldman’s price target of $180. A drop in second-quarter deliveries has revived long-standing fears about Tesla’s vulnerability to supply-chain problems, with bottlenecks in the area of batteries topping the list. The lucky owner of the first Model 3? Musk himself—venture capitalist Ira Ehrenpreis had the rights to the first Model 3, but he turned it over to Musk as a 46th birthday present. Fortune

Around the Water Cooler

Wanda Retreats From Tourism After Debt Crackdown

China’s Wanda Group abandoned a major part of its ambitions in tourism, selling its Chinese tourism projects and hotels to Sunac China for $9.3 billion in what Reuters says is the second-biggest Chinese real estate deal ever. To note: Wanda had earmarked over $40 billion for further investment in the tourism and culture space, until the Chinese banking regulator took fright at the leverage of Wanda and some of China’s other big corporate buyers and ordered a review into them. Only three weeks after that move, Wanda is in headlong strategic retreat. Political pressure, much? Honi soit qui mal y pense. Reuters

Rivals Try to Steal Amazon’s Thunder as Prime Day Arrives

Amazon’s annual Prime Day gets under way at 9AM Eastern Time, with the company promising over 100,000 cut-price deals to members of its key subscription service. The centerpiece of Amazon’s marketing for Prime produced a 60% surge in customer orders last year (50% in the U.S., where the baseline is higher). The company tends to be selective in releasing numbers about the event, so it’s not the perfect gauge of Amazon’s own business, or of any broader trends. However, as Fortune’s Andrew Nusca points out, it’s something that has now achieved enough scale to force rivals like Google into piggy-backing it or trying to undermine it (depending on your viewpoint): most notably, this year, in the realm of digital assistant-powered home speakers, where Amazon is set to halve the price of its Echo speaker. Fortune

Facebook Slashes VR Headset Price Again

Facebook cut the price of its Oculus Rift virtual reality headset for the second time in four months, slashing the price of the Rift and its accompanying touch controller by one-third to $400. This cut is, officially, a six-week summer sale, in contrast to the permanent price cut announced in March. The timing may or may not have something to do with the above-mentioned pressure to stop Amazon from hogging the headlines. But Facebook still appears to be struggling to find a price at which the virtual reality product will gain traction, and any extension of the latest discount will strengthen suspicions that the economics of VR aren’t what it thought. Fortune

Shell to Increase Clean Energy Bets

Ben van Beurden, the CEO of Anglo-Dutch oil major Royal Dutch Shell, said his company will increase the investment budget for its “New Energies” division to as much as $1 billion a year in response to the quickening adoption of renewable power and electric vehicles. Van Beurden stressed that the biggest opportunities would come not in developed markets, but in less developed ones with “potential…to shift more directly onto a less energy-intensive pathway to development.” Elsewhere, France’s ecology minister Nicolas Hulot said that the country’s dominant generator EDF may have to close 17 of its 58 nuclear reactors by 2025 to meet the target of cutting the share of nuclear in the fuel mix to below 50%. EDF’s shares have completely missed out on the rally in French stocks since Macon’s election victory. Bloomberg

Summaries by Geoffrey Smith;