Former Vanguard CEO Weighs in on 'Purpose' & ESG: Bill McNabb says a focus on the greater good leads to long-term value.

Author:Tahmincioglu, Eve

Bill McNabb, the former CEO and chairman of investment behemoth Vanguard Group, believes many people aren't seeing the ultimate value of a growing movement for corporations to have a social-purpose focus.

"Many pundits and critics have missed an essential element of the principles," explains McNabb, a director for United-Health Group and chairman of EY's Independent Audit Quality Committee. The principles, he adds, "are focused on long-term value creation, not short term. As investors, we want to see this longer-term focus."

The following is a Q&A with McNabb. He discusses the recent Business Rountable's "purpose" statement and environmental, social and governance issues (ESG):

Should a corporation have a social purpose? What is a corporation's broader responsibility to society, if any?

I've always said that in business, if you do the right thing, you win. A purpose provides a company with a "true north"--a way to ensure any decision made serves a company's collective goal. Often, a company's core principles align with an effort to serve a greater good. For example, at Vanguard, that purpose was, and remains, putting people over profits by taking a stand for investors, treating them fairly, and giving them the best chance for investment success.

The Business Roundtable purpose statement is very similar to a statement the group put out in 1981 calling for a greater focus on all stakeholders, including employees, communities, suppliers, customers, etc. Do you think this time around the signatories will make it happen? Why? What's your overall take on the Roundtable's recent statement?

The Business Roundtable statement indeed is similar to that issued in 1981. That doesn't make it any less important. The principles laid out in the statement reflect what we believe it takes to make a company successful in the long term.

At Vanguard we frequently talk about serving our "three Cs"--clients (our term for customers), crew (our term for employees), and community. We think that by having vibrant communities and a powerful value proposition we can attract great people; and further, by focusing on their development and retention, we will create great customer experiences and more long-term shareholder value for our clients. In our case, our clients also are our owners, so it's doubly important we do so.

So what is the proof? I would humbly submit our success is very linked to following these principles. We believe all companies wishing to create...

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