What is a purpose-led company?
A purpose-led company (purpose-driven company) engages all its stakeholders in shared and sustained value creation.
In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large.
What is driving the shift to purpose?
New demands of business
Six forces are challenging companies to rethink value and how it is created:
- Reduced trust in corporations, since the 2008 financial crisis
- Concerns about the environment
- Rise in social inequality
- Threats and opportunities of digitalisation
- Demands for business to solve long-term social problems
- Lower brand control, as consumers push agendas through social media
Five qualities of purpose-led business
What in practice, then, is a purpose-led company? How does it differ from the typically profit-seeking corporations spawned by the Industrial Revolution? The following qualities apply regardless of an organisation’s sector, size or maturity.
Benefits people by design
First and foremost, a business with a strong purpose is designed to have a positive impact on people. Indeed, this is the very reason it exists. The commitment to enhancing people’s experiences, even lives, is integrated into everything the organisation aspires to do, and does in practice.
This differs from Corporate Social Responsibility (CSR) efforts, which can be a reputation-enhancing side-show to the core aim of profit maximisation.
Considers diverse individuals’ interests
A purpose-led company thinks holistically about its stakeholders and considers everyone it touches, directly or otherwise. Concern is not limited to the short-term interests of shareholders or investors.
Rather, the organisation also and deliberately considers its impact upon employees, customers, suppliers and partners, and the society or community in which it operates. Where possible, it strives to be a force for good for all these people. All are investors in, and beneficiaries of, the future of the enterprise.
Does no harm
No business can be all things to all men. The company must balance the interests of various parties. These may conflict with each other and so in practice the organisation does more or less for each group. What is important, however, is that the business cause no harm as a consequence of its operation.
A commitment to purpose means that the organisation will not, for example, sacrifice the well-being of employees to serve customers; nor will it compromise health and safety standards to boost revenue. Purpose-led companies seek creative, holistic solutions to such illusory paradoxes.
Views people as an end, not a means
Extreme profit-seeking, legitimised by the Industrial Revolution and reinforced by Milton Friedman – ‘the world’s dumbest idea’ – in the 1970s, takes people as a warm-blooded means to the steely end of shareholder value. Just consider for a second the (modern) term ‘human resources’.
Purpose-led businesses take people, their experiences and their well-being, as the primary end or aim of what they do. They look beyond the role – ‘Head of Accounts’ – to the whole person doing the work. They treat people who walk into the shop as individuals rather than simply ‘high-value prospects’.
Creates shareholder value as a by-product
Valid concerns with Friedman’s profit maximisation do not mean that profits and shareholder value must be abandoned. Still, a purpose-led business does not view financial outcomes as its reason for existing. Rather, these are a happy by-product of its ambitions to have positive impact on the world and its citizens.
The good news is that investments in purpose do not detract, but rather enhance, financial results. Purpose-led companies exhibit superior accounting and stock market performance.
One unifying principle
Purpose beyond shareholder value is good for people and ultimately good for business. Still, for established corporations especially, to align day-to-day work with an ambitious purpose is a tough challenge.
Underlying the five qualities, however, is a unifying principle: ‘strive to do good things for each person your business touches’. Every human being can relate to, and be energised by, such an idea.
Source: MarbleBrook website
How to tell if a business is purpose-driven.
Purpose-driven businesses have something that is innate in their DNA, a differentiating factor which enables them to be identifiable and causes them to stand out from other types of businesses.
By looking closely at a business’ intention, business model, governance and operations, and measurements, you can ask yourself the following questions to identify whether a business is truly purpose-driven or whether they are simply using this as a feigned identity and marketing tool.
Have they set out an authentic, practical and inspiring purpose that will benefit society?
Articulating, in some way, their purpose is crucial to help employees, investors and customers, both current and potential, understand what the company stands for and help them make good decisions on whether they wish to invest, work for or buy from the business.
- What is the strength of strategic commitment to their purpose?
- Is the purpose reflected in the organisation’s strategy and committed to through a long-term target or goal?
- Does the organisation’s purpose deliver long term sustainable performance?
- Is the outworking of the organisation’s purpose likely to lead to a positive social and environmental impact?
How central is the purpose to the core business model – does it reflect the core commercial activity and shape profit distribution?
Purpose-driven businesses are set up to deliver meaningfully and tangibly on their purpose. In other words, it is not enough for a business to simply set out why they exist. They must also have a clear plan on how they are going to live out their purpose in practice.
- Is the purpose directly connected to the profit engine / superpower of the organisation, or is it a side-project/product/service?
- Are investors supportive of the purpose / do their interests align with that of the business?
- Does the business model rely on practices that are damaging to people or planet i.e. the business model wouldn’t stand up without causing this damage? If so, is there a clear and credible plan to transition away from this?
- Does the business proactively address negative impacts of its model, and seize opportunities to have a greater positive impact?
Governance and Operations
Does the way the business is governed and operated reflect their purpose? Does the business care about people?
The organisation’s leaders will embody the purpose and be authentic in their desire for the company to live it out. This needs to be reflected in everything from the way Board meetings are conducted to the way in which they recruit.
Some purpose-driven companies lock in their purpose externally, as well as leading on it internally, through everything from embedding a purpose statement into the company’s articles to signing up to an accreditation body.
- Have they embedded their purpose in their company articles and governance?
- How is purpose kept at the top of everyone’s mind, every day?
- Are board discussions and agendas anchored to the purpose?
- Is operating with purpose a factor in recruitment, retention and promotion?
- Does the organisation measure and report on its impact?
- Does the organisation seek external accountability on its impact e.g. through an accreditation body?
- Is the business honest and fair with customers and suppliers?
- Is the business a responsible and responsive employer?
- Does the business actively seek to remove damaging practices from its operation and supply chain, and proactively integrate its purpose into its operations?
- Does the business make a full and fair contribution to society by structuring its business and operations to pay promptly al taxes that are properly due?
- Does the organisation act as a guardian for future generations, for example contribution to regulatory improvement, protecting resources for future generations and investing in skills and knowledge?
Do they measure and seek to understand their impact?
Whether or not a company measures their impact is a sign of whether they are taking it seriously. It is useful not only to show the outside world the effect they are having, but also to show how they are progressing and provide feedback to help them understand what is, and is not, working for them. It also shows that they welcome external scrutiny on whether or not they are successfully living out their purpose.
- What approach do they use to identify whether or not their purpose has had the positive impact they hoped for?
- Do they consider both quantitative and qualitative approaches to judging success?
- Do they make their results publicly available?
Source: Regenerate website