UK: To Succeed, Corporates Must Find Their True North

Last Updated: 9 March 2018
Article by Brett Simnett

Beyond bringing value to shareholders, modern business is being asked to show commitment to improving society

A lot has been said about purpose in recent years, and about how businesses can take the lead in solving the world's problems, rather than relying on government. However, purpose is not just about corporate 'do-gooding'. It actually makes good business sense.

Unilever, Novo Nordisk, Patagonia and Royal Philips are pioneering this approach. They are acting today to create a better world for employees, communities and the environment – and reaping the rewards. They are setting a benchmark for others to match.

Insufficient value

Purpose is about companies asking why they exist. These days it is insufficient to say: 'Our purpose is to enhance shareholder value.'

Businesses are being asked to demonstrate a clear contribution to society, now and in the future. According to Edelman's Trust Barometer, 56% of people believe that companies focused purely on profit are bound to fail.

In this vein, Larry Fink, chief executive of BlackRock, the world's largest investment company, recently wrote to over 1,000 CEOs.

In the letter, he stated that his company still looks to invest in businesses with strong financials, but that they also want to see a positive contribution to society. 'Having a purpose is about long-term survivability as well as long-term profitability,' he added at the recent World Economic Forum in Davos.

Broad benefit

These days we are seeing a lot of political tension, activism and social upheaval. People are raising their voices on issues such as inequality, injustice and climate change like never before. By joining in with these movements, corporate brands can have a say in the social, environmental and ethical changes that may be essential for our survival.

But there are more practical motivations too.

Purpose helps businesses attract and retain staff and build long-term partnerships with customers and investors. It also breaks down silos and enables firms to positively engage with diverse audiences – consumers, customers, employees and investors.

It also unites inter-departmental functions and teams – across brand, marketing, HR, sustainability and corporate affairs – behind a single story, building synergies and collaboration inside and out.

"Purpose helps businesses attract and retain staff and build long-term partnerships with customers and investors"

Radley Yeldar did research on how purpose has transformed some of the world's largest brands, from the people who work there and make it happen.

Selecting 10 of the top 30 ranking companies from our 2016 Fit for Purpose Index, we conducted interviews and asked respondents exactly how purpose has tangibly affected their employees, their marketing behaviours, their reputation and the company as a whole.

Cass Swallow, director of integrated communications and innovation at Philips Lighting, said: 'When articulated well, purpose provides a sense of belonging and the opportunity to be part of something bigger for everyone in the organisation. It unites everyone to a common goal no matter what function or business group they work in.'

In today's highly competitive marketplace, these things have real value. However, in order to benefit, companies must invest time and effort into getting it right. It is not a quick fix. And it is certainly not something a copywriter can quickly draft up for the annual report.

This sentiment was similarly conveyed in PwC's research 'Connecting the dots: how purpose can join up your business'. It said: 'Nearly two-thirds of CEOs told us that emphasising purpose within their business had helped improve the top line. 63% indicated that it contributed positively to revenue growth compared to just 4% who felt it had detracted.

But this is only part of the puzzle and only one measure of performance. As well as improving revenues, CEOs told us that purpose helps build better employee engagement, brand reputation and customer loyalty and can attract new business partners.'

Misconceptions

A mission statement explains what a business does and usually concerns short to medium-term strategies. A vision describes what happens once purpose is achieved. Purpose itself should serve as a company's long-term 'true north'.

Groupe Danone's vision is 'to bring health to our company and its ecosystem, to our planet, and to generations of people, now and in the future'. Its purpose – why the organisation exists – is to 'bring health through food to as many people as possible'. This is supported by long-term strategies and plans, for example their Alimentation Revolution movement and their health-centred business units.

There is a trend for using purpose as a marketing tool. This is misconceived. The companies that get purpose right make it integral to their business, not their marketing. They strive for long-term shared value, not short-term sales.

So, instead of being part of marketing or sustainability, purpose should sit with the leadership team. It needs to be the strategic engine of an organisation and involve everyone – from brand and sustainability, to strategy, governance and HR. As the phrase goes, it should be 'in the company's DNA'.

"The companies that get purpose right make it integral to their business, not their marketing"

Michele Parmelee, global managing principal for talent, brand and communications at professional services firm Deloitte, told us: 'Purpose is essential to everything we do, every decision that we make.

'When we talk about our global strategy, I always begin with who we are and what is our purpose ... It is important we take steps to keep our purpose alive, so people understand that it is not just a short-term campaign, but the core of who we are, core to where we are going as a business and something that we are going to continue to foster and invest in.'

Suitable for all

Purpose is not just suitable for certain types of companies. In our Fit for Purpose Index, the top rankers came from a variety of sectors, including banking, real estate and consumer goods.

Lloyds Banking Group has shown how, even in the much-criticised financial sector, a company can redefine its reputation through purpose. 'Helping Britain prosper' is now central to every decision they make, from business strategy to retail.

Once a business has sustainable development goals (SDGs) in place, it can contribute more effectively at an individual, societal or environmental level – whether as a bank enabling prosperity, a healthcare company fighting diabetes or a property developer creating spaces where people can thrive.

The SDGs can guide conversations about becoming purposeful.

But to be effective, purpose must permeate every decision a business makes, and not be just a bolt-on or a statement on an 'about us' web page.

In 2017, the Financial Reporting Council (FRC) recommended that annual reports should embrace purpose, but this could be a double-edged sword. On one side, as with statements like Fink of BlackRock's, it could prompt companies to revisit their strategy and redefine their business for a more sustainable future. On the other, it could encourage empty platitudes.

Engage the board

Until last year, Provident Financial had a clear purpose of providing 'financial inclusion for those not well served by mainstream credit' and reported it well. But the company arguably failed to understand its own people.

A digital reorganisation involving new work patterns managed to alienate some of the firm's employees. Resignations followed and the company lost two-thirds of its value within a week.

As with other recent corporate casualties, there was a failure to understand the wider value every company needs to provide. It is important to understand how situations like this be avoided in future.

Redefined role

One solution could be to enhance the role of the company secretary. In effect, they could be made 'guardians of purpose'. Their integrity and independence would complement the directors and ensure the company pursues its wider interests and is held accountable for its promises.

Governance and corporate affairs teams must tell their business' story within a transparent reporting system that tracks outcomes. Since company secretaries usually know more about the business than anyone else, they should be encouraged to take a leadership role in this.

"One solution would be to make company secretaries 'guardians of purpose'"

They could then ensure that what is reported is not only accurate but true to the board's ambitions and the expectations of all stakeholders – staff, customers, partners, communities and even shareholders.

To achieve this, company secretaries must redefine their role and prepare for a future where the success or failure of a business does not rely purely on 'integrity' but on long-term contribution and value. This will require a braver, more assertive approach.

Show commitment

A company's purpose should demonstrate that it accepts its share of responsibility for protecting and enhancing our planet and its people.

It is about action, rather than compliance.It means actively focusing on long-term sustainable effectiveness rather than short-term financial outcomes and then building belief across all stakeholders.

Roeland van der Heiden, digital director of corporate affairs at pharmaceutical giant AstraZeneca, said if you asked a typical employee what the firm's purpose, values and three strategic objectives were, 'the vast majority of people could actually tell you ... 92% of employees understand AstraZeneca's future direction and its future priorities and 85% of employees believe strongly in our future direction and key priorities.'

Getting purpose right could transform companies into powerful, respected beacons of value that everyone wants to work for, partner with and buy from. The business value would be incalculable – and the role of the company secretary in achieving that ambition could be pivotal.

Paulina Lezama is brand director and Brett Simnett is investor engagement director at Radley Yeldar

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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