4 ways to guide a meaningful corporate purpose

Saturday, 01 February 2020


    A clear corporate purpose can provide context for your organisation's decision-making. We share four ways to create a clear purpose, looking beyond short term profits and marketing spin.

    Could “purpose” be heading for the same fate as “green”, “natural” and “organic” — words that marketers have used and misused so often they have practically lost their meaning? Many companies use purpose and mission interchangeably, though they actually mean very different things. Put simply, a company’s purpose is the “why” behind its actions while its mission is what it is trying to achieve. In practice, a clear and fully integrated purpose can provide a context for decision-making.

    Catherine Livingstone AO FAICD, Commonwealth Bank chair and director of WorleyParsons, is an advocate of using a statement of purpose as a sound organising principle.

    Livingstone told the annual New South Wales Supreme Court Corporate and Commercial Law Conference in Sydney in October 2019 that the framework guiding directors’ deliberation and judgement has evolved over time. The Memorandum of Association for a corporation used to include an “objects” clause, and the company could not perform any actions outside of, or inconsistent with, its objects.

    “We have moved beyond a dry objects statement and, aided by strategy consultants and business management literature, have traversed the landscape of vision and mission statements — the distinction between which has always eluded me — and now recognised the importance of corporations having a clear statement of purpose,” Livingstone said in her speech. “Such statements have been used in Australia for some time and increasingly reference stakeholders other than shareholders. The role of a corporation’s purpose statement is twofold. From an internal perspective, it guides the evolution of strategy, priorities and decision-making. Externally, it sends a signal as to the intent, nature and commitment of a corporation.”

    5 important questions to help NFPs determine purpose and strategy

    1. Why does this organisation exist?
    2. What does it do?
    3. Who does this organisation benefit?
    4. How will it achieve its goals?
    5. What does success look like for this organisation?

    Source: AICD Not-for-Profit Governance Principles

    A discussion on the purpose of a corporation at the NSW Supreme Court conference examined the current context, the role of the director and the research of Oxford University’s Saïd Business School Professor Colin Mayer CBE and the British Academy on the Future of the Corporation.

    Mayer, a former economist and finance professor, is an ambitious advocate for rethinking the purpose of the corporation to incorporate a broader public good and ways of embedding this through performance measurement, governance, accounting and regulation. Mayer told the conference that performance “is not only about producing profits, but about generating profitable solutions for the problems of society and the planet”.

    His ideas are set out in a report for the British Academy, and in his book, Prosperity: Better Business Makes the Greater Good. Concerned that inequality, environmental damage and mistrust of business result from an overly narrow focus on profit as a corporate objective, he is keen to re-imagine the corporation to ensure its purpose also includes public benefits that relate to societal and environmental goals.

    “I started off with a very shareholder-focused view on the nature of the corporation,” says Mayer.

    However, watching societies grapple with common issues, even as approaches to capitalism varied, and then as dean of a business school during the global financial crisis, “I realised it was a topic of first-order importance,” he says.

    “The role and purpose of business in society is critically important.”

    Sensible business

      Supporters of this approach say looking beyond profits makes sound business sense. From customer connection and employee alignment to satisfying a new breed of socially responsible shareholders, they see higher purpose as the way of the future.

      “Expectations concerning the role of business in society are certainly changing and the belief that capitalism needs rethinking is now commonplace,” says Derryn Heilbuth, managing director of strategic advisory consultancy BWD. As an example, she cites a 2019 survey for Fortune, which found 72 per cent of people agree public companies should be “mission-driven” as well as focused on shareholders and customers. The same poll also found millennials, in particular, are choosing to work at companies perceived to have a purpose beyond profit.

      A strong sense of a higher purpose has also been linked to positive organisational performance. For example, The Business Case for Purpose report by Harvard Business Review found that companies able to harness the power of purpose to drive performance and profitability enjoy a distinct competitive advantage.

    The all-purpose purpose

    Stuck for ideas? How about:

    “It is our mission to continue to authoritatively provide access to diverse services to stay relevant in tomorrow’s world.” This should cover the bases because it was generated by a computer to do just that. It’s also a great example of what to avoid. Simon Sinek, whose 2009 book and TED Talk, Start With Why: How Great Leaders Inspire Everyone to Take Action, has been viewed more than 47 million times, suggests:

    Be it – Be grounded. Earn the right to have the conversation about what you do or produce.

    Do it – Back it up with action.

    Say it – Share what you believe and communicate what you stand for.

    Here are several examples of how organisations articulate their purpose:

    • To create long-term shareholder value through the discovery, acquisition, development and marketing of natural resources. BHP
    • To connect people with life’s essentials every day. Brambles
    • Ideas worth spreading. TED
    • For everyone, no matter whether they’re rich or poor, to have the right to high-quality and affordable eye care. Fred Hollows Foundation
    • Getting energy right for our customers, communities and planet. Origin Energy
    • Building a smarter planet. Together. IBM
    • People caring for people. Ramsay Health Care
    • Together we can change the way the world does business. Unilever
    • To make your world a safer place. IAG
    • To help people live more fulfilling and productive working lives and help organisations succeed. Seek
    • To build a future in which humans live and prosper in harmony with nature. WWF

    A higher purpose guides strategy

      While there has been much academic research into the impact of mission or purpose statements, Livingstone noted the work of American academic John Mullane, who, in 2002, concluded it was not the contents of the statement that was most relevant in terms of outcomes, but rather the process used to prepare it, and how the finished document was employed in the organisation. Livingstone also referenced 2019 research by Yale University and NN Investment Partners — which manages €240b in assets worldwide — that surveyed 200 fund managers across Europe and found investors were willing to sacrifice returns to support ESG or responsible investing goals, up to a point. “Investors said they were prepared to forgo up to 2.4 per cent a year if it meant investments had a positive non-financial impact.”

      Mullane noted vision and mission statements could be applied to create a sense of common purpose and mould a corporate culture supported by all employees.

      “When we look at acquisitions through the lens of our purpose, a lot of opportunities tend to fall by the wayside,” says Alistair Field, group CEO and managing director of Sims Metal Management. “Our purpose also helps us to navigate other complex challenges.”

      Sims Metal Management chair Geoffrey Brunsdon FAICD agrees the company’s purpose provides all Sims employees with a clear framework for executing the strategy. “We are the architects responsible for creating a sustainable future for our company, as well as establishing our role in the circular economy — and this is a role we take seriously.”

      At Breast Cancer Network Australia (BCNA), the purpose statement is frequently used at board level to help determine whether or not a project is actually worthy of investment.

      “It is certainly guiding us at the moment as we complete our strategic objectives for the organisation,” says CEO Kirsten Pilatti. “We have found it very useful in making decisions for our future, helping us decide what we will and, very importantly, will not do.”

    More than just another marketing tool?

      Is there still a danger of “woke-washing” (brand campaigns promising big change, but delivering little) — a cynical move by brands to cash in on what the public want to hear? Unilever CEO Alan Jope believes woke-washing is already beginning to infect his industry. Speaking at a conference in Cannes in June 2019, he said, “It’s putting in peril the very thing which offers us the opportunity to help tackle many of the world’s issues.”

      However, Tom Imbesi, chair of Deloitte Australia, believes that using purpose as nothing more than a marketing tool would be a very short-lived strategy.

      “In my view, people will see through a purpose statement very quickly unless it’s authentic, driven from the top, owned, real and embedded in corporate culture,” he says.

      Deloitte’s own purpose is to make an impact that matters and, says Imbesi, it’s the founding statement of their strategy. “When we look at our clients, we are seeking to make an impact on the issues that are relevant to them, and the same holds true for our people and the community. For example, through our Deloitte Foundation and Responsible Business programs, we’re having an impact that matters on those who are most vulnerable in our society.”

    A push to a longer-term view

      Susan Forrester AM FAICD, director and chair of the people and culture committee at G8 Education, believes boards are facing a step change, which will compel them to lead growth by taking a longer-term view. “They have an important role to play in keeping management focused on the long-term health of their companies,” she says. “I also believe it’s impossible to overstate the importance of board leadership. Naturally, the board should pay attention to short-term performance, but in my experience, the chair must have sufficient conviction, influence and resilience to stand firm in the face of short-term pressures.”

      Heilbuth stresses the need to embed leadership accountability. “Without standard and verifiable metrics that stakeholders can trust, companies and their executive teams will struggle to effectively communicate how they’re creating long-term value,” she says.

      Finally, Field cautions boards not to underestimate the amount of time and hard work that goes into defining your purpose. “The process took us nearly a year,” he says. “You then have to be committed to living your purpose and ensuring that everything — from role descriptions and recruitment processes to decision-making — take your purpose into account. Unless it is integrated into the day-to-day life of your business, you’re wasting your time because, after a couple of years, it will be gone.”

    Breast Cancer Network Australia (BCNA)

    Cancer charity support

    Purpose: to ensure women with breast cancer receive the very best support, information, treatment and care appropriate to their individual needs.

    When Lyn Swinburne AO established BCNA in 1998, her purpose was to ensure no Australian has to face a breast cancer diagnosis alone. Since then, the board and executive have reviewed and adjusted this to reflect the greatest need at the time.

    “At one point, we really wanted to focus on the healthcare system and ensure it was providing our members with the best care,” says CEO Kirsten Pilatti. “Then, for a short time, we focused on empowering the individual.”

    The latest iteration demonstrates how, as a network, BCNA can exert influence to ensure all Australians diagnosed with breast cancer, and the people around them, can benefit from its actions. This includes those who don’t actively engage with the organisation.

    “Our recent review underscored the importance of involving key stakeholders — staff, members and supporters,” says Pilatti. “The next, very important step is to communicate and live out our purpose in our actions and operational plans.”

    G8 Education

    Child in ballpit

    Purpose: under active review

    G8 Education is the largest ASX-listed childcare operator in Australia with 550 centres and 15,000 staff. Three years ago, the resignation of G8’s founding MD Chris Scott marked the start of a new era.

    “The prior regime had focused on aggressive acquisitions, resulting in more than 500 centres with more than 30 brands,” says G8 director Susan Forrester AM FAICD. “There was also a disconnect between our listed status and the associated focus on short-term result — the ASX half-yearly straightjacket — and our employees who, as early learning specialists, did not relate well to financial targets for the centres.”

    For six months, G8’s board and executive team worked with specialist consultants to review their vision, purpose and brand. “We acknowledged that, beyond share price and dividends, our purpose is to contribute to a robust, equitable and sustainable future for all stakeholders,” says Forrester. “We also recognised the important role G8 plays in the lives of the children in our care, the families we support and the community in which we operate.”

    The new vision and purpose is due to be revealed in early 2020. “This will bring all our staff together with an all-encompassing statement about the enormous benefits of early learning,” says Forrester.

    Sims Metal Management

    Metal construction site

    Purpose: to create a world without waste to preserve our planet

    Sims Metal Management celebrated a century in business by looking far into the future.

    “We wanted to make sure we were still operating successfully in 40 or 50 years’ time,” says group CEO and MD Alistair Field. “As an incoming management team, we felt that aligning long-term planning and our entire organisation to a purpose we truly believed in would create value and drive genuine sustainability.”

    Once the draft purpose had been approved by the board, Sims brought its global executives together to ensure agreement across the top echelon of the organisation. The new purpose, and the thinking behind it, was then communicated to employees around the world.

    “Purpose is only meaningful if it is integrated into how you operate on a day-to-day basis,” says Field. “You can only achieve this if employees understand and believe in your aim.”

    The evolving corporation

    Corporate accountability and performance is being challenged like never before. But the corporation continues to evolve. Opinion piece by Thomas Clarke.

    Internationally, the evolving corporation is now focusing on questions of purpose, technological transformation, global value chains and sustainability. Purpose is the most fundamental test of all. As the US Business Roundtable has discovered, the simple nostrums of maximising shareholder value simply don’t cut it in this troubled world.

    The debate is not new — the struggle for the soul of the corporation has continued unabated since its origin. The continuing dilemmas of the corporate form were set out in the epochal work of Adolf A Berle and Gardiner Means — The Modern Corporation and Private Property — in 1932, following the Wall Street stock market crash of 1929. They examined the implications of the separation of ownership and control, and influenced a succession of American governments up to the Kennedy era.

    As US corporations found it increasingly difficult to compete with Asian and European producers in the 1980s, the work of Milton Friedman and others offered shareholder primacy as a singular remedy. However, other corporate scholars have reconceived the wider roles and responsibilities of the corporation in its many forms for the 21st century.

    The corporation is alive and well. As listings on the New York Stock Exchange have gradually declined over the past decade, the market capitalisation of the companies listed has expanded exponentially, suggesting concentration rather than decline of the corporate form. There has been a huge growth in the number of listed corporations, and in their market capitalisation, particularly in Asia, indicating we are entering a multi-polar world. However, although the dynamism and entrepreneurship of these rapidly advancing international corporations is clear, it is also evident that they are based on different values and orientations to Western corporations. The corporation is clearly a remarkably adaptive mechanism for stimulating production, innovation and capital investment in many different societies and political systems.

    One constant is the universal demand for accountability, transparency and responsibility from corporations. If corporations are to continue as the central drivers of economies worldwide, they must do so with integrity and fairness. Public concerns — for example, on the environment and emissions, on tax base erosion and profit shifting — require urgent address.

    The definition of corporate purpose and measures of corporate performance have developed extensively in recent decades and will continue to do so. Integrating corporate social and environmental responsibility into all decisions and activities is becoming recognised as an increasingly important duty of company boards of directors and executives.

    Thomas Clarke is co-editor with Justin O’Brien and Charles O’Kelley of The Oxford Handbook of the Corporation (2019, Oxford University Press)

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