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What Is Corporate Purpose? No, Let Me Rephrase That. What Is a Corporate Purpose Worth Having?

Everyone is talking about purpose these days. Customers and employees are asking about it. Millennials are particularly insistent about seeing evidence of purpose. At FSG, we’re encouraged that companies are thinking and talking about purpose. We have been working with companies to strengthen their CSR and shared value strategies for 20 years, and we have seen how powerful purpose can be when a company leads with it, as Danone, Discovery Health, Patagonia, and Enel have done. 

The vast majority of companies are doing little more than simply publishing a carefully crafted purpose statement. They do not have a strategy and a culture built around their purpose. When companies limit themselves to publishing a purpose statement, they fall short of the expectations of their employees and customers. More importantly, they miss out on making a meaningful impact on the world and capturing significant financial value for the company. As we look across the universe of companies—even B Corps or those that receive awards for their CSR or shared value work—in most cases, company purposes fall short in four important ways:

  1. They are not significant, meaning that the purpose does not make a meaningful contribution to an unmet societal need, such as the United Nations Sustainable Development Goals (SDGs) or a critical local social problem.
  2. They lack authenticity, meaning that they do not reflect the company’s core values, are not visible in the culture, and do not guide the company when it needs to make difficult decisions.
  3. They are not profitable, meaning that they do not drive measurable value for the company’s bottom line, therein creating an incentive to continuously reinvest in trying to achieve the company’s purpose.
  4. Companies are not serious about implementing their purpose, meaning that the company does not hold all leaders and managers accountable for their contributions to the company purpose.

Far too often, company purpose statements are really nothing more than just words.

For a purpose to be meaningful, it needs to be significant. A purpose cannot be merely about maximizing shareholder value, creating convenience for customers, or about driving innovation. It needs to help solve a serious social or environmental challenge faced in the company’s context—whether local or global. Danone is a great example of a company with a significant purpose. The company has made several SDGs integral parts of its business strategy. The significance of Danone’s purpose is particularly apparent in its commitment to “ensure healthy lives and promote well-being for all at all ages.” Danone has an Early Life Nutrition division and the “Danone Commitments to Health and Nutrition in the first 1,000 days” shape all the company’s decisions in the Early Life Nutrition division.

A company’s purpose also needs to be authentic. A company cannot simply invent a new purpose out of thin air—the purpose needs to be reflected in the company culture and rooted in its history. An authentic company purpose goes beyond having a compelling corporate social responsibility initiative or a shared value strategy for a product or a service. An authentic purpose can be seen across the company’s operations. A company that has an authentic purpose would not and could not have any “purpose-negative” strategies. A bank, for example, could not claim to have an authentic purpose associated with building prosperity while simultaneously charging its customers exorbitant fees for low account balances. 

Purpose-led companies are willing to make difficult choices even at the expense of short-term risk to revenues. In the long term their authenticity leads to greater profits. Patagonia clearly has an authentic purpose. In 2012, they articulated their purpose as using “business to inspire and implement solutions to the environment crisis.” More recently, they have said that they are “in business to save our home planet. The company’s commitment to help find solutions to environmental problems is evident in its approach to product development, procurement, even its marketing, as people will recall from its famous “Don’t Buy This Jacket” campaign. No one doubts that Patagonia’s purpose is authentic.

Companies cannot maximize the societal impact of their purpose if the purpose does not increase profitMany people are deeply uncomfortable with the notion that a company will profit from helping to solve a social problem. When a purpose leads to meaningful profit, however, companies have clear, deep incentives to deeply understand the drivers of social problems, to make big investments in solving problems, to partner, and to maximize the scale of their effort. Discovery Health’s core purpose is to “make people healthier and enhance and protect their lives. [They] make people healthier by making them aware of their health risk factors and helping them to manage and improve their health.” Discovery’s purpose to make people healthier has encouraged it to develop a business model where the company’s costs are lower and its services are more differentiated as a result of making people healthier. Linking its purpose to profit allowed Discovery to grow its net profit at a compounded annual growth rate of over 16 percent between 2009 and 2014. The tight link between purpose and profit has pushed Discovery to seek better partnerships, innovate aggressively, and improve the health of thousands of additional customers each year.

When a company has a purpose worth having, the purpose is serious and is reflected in the expectations for its senior leaders. Purpose-led companies hold senior leaders accountable for achieving the purpose. Enel is a good example of a company that has a serious purpose and holds its senior leaders accountable. Enel’s strategic plan 2018-2020 makes clear commitments to reductions in emissions and increasing access to affordable and clean energy to 3,000,000 beneficiaries mainly in Africa, Asia, and South America. The company’s performance assessment and incentive system include metrics that drive variable remuneration in the short- and long-term, holding each leader and manager accountable for achieving the company’s green energy goals using objectives related to the specific function of their role.

FSG has had the privilege of supporting many of our clients in their journey to become more purpose-led. The recent 2019 Shared Value Leadership Summit explored how companies are using shared value to Deliver on the Promise of Purpose.  In the coming weeks, we’ll be sharing a series of blogs exploring how companies can lead with purpose and in doing so can make a profound impact on society while making themselves more competitive, more profitable, and a more compelling place to work. We look forward to exploring this concept of a purpose worth having together and supporting you in your purpose journey.

Dane Smith

Managing Director