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PURPOSE DRIVEN BUSINESS
Latest fad or the ultimate sustainable competitive advantage?
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This research note was developed by the Center for
Responsible Business & Leadership (CRB), a unit of Católica
Lisbon School of Business and Economics. The Center is a
strategic initiative in Católica Lisbon’s ambition to be a
catalyst for IMPACT creation, through knowledge
development and innovation, in order to place responsible
business at the core of corporate strategy.
Responsible Business (RB) is becoming an essential part of
corporate strategies and the CRB aspires to develop critical
knowledge among students and executives to face the
sustainability trends as opportunities. Our aim is to
contribute to CATÓLICA-LISBON mission to be a top
business school and create a position of intellectual
leadership, while finding the right answers for the world’s
toughest challenges.
We believe that corporations able to act as a Responsible
Business, integrating all its dimensions into their strategies
and culture, will be the leading companies of the future.
Authors:
Nuno Moreira da Cruz
Filipa Pires de Almeida
Vera Herédia Colaço
Scientific Advisor:
Filipe Santos
We gratefully acknowledge the support to the Centre provided by
BP Portugal and Efacec.
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Index
I. Introduction ……………………………………………………………………………………………………………………………………....2
II. What is Purpose? ……………………………………………………………………………………………………………………...……. 3
III. Evidence about the Value of a Purpose Agenda ………………………………………………………………….……...9
IV. How to build a purpose driven organisation? ………………………………………………………….................. 15
I. Introduction
The concept of Purpose and its inclusion in the strategy and culture of companies has been
gaining a lot of attention. Although the initial spike of interest in the theme of purpose was
after 2008, as a direct response to the great recession, we have witnessed a major growth
in the concept over the last five years. It is common these days to find articles arguing that
purpose driven companies are making a difference in their communities and maybe even
the world. There are also studies that show that purpose-driven companies perform well in
the market and that patterns of consumer behaviour are becoming more sustainable,
rewarding purpose-driven companies and products.
Despite this increasing interest in the concept of Purpose from scholars and business
professionals, several definitions for Purpose are proposed and the concept lacks clarity.
This Research Note aims to contribute to a stronger conceptualization and implementation
of Purpose. It offers a comprehensive definition of what Purpose is, based on a set of five
principles: 1) reason for existence, 2) decision-making guide, 3) unifying factor, 4)
sustainable competitive advantage, 5) ecosystem approach. We also review the existing
evidence on the value creation potential of adopting a purpose-driven strategy and propose
a process framework to enable purpose-centric organizations.
To make the concept of purpose powerful, it is fundamental to make it real. We hope this
RN proves to be a valuable resource for executives looking to better understand the concept
of purpose and aiming to apply it at the core of their business strategy and organizational
practice.
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II. What is Purpose?
Cambridge dictionary refers to purpose as “why you do something or why something exists”
(Cambridge dictionary, 2020). In the words of Viktor Frankl, an important thinker of the XX
century, the meaning of life lies in finding a purpose and taking responsibility for ourselves and
other human beings. It relies on having a clear “why” that allows individuals to face any
challenge on their lives (Frankl, 1984).
The buzz around the theme of “Purpose” is increasing everywhere, particularly in the business
world, where we hear more and more that companies aim to develop a Purpose-driven strategy.
However, the understanding about this “new” concept in business discourse is still not clear,
neither for academics nor executives.
The concept of Purpose has been recently referred to as a “North Star” (Leaders on Purpose,
2018; EY Beacon Institute, 2016). A fixed point that a company can always rely on and the
ultimate reason for its existence (the “raison d’être”). One that guides the company path, not
only in times of prosperity, but also in times of uncertainty and change.
Purpose can be seen as the aspirational goal that gives meaning to the company’s operations,
while profits are the lubricant that allows it to keep growing, creating more value to all
stakeholders involved. Purpose beyond profits allows the company to generate value and to
accomplish its mission. The opposite will never bring long term success. As Handy (2002)
mentions: “The purpose of a business (…) is not to make a profit. It is to make a profit so that
the business can do something more or better. That something becomes the real justification
for the business existence”.
As discussed in the next section, there has been an historical shift from the dominant
shareholder value maximization logic to a stakeholder management approach. However, an
issue with the stakeholder management approach that is so in fashion these days is that
different stakeholders have different interests and this creates in organizations a political arena
prone to conflicting views. Purpose is a concept capable of aligning all stakeholders on a
common ground and a shared ambition that they can strive for. One that allows them to
leverage their organizations to their full potential in order to fulfil their mission and contribute
to sustained value creation. In the words of Larry Fink, Chairman & CEO BlackRock, “without a
sense of purpose, no company either public or private, can achieve its full potential” (Fink,
2018).
In the aftermath of a COVID-19 pandemic causing the biggest global economic crisis in a
century, the concept of Purpose emerges more important than ever. It promises to drive
companies and society to a new form of capitalism, where they can prosper together and create
value for all.
An historical perspective
Purpose was not a popular concept until recent times, and this may be related to the dominant
understanding about the role of business in society (Handy, 2002; Hollensbe et al., 2014).
During the last 50 years, the shareholder value maximization logic (Friedman, 1970)
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dominated the western business world. It was accepted and practiced that the responsibility
of companies was to increase profits and shareholder value. In a period when capital was in
short supply and needed to be allocated efficiently, it brought us an age of growth and
aggregate prosperity. However, it also accentuated a situation of social inequality and
environmental collapse that is risking the stability of liberal democracies and the sustainability
of life on Earth. As companies and societies came to understand, especially since the great
recession of 2008-2010, the focus on “profit only” is destroying long-term value. Maximizing
short-term profits is very costly when it does not account for externalities. Aligning the
prosperity of society and the success of companies is more important than ever.
In fact, if we do a quick retrospective on Business History, we see that Purpose used to be at
the core of the company's existence before the fast industrialization era of the last century. The
word company comes from the Latin, “com + panis”, meaning “the ones with whom we share
the bread”. The term is also associated with the old French word “compagnie”, meaning “body
of soldiers”, the ones that fight together for the same purpose. This origin of the word
“company” calls attention to the contrast between the current concept of “company” and the
societal role that companies can ambition to perform.
Before the 20th century developments in financial capitalism, companies still had a
reminiscence of this original legacy, when the owners were also the corporate managers and
many large companies remained under family influence and close to its communities. Often,
the corporation was many times the social provider for its community and the one taking care
of its employees.
However, throughout the 20th century, as globalization became more prominent, corporations
began losing this connection to local markets. Corporations began raising private external
capital and trade it in stock markets. The dominance of the local-family-owned business gave
way to a new form of company - the publicly-traded corporation. This brought the emergence
of the investor-owned corporation and a new governance model with the separation of
ownership (shareholders) and control (by hired managers) (Salter, 2019).
Continental Europe was slower to adopt this mostly Anglo-Saxonic trends. For example, in
Portugal in the middle of the 20th century, the CUF corporate group exemplified the earlier
approach in terms of the attention to the well-being of its employees (including providing
services such as education, health care, and child care). As another example, uuntil today, the
Delta Cafés group continues to practice a very close approach to employees and communities
as it always has done as a family group. This is still common across Europe.
By the 2nd half of the 20th Century however, the debate about the company's purpose became
more intense. Managers needed to know what the criteria would be to measure their success
as leaders of their organizations. In 1955, Peter Drucker contributed to this line of thought
defining the company purpose in a customer-centric way as: “to create a customer, while
making sufficient profit to cover the risk of business activity and avoid losses” (Drucker, 1955).
Later, during the 70’s and 80’s the narrowing of the concept of good management brought
“profit” to centre stage as the main criteria to measure corporate success. Since shareholders
owned their corporations, it seemed to make sense that managers and employees’ duty was to
make the companies strive for the shareholder interest. This logic was presented during the
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70’s by an approach called “agency theory” (Ross, 1973), where shareholder value maximization
was highlighted as “the only legitimate expression of corporate purpose and the most effective
tool for managing the agency relationship between shareholders and managers” (Jensen and
Meckling, 1976).
This golden age of shareholder maximization theory was made popular by Milton Friedman in
his famous New York Times 1970’s article (Friedman, 1970) and his argument that "there is one
and only one social responsibility of business - to use its resources and engage in activities
designed to increase its profits so long as it stays within the rules of the game, which is to say,
engages in open and free competition without deception or fraud." This view remained until
recently at the centre of the corporate management practice.
In the 80’s the concept of Corporate Social Responsibility began raising again the issue of
companies’ responsibility to their communities. Still, this movement was seen mostly as a
philanthropic appendix of the company's core business, implemented essentially through the
creation of corporate foundations to explicitly pursue social goals. In the beginning of the 90’s
Bartlett and Ghoshal (1994) issued a call for scholars to consider purpose as the essential
precursor to effective strategic management. They defined purpose as “the statement of a
company’s moral response to its broadly defined responsibilities, not an amoral plan for
exploiting commercial opportunity”. They argued that the primary role of top management (…)
is not to set strategy, but instead to instil a common sense of purpose” (Gartenberg et al, 2016).
However, the interest on the topic of purpose had almost no increase in the 90s in academic
and business circles. According to Gartenberg et al. (2016) this is related to the difficulty of
measuring purpose systematically, in contrast to what can be achieved with profit
measurement. In fact, data on the evolution of the reference to the word “purpose” shows that
corporate purpose was barely mentioned in academic articles and media until 2008, as seen in
Figure 1.
Figure 1- Evolution of the concept of purpose in academia an
mainstream media over the past 20 years
Source: EY Beacon Institute; Source: “Standardized article count on corporate purpose and sustainability” An
analysis
of how and why top leaders of global organizations leverage purpose to transform, December 2015, EY, 2015.
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However, a new tendency began in 2008. It came as a consequence of the great recession
which decreased the general trust of society on businesses and on the dominant approach of
profit maximisation. The failures in financial markets became more evident, as well as the costs
imposed on the environment by certain business practices. Since then, the general belief that
the role of business in society needed to be redefined brought the theme of purpose to the
spotlight. Purpose has been recognized as a “key element for creating meaningful
organisations in a competitive environment that is strongly marked by inconsistency and
uncertainty” (Moore, 2020; Dewettinck and Defever, 2020). It was also around the 2008 financial
crisis that notions of “inclusive capitalism”, “conscious capitalism” and “stakeholder
capitalism” started receiving more attention (EY Beacon Institute, 2016), including in financial
circles. This interest culminated with the recent statement from the Business Roundtable on
the need for corporate leaders to concentrate on the “Purpose of a Corporation”, which
expressed a “fundamental commitment to all of our stakeholders,” not just shareholders
(Business Roundtable, 2019).
Data shows that, in 2013, Purpose-related references began growing rapidly (EY Beacon
Institute, 2016), reaching a record year in 2020 according to the analysis referred by Dewettinck
and Defever (2020). This evolution is part of the trend recognising that businesses are not only
a crucial partner in addressing the world's most urgent challenges, but they are one of the first
to benefit from this shift to a value creation approach with a broader set of stakeholders. CEOs
are actually among the first to recognise that a strategy that contributes to society
stakeholders, rather than to a profit-only approach, will generate more sustained value for their
companies in the long run (Leaders on Purpose, 2019). However a true Purpose-driven agenda
needs to go beyond stakeholder management. As Hollensbe et al. (2014) refer, this new focus
on Purpose may require companies to look for their roots. In fact, with “a world of sharply rising
inequality, and still too often driven by seemingly insatiable desires for more, we urgently need
to reframe how we collectively understand the purpose of business—the reason for which it is
created and exists”. The focus on purpose comes from the interdependence between business
and society, and the consciousness that one cannot flourish without the other. In fact, business
will only thrive in healthy and wealthy societies.
Purpose today
Nowadays there are different definitions of Purpose, but all of them point in a similar direction.
Gartenberg et al. (2016) and Zu (2019) refer to Purpose as the “reason for being”. EY Beacon
Institute (2016) as an “aspirational reason for being that is grounded in humanity and inspires
a call to action”. Henderson and Van den Steen (2015) refer to it as “a concrete goal or objective
for the firm that reaches beyond profit maximization.” Thakor and Quinn (2013) define it as
“something that is perceived as producing a social benefit over and above the tangible
pecuniary payoff that is shared by the principal and the agent.”
Gartenberg et al (2016) refer that an organization’s purpose is not a formal announcement, but
instead a set of common beliefs that are held by and guide the actions of employees. In fact,
purpose can be said to inform the mission (what a company does), being itself the “why” the
company does what it does (EY Beacon Institute, 2016). Mazutis and Ionescu-Somers (2015)
refers to purpose as “an aspirational reason for being which inspires and provides a call to
action for an organization and its partners and stakeholders and provides benefit to local and
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global society.” Leaders on Purpose (2019) refer to Purpose as “the ambition to create value by
contributing to the welfare of society”, being transformative for both the organization and the
world.
The Purpose Playbook (2020) emphasizes the financial value creation, describing Purpose as
“a company’s reason for being that simultaneously helps solve a societal problem and creates
significant financial value for the company”. For the authors purpose must be integrated into
strategy, operations, and people-related efforts, and should also create measurable value for
the company and society.
They bring attention to the need of Purpose to be significant, authentic, profitable and serious.
Meaning it should contribute to an unmet social or environmental challenge, be reflected on the
company culture, be profitable and make company leaders accountable in order to reflect
purpose on their performance goals and remuneration (Purpose Playbook, 2020).
The wide reference to “purpose” in recent years of business research is showing an open road
ahead for business practice. In fact, the power of purpose is spotlighting a new way of
managing companies, more intertwined with communities and stakeholders, able to open new
streams of profitability and to bring to each company a distinct source of competitive
advantage.
As businesses are shifting from being “providers of services and products towards providing
solutions for the world, stakeholders will be the ones thriving on making their organizations
forces for the welfare of society, by doing the right thing” (Leaders on Purpose, 2019).
In this context and based on a careful review of the available corporate and academic
literatures, we propose a definition of Purpose. One that emphasizes the main crucial features
of Corporate Purpose based on a set on five main principles:
Figure 2: The components of Purpose
Source: The Authors
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Purpose is the “reason for being” of a company, one that is able to unify all stakeholders around
the same systemic aspiration and, by consequence, be a guiding light for decision making, that
is able to bring to the company a sustainable competitive advantage.
The following table describes these five components of Corporate Purpose:
Reason for existence
Decision making guide
Unifying factor
Sustainable Competitive
advantage
Ecosystem Approach
An aspirational reason
for being, that can be
found on the company’s
roots, on the reason why
it was created by its
founders and why they
are in business.
The reason for existence
points out on the unique
contribution to society
the company aims to
accomplish.
Purpose works like a
guiding “north star” that
helps leaders to make
better and coherent
decisions.
It is the horizon that the
company tries always to
pursue but can never
reach. It inspires change
and direction.
The company’s purpose
is the shared and
passionate reason why it
exists, able to mobilize
and unify all
stakeholders. Its
existence provides the
necessary guidance to
act, despite of the so-
often conflicting
stakeholders’ agendas.
Purpose becomes the
“harbour” where
stakeholders meet.
Purpose ignites the
potential to create a
shared value for all
stakeholders with a
vision that goes beyond
profit, is focused on the
long run and is prone to
achieve more than only
financial goals. By doing
so, it will position the
Company with a unique,
sustainable, hard-to-
copy competitive
advantage in the long
term.
Purpose is also
embedded on a view of
the ecosystem that goes
beyond the company and
even beyond the direct
value chain of the
stakeholders, being
inspired by societal
trends and needs. This
approach allows the
company to understand
the key issues and the
spillovers at the level of
the ecosystem that are
connected with its
operations, both
negative and positive
ones.
As we will further refer to in this research note, the concept of Purpose, as analysed by Victor
Frankl (1984), can be approached on an individual level. According to Kashdan and McKnight
(2009), Purpose (on an individual level) is defined as a central goal disposition of an individual
to self-organize life and a reflection of one’s personal identity. For this, purpose provides a solid
baseline that allows an individual to be more resilient to life challenges, stress and strain. It
increases the chances of one’s survival with assurance that there is a greater mission in the
background (something deeply studied in Frankl’s studies as well). Acknowledging there is a
long-term mission that directs life and has the ability to increase one’s well-being, life
satisfaction, and serenity (Wilson and Murrell, 2004; Wong and Fry, 1998). This has a profound
implication in the role of individuals as agents of sustainable consumption (the theme of a
future research note) as well as the role of individual as engaged and committed employees or
members of an organization centred on Purpose.
In figure 3 we can find some examples of companies with a stated purpose-driven orientation.
As Victor Hugo once stated, “nothing else in the world...not all the armies...is so powerful as an
idea whose time has come”. And the time for the idea of Purpose has arrived.
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Figure 3: Purpose statements examples
Source: Framework adapted from Dewettinck and Defever (2020)
The current COVID-19 crisis has actually been a powerful accelerator for the next phase of
business transformation, and it promises to bring a more socially centred form of capitalism.
Moments of crisis are undeniable moments for disruption and the opening of new
opportunities. As crises and disruptions always bring winners and losers, if “people engaged
with purpose-driven businesses don’t implement and promote what they believe in, someone
else will” (Moore, 2020). While it is still not clear how the role of business in society will evolve
in coming years, we know it involves a moral and social choice (Hollensbe at al., 2014).
The future ahead is unpredictable, so it is up to us to begin imagining and building a better
future with companies that are indispensable actors in the construction of this society we
envision. Purpose seems to be the catalyst for this potentially better future.
III. Evidence about the Value of a Purpose Agenda
Given the increasing prominence of purpose in the business context, its inclusion in the
strategy and culture of companies has been gaining momentum. We have identified several
examples of the rationale for and validation of a purpose-driven agenda:
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a) BlackRock’s CEO Letters
Larry Fink, the founder and chief executive of BlackRock
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the largest fund manager in the world,
has the habit of addressing a yearly letter to all the CEOs of their invested companies around
the globe, highlighting key issues for them to address. In 2018, his message drove the concept
of Purpose into the strategic agenda of most Corporations around the globe. Highlighting one
of the statements at the time: "Society is demanding that companies, both public and private,
serve a social purpose. To prosper over time, every company must not only deliver financial
performance, but also show how it makes a positive contribution to society. Companies must
benefit all of their stakeholders, including shareholders, employees, customers, and the
communities in which they operate" (BlackRock, 2018).
Afterwards, the 2019 letter had the enormous merit of following a consistent path, deepening
and confirming the concept that “profits and purpose are inextricably linked”. ‘’Companies that
fulfil their purpose and responsibilities to stakeholders reap rewards over the long-term.
Companies that ignore them stumble and fail” (BlackRock, 2019).
In the 2020’s letter, the key message was that BlackRock will make investment decisions with
environmental sustainability as a core goal and would begin to exit investments that “present a
high sustainability-related risk,”. The letter also emphasises the link to the previous letters on
Purpose. “A company cannot achieve long-term profits without embracing purpose and
considering the needs of a broad range of stakeholders” (BlackRock, 2020)
b) Business Roundtable 2019 Statement
Late August of 2019, a group of 181 key American CEOs (from all sectors and including
companies like Apple, Accenture, Amazon, AON, Bp, Coca-cola, Walmart, Blackrock, Procter &
Gamble) issued a statement via the Business Roundtable organisation, redefining the role of
business in society and specifically what their purpose should be. Breaking with decades of
shareholder maximization mantra, they argue that "Company purpose" should consider all the
relevant stakeholders. Corporations must "invest in their employees, protect the environment,
support communities, deal fairly and ethically with their suppliers, create value to customers”
(Business Roundtable, 2019). In plain words, the message these CEO's are conveying to society
is that, whenever they take decisions, the interest of shareholders should only be one aspect to
be considered, thus, phasing out shareholder’s primacy.
The statement reinforced the notion that “The purpose of a business, in other words, is not to
make a profit, full stop. It is to make a profit so that the business can do something more or
better. That “something” becomes the real justification for the business”, their purpose (Handy,
2002).
Since its publication and despite of its noble ambition, this statement has been criticised for
its lack of ambition, actionable measures and the need to “walk the talk”, like this Winston
(2019) comments: “So, by all means, let’s hold these companies to their words — as
employees, customers, community members, and shareholders. Let’s demand that they truly
1
American global investment management corporation and world's largest asset manager, with near $7 trillion
of assets.
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embrace longer-term thinking and fight for policies that enable a thriving world. Otherwise,
it’s just empty rhetoric.”
In addition, recently, a study conducted during the current pandemic “COVID-19 and
Inequality: a Test of Corporate Purpose” (KKS Advisors, 2020) finds limited follow-through on
corporate commitments to purpose. The report calls on companies to translate their purpose
commitments into action by, among other things, developing and publishing an
implementation plan that includes metrics and measurable targets; conducting an audit of
the workforce that includes diversity characteristics and total compensation and benefits,
and developing a remediation plan to address any inequities; as well as developing a capital
allocation and executive compensation plans for the long-term benefit of key stakeholders.
It should also be noted that very few companies that signed the Business Roundtable
statement submitted it to their governing boards for approval, a fact cited as evidence that
the pledge is an exercise in public relations (Bebchuk and Tallarita, 2020).
c) The superiority of Purpose Clarity organisations
In a study conducted in 2016 (Gartenberg et al., 2016), a distinction is made between, on one
side, “high purpose-camaraderie organizations”, which they describe as companies that score
high on purpose and also on dimensions of workplace camaraderie (e.g. “This is a fun place to
work”; “We are all in this together”; “There is a family or team feeling here”); and on the other,
“high Purpose-Clarity organizations” that score high on dimensions of management clarity (e.g.
“Management makes its expectations clear”; “Management has a clear view of where the
organization is going and how to get there”). They concluded that: “When we replaced our initial
measure of purpose with these measures capturing the two types of purpose organizations
(Purpose-camaraderie vs Purpose-Clarity), we found that only the high Purpose-Clarity
organizations exhibit superior accounting and stock market performance” (Gartenberg et al.,
2016). These results seem to point to the value of purpose as a guiding light for corporate
strategy, as opposed to the creation of cohesive and fun corporate cultures.
d) Research on Meaningful Work
There is an increasing amount of research that concludes that people do prefer to work for
purpose driven companies. Some conclusions of a recent study are (Achor et al., 2018):
“More than 9 out of 10 employees, we found, are willing to trade a percentage of their
lifetime earnings for greater meaning at work. Across age and salary groups, workers
want meaningful work badly enough that they’re willing to pay for it”
“On average, our pool of American workers said they’d be willing to forego 23% of their
entire future lifetime earnings in order to have a job that was always meaningful”.
“Based on established job satisfaction-to-productivity ratios, we estimate that highly
meaningful work will generate an additional $9,078 per worker, per year”.
“Additional organizational value comes in the form of retained talent. We learned that
employees who find work highly meaningful are 69% less likely to plan on quitting their
jobs within the next 6 months and have job tenures that are 7.4 months longer on
average than employees who find work lacking in meaning. Translating that into bottom
line results, we estimate that enterprise companies save an average of $6.43 million in
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annual turnover-related costs for every 10,000 workers, when all employees feel their
work is highly meaningful”.
e) Research on Talent attraction from the younger generations
Companies with a strong sense of purpose are shown to perform well financially as well as
having a high level of employee satisfaction. Almost 9 in 10 employees surveyed in Deloitte’s
Millennial Survey believe that “the success of a business should be measured in terms of more
than just its financial performance” (Deloitte, 2016). With organisations of all sizes competing
in the war for talent, standing for something bigger is a must-have in order to attract the best
employees. The same study indicates that 60% of Millennials want to join companies with a
“purpose” that is embedded in the business.
Also, 83% of over 1,400 US employees surveyed by PwC named purpose among their top
priorities for offering meaning in daily work, and many feel a shared sense of purpose
contributes heavily to employee satisfaction (PWC, 2016).
Companies that understand the increasing emphasis of purpose in today’s professional
landscape improve their ability to attract such employees and also their ability to retain them
for longer periods of time.’ (Reid Hoffman Executive Chairman and co-founder, LinkedIn)
f) HBR Business Case for Purpose (Harvard Business Review, 2015)
In this study, companies have been segmented in three categories: ‘the prioritizers’ (companies
that already have a clearly articulated and understood purpose), ‘the developers’ (companies
that do not yet have a clearly articulated purpose, but are working to develop one) and ‘the
laggards’ (companies that have not yet begun to develop or even think about purpose). As
shown in the graph, prioritizers have been consistently outperforming the other two categories.
Figure 11 – Prioritizers had an edge on revenue in the past 3 years
Source: Harvard Business Review (2015)
Also, when it comes to innovation, a key value driver for performance, the difference is obvious:
when asked to validate the statement “My business is successful with innovation and
transformation efforts” positive answers were: Prioritizers (53%), Developers (31%) and
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Laggards (19%). The same for “My business is focused in innovation and continuous
transformation: Prioritizers (62%), Developers (46%) and Laggards (26%).
g) Global Trends in Reputation
In the 2020 report issued by the Reputation Institute, CEOs have signalled that Higher Purpose
is the most important Reputation Issue for their companies (Reptrak, 2020).
Figure 12 – The trends reputation – most important for 2020
Source: 2020 Global Trends in Reputation Report (Reptrak, 2020)
h) Davos Manifesto 2020
The Davos Manifesto issued in January this year reinforced the message that the notion of
Purpose is well established in the Corporate agenda and needs to be treated as a key strategic
lever. One of the most relevant paragraphs states: “The purpose of a company is to engage all
its stakeholders in shared and sustained value creation. In creating such value, a company
serves not only its shareholders, but all its stakeholders – employees, customers, suppliers,
local communities, and society at large. The best way to understand and harmonize the
divergent interests of all stakeholders is through a shared commitment to policies and
decisions that strengthen the long-term prosperity of a company” (WEF, 2020).
i) Meaningful Brands report
This report highlights the fact that Purposeful businesses outperform the stock market by 133%
and that the 25 top brands in Havas Media’s Meaningful Brand Index deliver an annual share
return of nearly 12% (Meaningful Brands, 2015). Companies with a purpose beyond profit enjoy
four potential advantages in the face of change and uncertainty.
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• First, their purpose and values become a source of energy and commitment in workplace
relationships enabling them to attract and retain talent and engage and develop their own
people better.
• Secondly, a clear purpose which people can naturally identify as a keel, gives stability and
resilience. Strong values provide a clear basis for building trust.
• Thirdly, the benefits in terms of trust yield a reputational return, enhancing brands and
accumulating external trust and goodwill. The licence to operate is enhanced.
• Fourth, because of the first three benefits there is a more compelling case to take to those
investors who are interested in long-term performance. This in turn provides a basis for building
greater investor confidence which is in turn a further source of stability” (Tomorrow’s company,
2018)
In a nutshell, the concept of “profitability with responsibility” is becoming mainstream and
underpins the emergence of Purpose as a key value driver. Purpose needs to be addressed
strategically so that it can become a source of competitive advantage – sustainable, distinctive
and hard to copy.
j) Consistency of corporate behaviour
It is interesting to analyse and compare the common features in studies of long-lived
companies from different continents, all including the issue of Purpose (Tomorrow’s
company, 2019):
In Japan 20,000 companies are over 100 years old; 600 are over 300 years old; 30 are
over 500 years old; and five are over 1,000 years old. Their common features are a)
leadership driven by clear values, higher purpose beyond bottom line, continuous
innovation, b) putting people first: education for employees; customer oriented; trust
with consumers, business partners, employees and shareholders, and c) frugality and
efficient use of natural resources: culture and legacy inspiring generations thereafter.
In Europe, the key features are a) conservatism in financing, b) sensitivity to the
environment around them, c) a sense of cohesion and identity among employees about
‘what this company stood for’ or ‘what this company was about’ and d) tolerance at the
margin – full use of decentralised structures and delegated authorities.
In the US, 18 visionary companies – widely admired by their peers and having a long
track record of making significant impact –outperformed comparison companies by six
times and the stock market by 15 times over 50 years. Their characteristics: a) purpose
beyond profit, b) relatively fixed ‘core ideology’ (beliefs and values), and c) clear vision
and sense of direction.
Overall, and as previously referred in the proposed definition of Purpose, being the ultimate
reason for the company’s existence, purpose is an ambition far beyond profit that unifies all
company’s stakeholders as no other objective before. It is a guiding lighthouse on the
definition of any business strategy, which guarantees that managers know exactly where they
go and why they should choose one strategy over another. For its fully operationalisation,
purpose should be made clear through a purpose statement, and be set with consistent and
coherent actions, that are able to get into "the hearts and minds" of key stakeholders (specially
employees). Which leads us to a key question: How to build a purpose driven organisation?
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IV. How to build a purpose driven organisation?
Building a Purpose-driven organisation that encompasses the corporate internal system
(strategy, operations and people) needs a clear process. Processes are the recurrent
procedures that companies employ to get work done. They include operating procedures,
such as logistics or production, and managerial ones, such as decision-making and resource
allocation. Establishing formal processes increases efficiency, enables a company to scale
up its operations, and facilitates coordination among different parts of an organization. In
the case of implementing a Purposeful organisation, processes are even more important in
the sense that it implies a cultural change and the clear engagement of several different
stakeholders.
A purpose-driven transformation may start out as the CEO’s passion, but it will not survive
unless it is embedded in the organizational DNA. That requires several kinds of
reinforcement, through communication, resource allocation, goal setting, and recognition
and rewards.
Figure 13: Purpose – The implementation process
Source: The Authors
Follows some of the key process steps for a successful implementation of Purpose driven
organisation:
a) Commitment from the top
As in any relevant project that needs to be embedded in an organisation, it starts with
commitment from the leaders of the organisation. Donald Sull studied effective and
ineffective managers and he came to an interesting conclusion: “Despite differences in their
personal attributes, successful managers all excel in the making, honouring, and remaking
of commitments. Managerial commitments take many forms, from capital investments to
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hiring decisions to public statements, but each commitment exerts both immediate and
enduring influence on a company. Over time and in combination, a leader’s commitments
shape a business’s identity, define its strengths and weaknesses, establish its opportunities
and limitations, and set its direction” (Sull, 2003).
To build a purposeful company, implementation starts with clear, concise direction from top
management and in such a way that the middle and lower layers within the firm will fully buy
in. This internal “full commitment” will then develop the necessary energy to attract and
involve other external stakeholders (customers, suppliers, local communities).
b) Bottom-Up
This is the part of the process where the question “How are we going to involve our people
and our stakeholders in developing it” needs to be addressed. Having the commitment from
the top is not enough. Internally the process needs to be built with a bottom-up approach
where all relevant members of the organisation, at all levels, need to be involved. Their buy-
in from the beginning is critical - “I am committed because I was part of its definition”. This
is especially true at middle management level and it is of paramount importance to turn
managers into purpose-driven leaders.
Purpose, values and relationships have always been at the heart of business success. Today
they matter more than ever, especially when it refers to a key stakeholder: employees. Even
if people feel insecure about their jobs, they will suffer less stress in companies which treat
them as ends, not means. They will find more fulfilment in companies whose purpose
resonate with their values. And, even if they no longer expect long careers with the company,
they will feel more confidence if they know that while they work there, their skills and
capabilities are growing and the work they are doing is making a difference.
The focus of the discovery process is internal. Where have we come from? How did we get
here? What makes us unique to all stakeholders? Where does our DNA open up future
opportunities we believe in? These are the kind of questions that leaders have to ask. Anand
Mahindra very successfully employed this tactic at the Mahindra Group. First, he looked
back at his 30 years at the company and at the values that had guided him as its leader.
Then he delved into the psyche of the organization by conducting internal surveys of
managers at all levels. He also did ethnographic research in seven countries to identify
themes that resonated with his company’s multinational, cross-cultural employee base. The
process took three years, but ultimately Mahindra arrived at “Rise,” which, he realized, had
been fundamental to the company from its inception. “‘Rise’ is not a clever tagline,” he has
said. “We were already living and operating this way.” (Malnight et al., 2019)
At the end of the day, there are questions that the organisation (meaning “all leaders at all
levels”) need to constantly go back to: Have we communicated our Purpose and are we
living by it? Or are they just words? Do I/We refer to them in making decisions? Do we have
a culture of challenge that allows people to say, “You are not walking the talk”?
“We also found that middle managers and professional workers seem to be the key players
in driving this relationship, not hourly workers and not top executives. This last finding
underscores the absolute importance of fostering an effective middle manager layer within
firms: managers who buy into the vision of the company and can make daily decisions that
guide the firm in the right direction” (Gartenberg et al., 2016).
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The same applies to other stakeholders such as customers. Most leaders think of purpose
as a “purpose for”, but what is needed is a purpose with. As companies formulate their
purpose, they should not go for what they think it should be. They should look to: Who you
already are. How you already connect with your customers. What your fans already say
about you. Remember, this is not something you are going to do to them, or for them, but
with them (Bonchek, 2013).
c) Stakeholders dialogue
To have clear channels of communication with all stakeholders is a crucial part of the
process. This is a pivotal part of the process since it is the moment for the Company to
understand the “ecosystem” that surrounds it. It is the opportunity to ensure that this is an
exercise that understands and incorporates in the strategy all the different stakeholders’
agenda and the trends that are developing in society. The key words that emerge at this
stage are: consistency and transparency. The following questions will provide the necessary
assurance:
Employees: the best way to follow an efficient communication process is a face
to face “cascading exercise”, in which each level of management commits to
communicate it to their teams. Has it been done in a coordinate manner (in terms
of timing and content)?
Customers: how easy is it for our customers or clients to tell us what they are
thinking?
Suppliers and business partners: do we actively seek business partners who
share our values and assess how far they do so?
Shareholders and financial partners: do we actively seek shareholders who
support our purpose and values and seek a mandate from them to pursue it?
Annual Report and communications with investors: are we being consistent in
communicating what we stand for, or are there different messages for different
audiences?
Our community and wider society: tomorrow’s as well as today’s? Whose trust
do we have? Whose trust do we lack? How might we earn more of that trust in a
connected, confusing world?
Do we have a clear statement of purpose? Does it have the potential to attract
talented people from diverse backgrounds?
Do we have an Employee Satisfaction Survey? How does Purpose figure there?
What sort of actions do we take with the results?
A key goal of this stakeholder engagement process is not to try to address the specific
issues or interests of each specific stakeholder, but rather try to assess what are the
common issues and causes around which all can be aligned.
d) Statement of Purpose
Purpose will only become real when a company's board of directors is able to issue a
"Statement of Purpose”. The reason this statement needs to come from the board is that it
is the body with ultimate responsibility for the corporation and to whom it owes its fiduciary
duty. The Statement is a simple one-page document that can be published separately or in
a company report, such as the annual report. This is not an onerous exercise, just a question
of will and true commitment (Eccles, 2019)
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A good communication and implementation plan starts with a clear Purpose Statement -
that is the core of what needs to be communicated and the bone of any forward stakeholder
dialogue. The question then becomes: What makes a meaningful purpose statement? We
strongly believe that it will need to bring to life the five features of Purpose we outlined: (i)
explain the reason for existence, (ii) provide a powerful guide for decision making, (iii) brings
the unifying factor (iv) be clear on the sustainable competitive advantage being created and
(v) has a clear vision on the ecosystem.
According to the Purpose Playbook, issued by the Shared Value Initiative and FSG, a Purpose
Statement consists of:
“Be significant: Have a purpose that makes a meaningful contribution to an unmet social or
environmental need such as those articulated by the United Nations Sustainable
Development Goals (SDGs).
Be authentic: Recognizing the need for authenticity and then turn the authentic message
into a constant message is crucial. A purpose needs to be reflected in the company’s culture,
have roots in its history, and be seen across the company’s operations. A company with an
authentic purpose should not have any “purpose-negative” strategies that contradict its
stated purpose.
Be profitable: When a purpose leads to meaningful profit, companies have clear incentives
to deeply understand the drivers of social and environmental problems, make big
investments in solving them, partner with other organizations, and maximize the scale of
their effort.
Be serious: Purpose-led companies hold senior leaders accountable for achieving their
purpose and reflect it in performance goals and ideally remuneration” (Purpose Playbook,
2020).
We tend to see these four elements as the values and behaviours that lead to our proposed
five features.
d) Champions
Another important part of the process is about finding the right “champions” to spread the
message. It is about unleashing the positive energizers (credible, different generations,
different levels, different functions). This should be a group that really represents “every
corner” of the organization, meets regularly, and provides constant feedback to the
management on “how things are going”. It is especially important that these people feel
comfortable voicing inconsistencies where they see them, putting at risk the credibility of
the ambition if unattended.
It is not enough to have a clear Purpose statement. What brings it to life is the definition and
implementation of actions that are aligned and consistent with that statement. Otherwise,
Purpose becomes just a “powerpoint exercise”. The actions need to be aligned with the
statement and coherently involve all relevant areas: from strategy to operations, to people.
Strategy refers to finding the distinctive opportunities that the Purpose provides, setting
goals and defining resources; operations should be designed around the respect for
environment and social elements that Purpose brings; and, regarding people, processes
need to be established to attract, retain and develop talent through meaningful work and a
reason for being beyond profits.
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The group of Champions will be the one making sure that all these are in place and
thoroughly followed. They will need to incessantly refer back to the question “How
effectively are we embedding our Purpose into all our systems and processes?”
e) Measurement
“What does not get measured, does not get done” is a golden rule of management, and even
more important when it comes to measuring the implementation of a significant number of
variables which are not quantitative. What is success? How will it be measured? – questions
that need to be addressed since the very beginning. This is a crucial moment where the
balance between financial and “less-financial” indicators need to find the right balance, and
where the trade-offs short term vs long term need to be agreed. How to reconcile the need
to make a profit and deliver returns to owners and shareholders with the ambition to do
something more significant? This is the moment of truth, where it needs to become crystal
clear that for the organisation it is not enough to compete in the marketplace – but the goal
is to help change the world for something better and more sustainable.
PepsiCo Performance with Purpose metrics provide a good example. Just citing some of
its metrics: Added Sugar: At least 2/3 of our global beverage portfolio volume will have 100
Calories or fewer from added sugars per 12-oz. serving; On Water: Replenish 100% of the
water we consume in manufacturing operations located in high-water-risk areas, and ensure
that such replenishment takes place in the same watershed where the extraction has
occurred; On Sustainability: Sustainably source 100% of our palm oil by 2020; On Prosperity:
Benefit at least 12.5 million women and girls around the world in communities near where
we work; On Human Rights: Extend the principles of our Global Code of Conduct to all
franchisees and joint venture partners (Pepsico, 2017)
At the end of the day, it is critical to ensure that those metrics are coherent and aligned with
the defined Purpose ambitions.
f) Link to incentives
The next question is: “Do our systems of recognition and reward promote the behaviours
that we say we want to see?”. The way companies incentivise action – meaning how they
reward, recognise and reinforce the right behaviours, and thereby celebrate and further
embed their purpose and values is key. As an example, having a clear Purpose, long term
oriented, and staying with a remuneration policy based on annual variable pay (in many
organisations can easily represent more than 25% of the annual salary) is a typical
disconnect that should not happen. In the last decade, in most organisations, a key
compensation concern was to align “pay with performance” meaning financial performance.
The most recognised exception refers to several companies also linking pay with Safety
objectives (example: accidents in the work environment will imply reduction of the variable
pay, in some cases going up to 15%).
Recent years have seen an increasing number of companies integrating sustainability
metrics into performance assessment and compensation, for C-level executives, for the next
tier of senior management, and for the whole body of employees. Many use a balanced
scorecard as the basis for performance assessment and compensation. Natura, for
example, bases their incentive system on the company’s 5-year strategic plan, which
includes sustainability KPIs (Natura, 2020). The sustainability team works with each
department in the company to select the most relevant sustainability KPI for their own unit.
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This is then included in their own planning which is linked to senior managers’ annual
bonuses through a balanced scorecard of measures.
Another good example is Siemens who has focused on integrating corporate responsibility
metrics into performance evaluation, since this is a major priority for the company. Senior
managers are rewarded for going beyond basic legal compliance to actively promoting a
culture of anti-corruption and integrity (Siemens, 2020).
Below we exemplify a company (Danone) that over the years has been living and embedding
the concept of purpose in operations:
Finally, a word on the importance of partnerships for the implementation of a purpose-driven
agenda. The challenges we are facing are too “big” for any one Company to solve. A
Purposeful-driven company, by nature, will focus on objectives that go much further than
profit, which means trying to deal with environmental and social challenges that we are
globally facing. In this context, partnerships need to be formed, which brings an extra
dimension to the challenges of a successful implementation.
A recent research from Leaders on Purpose explored some of the best practices of
successful partnerships, as well as some essential enabling factors that support productive
long-term collaborations. It points to five attributes that, together, produce alignment and
lead to successful partnerships: 1. Partner-Fit Organization, 2. Shared Purpose, 3. Value
Alignment, 4. Operational Alignment and 5. Robust Communication” (Leaders on Purpose,
2019).
The example of Danone
The example of Danone (consistent for the last 50 years) shows the best of what a Purpose can
represent – “bringing health through food”. That has always become noticeably clear with the
CEOs messages along the years:
“The responsibility of a company does not stop at the factory gate or the office door. The jobs a
business creates are central to the lives of employees, and the energy and raw materials we
consume change the shape of our planet.… Growth should no longer be an end in itself, but
rather a tool used to serve the quality of life without ever being detrimental to it.”
Antoine Riboud, Chairman (1972)
“Our mission is bringing health through food to as many people as possible.”
Franck Riboud, Chairman (2007)
“At Danone, we believe each time we eat and drink, we can vote for the world we want to live in.
That’s the heart of the Alimentation Revolution, a movement which calls for the adoption of
healthier and more sustainable ways of designing, producing and marketing food. We see our
commitment to a radical transformation of our activities to be more local, environmentally-
friendly, inclusive and transparent as a fundamental requirement to achieve our objective of
profitable, strong, sustainable growth”
Emmanuel Faber, Chairman (2017)
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Shared Purpose (and in the context of this Research Note, also Value alignment) is critical
for any partnership to thrive – an added reason for companies that want to make a
difference to be truly clear in their statement of purpose and in their actions.
This research note on Purpose advocates for an organisation to be truly authentic to its (i)
reason for existence providing a clear (ii) guide for decision making, and an (iii) unifying
factor that creates a (iv) sustainable competitive advantage (v) reinforced by the
understanding of the ecosystem where it operates. This approach allows business leaders
to move beyond the illusionary comfort of shareholder value maximization and to navigate
the political tensions of stakeholder management, being able to identify the path to value
creation that will sustain the organization’s future.
Building an organisation with these features – a Purpose-driven Business – becomes the
necessary call to action to deliver on the promise of a better world. Its importance has now
passed the point of no return, but success will only be achieved through a solid process
supporting the development and implementation of a purpose driven strategy.
22
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