N.3 Purpose of corporations, corporations with purpose
As we have previously discussed, corporations have been asked (or obliged) to add non-financial KPIs to their performance goals, taking into account their impact on employees, customers, communities, and the environment. As a result, we have seen a growing number of companies adopt and implement a broad range of sustainability practices, provoking debate about the nature of sustainability and its long-term implications for organisations.
The new statement on the purpose of a corporation, recently signed by 181 CEOs, shows their commitment to consider the interests of all their stakeholders—including employees, customers, and the community—not just their shareholders.
According to the article The Investor Revolution, investors and pension funds are already considering the environmental and social impact of their portfolios and companies need to adjust their way of operating, managing, and communicating their impact performance.
Philanthropy and corporate social responsibility are not enough to achieve this; new business models are required to integrate societal, environmental considerations to a company’s overall performance.
Adopting a dual purpose is not easy. Some companies, like Patagonia, have already succeeded, while others are still trying to understand how to reorganise and restructure their organisations. Dual-purpose companies all share a common hybrid organising approach (The Dual-Purpose Playbook).
What’s a hybrid organising approach?
Applying a hybrid organising approach means that both social and financial goals are set and monitored; the structure of the organisation, employees, and the leadership style should support activities to drive both goals while nourishing a hybrid culture. Meaning that leaders need to be ready to manage the tensions that could arise in the process to achieve dual goals, such as competition for resources.
Resources are limited. Decisions need to be taken to allocate them
Veja, the responsible sneaker brand, for example, decided not to advertise their shoes (in the industry, advertising represent 70% of the costs), in order to keep their price as low as their competitors while producing in fair trade and environmentally friendly conditions (more expensive). To cope with the lack of advertising, the company formed strategic partnerships with high-end fashion brands.
How can financial and social goals coexist?
The answer is that one needs to support the other and vice versa. If a company wants to deliver low-cost or free of charge services to people in need, and they want the business model to be sustainable, the company needs to find a way to generate revenues. This should not be seen as a conflict between good or bad goals, but as a positive wheel, where the action of one empowers the other. Grameen Veolia Water, a social business bringing drinkable water to rural areas in Bangladesh, is a great example to understand this concept.
What’s more, the Global Reporting Initiative, the Sustainability Accounting Standards Board, and B Lab, have created metrics for tracking companies’ impact on the lives of employees and customers, the communities served, and the environment, providing organisations with usable benchmarks.
Purpose is simply the reason why someone or something exists
Making profits cannot be the only reason for the company to exist, purpose should be the differentiator against the competition, and the driver for its employees to succeed.
According to Nicholas Pearce, the best companies are the ones that not only have a purpose for themselves but also attract and hire people whose individual senses of purpose align with that of the company’s.
Individuals and organisations purposes need to be aligned
Purpose-driven individuals cannot have an impact if their purpose is not supported by their organisation, and if the structure of the company doesn’t support actions that can have a positive dual impact (financial and societal). Equally important is for organisations to have employees driven and engaged in the company’s purpose. According to McKinsey’s review “People who find meaning at work are happier, more productive, and more engaged, because people who believe their job has meaning and a broader purpose are more likely to work harder, take on challenging or unpopular tasks, and collaborate effectively.
Challenging question: do companies really need to have a purpose?
Many companies struggle to identify their purpose, while others come up with mission statements that are quite unrealistic and definitely not close enough to their business and operations, nor talking to their clients.
According to Freek Vermeulen, instead of finding unauthentic and unsustainable purposes, organisations “shouldn’t be shy about stating profit as its explicit and ultimate purpose” because profit itself can also have a positive impact driving on economic growth.
Even if purpose is important, having a mission statement doesn’t make the company successful. Once the purpose is identified, “Leaders need to make purpose central to their strategy by transforming the leadership agenda and disseminating purpose throughout the organization”.
Patagonia, for example, states “We’re in business to save our home planet”. Even if that sounds very extreme, it’s authentic because people at Patagonia are environmental and social activists (individuals’ and company’s purpose aligned). They say “We appreciate that all life on earth is under threat of extinction. We aim to use the resources we have—our business, our investments, our voice and our imaginations—to do something about it.” The company’s core values reflect its authenticity and the reason why, in this case, purpose and profitability are strictly connected:
Build the best products that will last for generations or can be recycled, so the materials in them remain in use
Cause no unnecessary harm
Use business to protect nature
Do not be bound by convention.
Patagonia’s clients, love the products and would choose them not only for their quality but for what the brand stands for, which is always consistent and clearly reflected in every communication/business activity.
If we look at Airbnb, however, the situation is different. The company’s mission statement is “enable people to make new friends in different cultures”. Is that what you are looking for when you book an Airbnb? Is it what the company stands for? Maybe at the beginning, but not now. Clients booking an Airbnb chose it because it’s more convenient, or cheaper than hotels or rentals managed by real estate agents. They want to find clean properties and do not really care about “different cultures”. On the other side, property owners, want to increase their revenue, they enrol property managers, and never actually interact with their guests, nor their culture.
In the September-October issue of HBR, results of global research showed that after (1) creating new markets, (2) serving broader stakeholder needs, and (3) changing the rules of the game, purpose was a fourth driver for business growth, playing two strategic roles:
Helping companies redefine the playing field
Allowing them to reshape the value proposition to overcome the challenges of slowing growth and declining profitability.
Coming back to the beginning of this review, organisations with purpose at the core of their strategy need to work on the structure of the organisation, their employees, the leadership style and the company’s culture to support activities to drive both financial and non-financial goals.
Yes it is a long term project but purpose is the motivator of our world. Whether it is instilled to motivate staff to drive harder toward results or to motivate the public to favour your brand over your competitors, purpose is the catalyst for intrinsic behavioural change for the better.