Corporate purpose has become a significant focus on corporate board agendas.
Faced with growing scrutiny from stakeholders on the responsibilities of the organisation, board directors are reassessing their stated purpose and the governance systems that support this. In many cases, this assessment produces uncomfortable debate. Often purpose statements, if they exist at all, are outdated. Often they are mistaken for values statements, such as ‘we act with integrity’. And most worryingly for board members, often they are disconnected from the strategy of the organisation.
Covid-19 provided an additional catalyst for this recent upsurge in the re-evaluation of purpose. There are many uplifting examples of organisations rapidly pivoting their operations to meet the challenges of the pandemic - from LVMH making hand sanitiser for hospitals to Burberry repurposing a trench coat factory to make hospital gowns. But at its heart, clarity on the purpose of an organisation helps board directors make better decisions.
The best board directors realise that having a clear corporate purpose reduces governance risk. Today, organisations are required to allocate scarce resources between an increasingly wide array of stakeholder requirements. These may include community investments, improved supply chain oversight, or investments in updated and more inclusive employee protection. Clarity of purpose enables board directors to take such decisions without charges of do-gooding or inappropriate use of shareholder funds, and also can avoid AGMs becoming the venue for proxy arguments about purpose. But there is also increasing evidence that purpose is also good for profits. Unilever’s Alan Jope, for example, has spoken eloquently about how purposeful brands resonate with customers. Investors too are using their voice more actively on purpose, with share prices and market multiples responding accordingly.
But while boards face a growing drumbeat of calls for a clearer explanation of their corporate purpose, they lack a clear framework to help them put intentions into practice.
To help boards deliver purpose, we established the Enacting Purpose Initiative in 2020, which I chair and which is co-chaired by my Saïd Business School colleagues Colin Mayer and Robert G (Bob) Eccles.
Together with a group of core partners – the University of California at Berkeley, strategy consulting firm Brighthouse (a Boston Consulting Group company), investment group Federated Hermes and the British Academy’s Future of the Corporation programme – we initially engaged with 30 European organisations and institutions to discuss, debate and then publish a first report on how purpose can be most effectively governed. This was followed a year later with a second report capturing the insights from 30 corporations headquartered in North America, and also the views of 30 of the world’s largest asset owners and managers.
Central to this is SCORE, a powerful yet simple governance framework for purpose. Boards of directors, senior management and investors can all use SCORE to ensure that purpose intent is put into practice. The five SCORE elements are set out below, each coming with its own clear governance question.
Simplify: Enacting purpose begins with making it simple and convincing. Complicated strategies fail. A statement of purpose should establish what problems the organisation seeks to solve. It needs to be distinctive. If in doubt, try substituting the name of a rival. Don’t be afraid to call on brand heritage if it makes you stand out.
Governance question: Is our purpose simple enough to be understood and acted upon?
Connect: Corporate purpose should go beyond ‘culture’ and permeate everything that a company does, including decision-making, the actions of its employees, and connecting with partners and customers. The easiest way to ensure a company’s values resonate externally is to ensure all messaging on corporate purpose is authentic. Stakeholders can easily spot virtue-signalling.
Governance question: How does our purpose connect to our mission and to the strategic choices we need to make?
Own: The board does not own purpose; rather it should be owned collectively by everyone within the organisation. However, the board should be responsible for putting purpose into action: enabling systems and processes that allow company values to flow seamlessly throughout the company. Consensual debate is key here: consider regular meetings, town halls and digital forums. Top-tier executives should attempt to live by its values, and they should inform any tough trade-off decisions.
Governance question: What are we doing to ensure that our purpose is embraced by everyone inside the company and supported by our investors?
Reward: Employees are motivated by purpose; it makes them proud to work for a company, plus it is a major talent recruiting tool too. Therefore, boards should consider rewarding and possibly remunerating purposeful staff behaviour. Establish a company-wide performance system, with rewards including financial bonuses, flexible working and praising inspiring stories.
Governance question: How is our purpose linked to internal reward systems including (but not limited to) remuneration?
Exemplify: Promoting a company’s values is tricky. For customers and staff, purpose messaging is most compelling when it resonates with them emotionally, perhaps touching upon company failures as well as successes. .
Governance question: What stories do we use to show our purpose in action?
SCORE is a framework that resonates with board directors, including those who worked with us across Europe and North America on the two reports. It has also received strong support from asset owners and investment managers, which adds power to the argument that boards would be well served to deploy SCORE within their board agendas.
For purpose to mean more than words, it has to become an organising principle for organisations and their leadership teams. Purpose, well defined, becomes a ‘north star’, informing the strategic choices faced by the board and its senior management team. To do this well, purpose needs a powerful and simple governance framework. SCORE offers what boards, senior management and investors need to deliver: profit with purpose, together with the wider responsible behaviours that society demands.
Further reading: Enacting Purpose Within the Modern Corporation: a framework for Boards of Directors.
This article is an updated version of the original article which was first published 24 August 2020.