Companies with dedicated and highly motivated staff, great systems and thus excellent customer service tend to do better than companies that don’t. That’s a motherhood statement if ever there was one. But how do you get there? Companies with a clear purpose inspire and motivate their people, attract customers and satisfy investor.
It is increasingly clear that companies with a purpose beyond immediate profits perform better than those that do not. Herb Kelleher, who founded Southwest Airlines in the late 1960s, probably put it best when referring to his competitors “They can buy all the physical things. The things you can’t buy are dedication, devotion, loyalty—the feeling that you are participating in a crusade”. The outstanding historical profit record of Southwest speaks for itself.
Corporate purpose is recognized amongst businesses and in the research literature as being a core driver of excellence. When companies have long-term purpose driven objectives separate from immediate profit, they perform better than their peers, including being more attractive for current and future staff. Crucially, though, corporate purpose needs to be genuine, clearly articulated and consistently demonstrated across the company to be meaningful and get results.
There is a growing body of research in support of the positive impact of purpose on business outcomes. A Deloitte survey in 2019 found that “Purpose oriented companies have higher productivity and growth rates, along with a more satisfied workforce who stay longer with them. Our research shows that such companies report 30 percent higher levels of innovation and 40 percent higher levels of workforce retention than their competitors.” Similarly, a major Harvard Business School study in 2016 study, with 500,000 responses, found a strong correlation between a well-executed corporate purpose and superior financial and stock market performance.
The corporate world is paying attention. In 2019, the US Business Roundtable issued a statement on the purpose of a corporation stating that corporation share a fundamental responsibility to all stakeholders, rather than just to shareholders. The statement defined five classes of stakeholder – customers, employees, suppliers, shareholders and communities. The letter was signed by the CEO’s of 181 of America’s largest corporations.
Of course, profitability and shareholder return are core to any company’s purpose. The slight nuance is that purpose is likely to deliver superior shareholder returns, but the purpose of purpose can’t be shareholder returns. It was probably best put by Larry Fink, CEO of BlackRock, the world’s largest asset manager, in his 2019 letter to CEOs, said that “Purpose is not the sole pursuit of profits but the animating for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.”
Purpose needs to be more than just stated, it has to be lived at all levels of an organization. Recent events in Australia, including the disclosures from the financial services royal commission and the systematic underpayments in the franchise sector, have corroded public trust in corporate Australia. Many of these companies had worthy purpose statements and declared values, but they just weren’t lived. It’s not surprising that there is great cynicism about such statements.
At the other extreme, we have also seen companies behave well during Covid, and I am personally aware of corporates that have gone out of their way to support smaller suppliers. It is encouraging to know that the evidence suggests that purpose driven companies performed better during Covid than others. A recent Harvard Law School study showed that companies with the best-defined purpose generally performed better (in terms of total shareholder return) during Covid, with a widening gap in favor of such companies.
What is Purpose?
A purpose statement articulates the why of a company’s existence, and as such it’s the most fundamental of the corporate statements. It should inform the vision and mission statements as well as corporate values.
For a purpose to be meaningful, it has to be derived from what the company really is in terms of its beliefs and what it delivers, and it needs to be known and believed in by everyone in the company. The leaders of the company need to demonstrate by example and live the purpose. It’s the central culture alignment tool for employees, directors, and investors.
There is an art to selecting purpose statements that resonate – it has to be inspiring, but also succinct and relevant to the day-to-day work of the business. Here are a few examples of purpose statements that work.
Southwest Airlines
“Connect people to what’s important in their lives through friendly, reliable, and low-cost air travel”.
Tesla
“We exist to accelerate the planet’s transition to sustainable transport”.
CVS
“Helping people on their way to better health”
Each of these statements have an elegant simplicity. They inspiring in that they state a broader benefit to customers and hence society, and are relatable to the work of each company. There is also a degree of potential measurability to allow the company to keep track of progress. These are the factors that contribute to a good purpose statement.
Note that the focus of the Southwest purpose statement is product quality, and the suggestion of a broader social benefit (connecting people to what is important to them) through the provision of this quality. The CVS and Tesla statement directly suggest broader social or environmental benefit, owing to the nature of their products.
Meaningful areas of purpose can range from more traditional aims (product quality, accountability and dealing fairly with suppliers) through to commitments to social justice and environmental sustainability. At the other extreme, bland statements of making the world a better place which are not linked to the day-to-day work of the company tend to carry little power in taking the company forward.
Building Purpose in Your Company
Putting in place purpose statements, or reviewing existing statements, is a meaningful commitment that should broadly involve company leadership and teams. For newly established companies, defining purpose tends to be future-looking and aspirational, and driven directly by the entrepreneur’s reason for establishing the enterprise in the first place. For more established companies, finding an authentic purpose involves looking to both the past and the future, and involving a broader range of stakeholders.
We suggest several key steps to put in place a purpose statement.
- Identify. Key stakeholders discuss and identify the company’s, including sharing stories and feedback from team members, customers and suppliers (they can tell you a lot). This can involve facilitated discussions.
- Articulate. Frame the purpose in statement that is succinct, meaningful and inspiring. This will usually start with a small group and then be shared more broadly for feedback. It can take time.
- Embed. Embed across the organization, including in key decisions, new staff hiring, and third-party relations.
- Monitor. Periodically check using standardized metrics that all parties recognize. This is important as boards and management need something to guide them day-to-day.
- Identify. Key stakeholders discuss and identify the company’s, including sharing stories and feedback from team members, customers and suppliers (they can tell you a lot). This can involve facilitated discussions.
There can be unexpected benefits once purpose is comprehensively put in place. New thinking about how best to serve customers, what business models or products will work to best provide value. The team loves it and that in itself can inspire observations and creativity around processes and delivery.
The great danger, as we all have seen from experience, is that the purpose statement becomes an empty slogan and even an object of cynical ridicule by the broader team. The company’s purpose and values need to be demonstrably lived by company leaders, particularly in times of duress. Authenticity is paramount – walk the walk – transparent and accountable about actions and consistent with purpose and values. This is more important than ever in the social media age and with millennials.
Leaders will need courage; commitment; transparency and humility to take purpose and values to the type of passionate commitment across the company that will make a difference. The effort is worth it. A meaningful purpose statement, as well as vision, mission, and values powerfully define what new companies stand for. It will be attractive to potential hires, particularly millennials who are more engaged around purpose and values than prior generations. Investors won’t invest in a company only because of its purpose alone, but a compelling business case with the right team and a clear purpose will be appealing.
References:
“Corporate Purpose and Financial Performance.” Gartenberg, Claudine, Andrea Prat, and George Serafeim. Harvard Business School Working Paper, No. 17-023, September 2016.
“Fit for Purpose”, Domini Stuart, Company Director (Australian Institute of Company Directors), Volume 37, Issue 2, March 2021, pp43-45
“For Corporate Purpose to Matter, You’ve Got to Measure It’, Jim Hemerling, Brad White, Jon Swan, Cara Castellana and JB Reed, Boston Consulting Group – Brighthouse, 2018
“Purpose if everything”, Deloitte Insights, 2020 Global Marketing Trends: Bringing Authenticity to our digital age, 2019
“The Return on Purpose: Before and During a Crisis”, Gregory V. Milano, Fortuna Advisors, on Monday, November 9, 2020, Harvard Law School Forum on Governance.
Corporate Purpose assists organizations define their purpose and implement it. Our experienced advisors assist our clients distil purpose, and then embed it such that purpose, mission and values become shared by all team members. Contact us for a complimentary introductory discussion.
