How to Separate Purpose from Puffery

For much of our lifetimes, shareholder primacy has been a pillar of capitalism. And for almost as long, it has been beset by a series of lexiconic battering rams.

From various angles, stakeholder capitalism, CSR (corporate social responsibility), ESG (environmental, social and governance) investing and their ilk have challenged the accepted wisdom that shareholder interests must be placed above stakeholder and societal interests.

These challenges have deepened and can no longer be ignored: Covid, climate change and a millennial workforce with new expectations are all forcing organizations to re-consider their social contract.

This explains the ascendance of corporate purpose statements as the preferred way for senior leadership teams to show their resolve to lead responsible organizations. These statements attempt to answer the existential question: What is the organization’s reason for existence?

In our personal lives, we’re tied into knots trying to pursue a life of purpose. It seems to have a similar effect on business leaders.

In a management context, purpose is the most jelly-like of terms. It’s not CSR; that’s reserved for marketing-led initiatives with beginnings and endings. Nor is it ESG, which is one prescription for managing social and environmental risks and satisfying institutional investors and regulators.

According to one popular definition, an organization’s purpose should be, “to produce profitable solutions to the problems of people and planet, and not to profit from producing problems for people or planet.” At its best—when it is authentic and handled with integrity—corporate purpose can offer benefits such as greater focus, more engaged employees and loyal suppliers and customers, according to Jean-Baptiste Litrico, associate professor at Smith School of Business.

Some firms, including B Corporations and pioneers such as Unilever and the shoe company Toms, make good faith attempts to bring purpose to life. But for most, purpose seems to be little more than words on a page rather than words to do business by.

Corporate Knights recently looked at 200 social purpose companies and found that only 17 per cent had adopted a purpose that went beyond creating value for shareholders and customers to expressly create value for society—if they had a publicly expressed purpose at all. Fortune magazine came to a similar conclusion after an extensive study of U.S. investors.

Employees are front-of-the-line stakeholders who have the most to gain from employers trying to bring a shared higher meaning to the workplace. If you’re one of those employees who values this approach, it can be hard to tell if an organization is practising purpose out of convenience or conviction. To help you take the measure of a purposeful organization, here are several diagnostic questions to consider. 

Is your organization’s statement of purpose credible?

Your organization’s statement of purpose, if it has one, is a good place to start. (If a firm says it runs a values-based operation but hasn’t committed its values in writing, that’s a whole other issue.)

Best practices suggest that a purpose statement clearly spells out the organization’s reason for being and signals its positive impact on stakeholders and the community or broader world. Unilever’s “to make sustainable living commonplace” is often cited approvingly.

The purpose statement should find the sweet spot between being too specific (such as providing a certain product or service for a particular market) and too abstract (WeWork’s initial purpose to “elevate the world’s consciousness” was an amusing example). It should be concrete enough that you and other stakeholders can determine if the organization is operating according to its purpose. 

How committed is the board of directors?

Corporate purpose starts at the top, with the board of directors co-creating a purpose statement with the senior executive team and ensuring it’s fully integrated with strategy and stays top of mind.

Some boards can be as transparent as the Kremlin but there are clues to how seriously they take purpose. Board composition is one. Greater diversity of gender, social background, age and the like can signal a higher priority to purpose and a deeper understanding of the issues. Are there board members with skill sets relating to ESG and the areas of purpose the organization follows?

Another clue is the focus of attention: How much time do directors spend on purpose-related issues versus compliance or risk management?

A third is whether and how they engage with stakeholders other than those who hold shares. Are stakeholder perspectives reflected in board decisions? In Canada, this is a legal obligation. Rulings by the Supreme Court of Canada have clarified that boards must give equal consideration to shareholder and stakeholder interests.

Are there purpose-focused targets and are they tied to executive compensation? 

Your organization likely has a balanced scorecard, key performance indicators (KPIs) or a strategy dashboard with goals, targets and metrics measuring progress. If so, do these include purpose-related goals and metrics? For example, a metric based on establishing employee resource groups and measuring their effectiveness may be one of the most impactful steps to boost inclusiveness.

ESG data can also provide a partial picture of how well a company is aligned with its purpose (though it’s an imperfect proxy). But be wary if your executives lean too heavily on ESG to tell their purpose story. ESG is anchored in purpose, not the other way around.

Best-in-class firms incorporate purpose-focused metrics into compensation plans alongside financial and other operational metrics to incentivize executives and managers.

Is purpose communicated clearly and consistently?

Corporate purpose requires cultivation. Regular communication, through updates, road maps, milestones or storytelling, is an important way to ensure purpose has a presence in employees’ daily lives.

Where you work, do managers and leaders share and endorse inspiring efforts to live corporate purpose? Or do they promote colleagues whose behaviour undermines these efforts? Unethical behaviour should be called out, even if it comes from a high-performing colleague.

In the end, the best indication that your organization’s purpose is well communicated is whether you know what the purpose is and can articulate it in your own words.

Are you encouraged to own it? 

Culture is the viral carrier of corporate purpose. It’s how the lofty aspirations are converted into daily habits that cascade throughout the workplace and are made real by you.

Ask yourself how well your organization’s purpose is aligned with your values and sense of meaning. Are you asked to fudge the numbers or sweep an uncomfortable stakeholder exchange under the carpet? Or do you feel safe doing what you believe is right for customers, suppliers or community partners?

If you’re not sure, several times a year measure your engagement, commitment and loyalty to your employer. That may indicate whether there is a gap between your values and workplace values. 

Is purpose integrated into all areas of the organization?

A hallmark of an authentic corporate purpose is that it is embedded within the entire organization. If you work in the marketing department, ask colleagues in HR, operations or finance if corporate purpose has any meaning to them in their daily jobs.

Each department, of course, will adapt the purpose to its mission. Is your HR colleague, for example, handling recruitment and retention consistent with the organization’s purpose? Is operations thinking about purpose when interacting with suppliers? Is finance using it to guide how risks are managed or financial reporting is conducted? In your own marketing department, does corporate purpose inform what products or services you offer and how you interact with customers? 

How do leaders manage tensions arising from competing interests?

There are times when making a values-based decision—firing an unethical client, for example—can hurt the bottom line. Similarly, competing stakeholder interests can place a firm between a rock and a hard place. Purpose-led companies are willing to make painful and potentially risky choices. They don’t dodge making such decisions.

In cases when doing right is costly or uncomfortable, you can usually see through the rationalizations (“We can’t ask our shareholders to take a haircut this quarter so that wages can be increased”). When these rationalizations become a pattern, you know the corporate purpose statement is not a guiding light.

Tension among stakeholders, such as employees versus customers, can be nightmares to iron out. In these cases, how do you judge your employer’s resolve? Focus on process: Are leaders committed to good-faith consultations with all parties? Do they make a decision in a reasonable time frame? Are they candid about the trade-offs and do they explain the rationale for their decision? If they do, it’s hard to fault them.

It may be trite but it’s also true: Corporate purpose is more journey than destination. If you’re being realistic and fair—that is, neither idealistic nor uncompromising—and prefer incrementalism to big bangs, then perhaps the way to take the measure of your own organization’s purposeful journey is by its concrete and sustained actions. Do senior executives show they’re well and truly ready for this trip into the unknown?

These diagnostic questions can help. But also consult your spider sense: Do you feel the leaders around you are emotionally connected to living an authentic corporate purpose? If they have shown enough, albeit through imperfect efforts and hesitation, then perhaps you have a role in accelerating those efforts toward the destination that we are all seeking.