Purposeful purpose or purpose puffery?
Dr Jeremy Osborn FCMA
Regional Director, UK & EMEA, Corporate Citizenship
It has become commonplace in recent years for companies to state their raison d’être in the form of a short and accessible purpose statement, such as Lloyd Banking Group’s purpose of “Helping Britain Prosper”. Such corporate purposes are then communicated internally to employees and to external stakeholders via brands, websites, press releases and corporate reports. Yet what is the purpose of purpose as we head into the third decade of the twenty-first century? Is corporate purpose the new kid on the block, or the emperor’s new clothes? And how does corporate purpose dovetail with sustainability?
In our view, corporate purpose should be seen as a lightning rod for why a company exists, channelling the energy of its products and services towards the creation of lasting societal value. Grounded by corporate soul-searching, as business leaders seek to define their company’s role in the world, a well-structured corporate purpose will encapsulate the value created by a corporation beyond financial and accounting returns. By asking gritty questions, such as whether the world would be better or worse off if a particular corporate entity did not exist, the search for meaning and reason can help identify and shape a purposeful corporate pearl based on corporate truth.
Meaningful corporate purpose resonates with a wide range of stakeholders, and is not only consistent, but true to the company’s products and services, operations and behaviour. It must resonate with every employee of a company in their day-to-day activities, or else the divergence between a statement of corporate purpose and people’s lived experience of it will be sharply felt.
Purpose has many configurations as the guiding star of the corporation’s pursuit of sustainable profit:
Long-term value creation
Long-term value creation encompasses the value created by an entity for society as a whole: financial value for shareholders, economic value in supply chains, environmental value across value chains, social value for host communities and sustainable livelihoods for employees. The most purposeful companies have a clear understanding of the role they play across these myriad stakeholder groups, and are well placed to adapt their business model to changing conditions so that they thrive over time. The Dutch life sciences company Royal DSM’s purpose to “Create brighter lives for all” encapsulates corporate purpose of this type.
The most impactful corporate purposes are fully integrated into corporate strategy, with clear connections with an entity’s business objectives and alignment with the products and services it sells. Governance arrangements support executive oversight of corporate purpose, and hold the senior leadership team to account for how effectively and meaningfully corporate purpose is being “lived” in the company and across its supply chain and broader value chain. Unilever’s corporate purpose of “Making sustainable living commonplace”, for example, has been embedded into the business and its brands.
Values and behaviours
The most tangible expression of a company’s purpose, is the values and behaviours demonstrated by the corporation as an entity and its people as individuals, teams and leaders. For example, can an organisation which claims to be a responsible corporate citizen, be truly purposeful if it also aggressively pursues tax avoidance schemes in host countries? And can a company which claims to be creating long-term value for society at large, be truly purposeful if this is achieved by exploiting its staff and suppliers? We all intuitively “know” if our employer’s purpose is nothing more substantive than purpose puffery. The John Lewis Partnership is highly unusual in having had a purpose as one of the founding principles of its Constitution: “The happiness of all its members, through their worthwhile and satisfying employment in a successful business”.
Erosion of trust has been the single most pervasive issue at the interface between business and society since the 2008 financial crisis. The corporation is a social and legal construct, after all, and has no more “right” to continue in its current form than an animal or plant has the right to resist evolutionary change. If the corporate form is not serving society in a manner commensurate with its financial performance, then society will inevitably change the permitted form of the corporation. A purposeful business engenders trust in society, instilling confidence among those whom it serves as customers and those who, in turn, serve it as employees, suppliers, regulators and local host communities. A business needs to demonstrate the constancy and consistency of its purposeful behaviour across a wide range of stakeholder groups, however, if it is to retain the trust of its stakeholders over the generations. LEGO’s purpose of “Inspiring and developing the builders of tomorrow” rings true with parents and children alike, who have grown up playing with the brightly coloured bricks.
Will the most purposeful companies financially outperform the least purposeful companies in the years to come, as we have seen over the past three decades with the most sustainable ones? Will purpose elevate sustainability to become the organising principle around which corporations align their resources to create products and services which most enhance society? Only time will tell, but our belief at Corporate Citizenship is that the most purposeful companies will excel over the least purposeful ones in the 2020s and beyond. Articulating, embedding and “living” corporate purpose is a necessity for businesses,
Source: CC News Feed