Having a purpose, beyond profit, that is Governing for purpose beyond profit is one of the defining governance transformations of current times.
While there was always an element of this in terms of enhancing a business’ reputation, now customers, governments and the public all expect a business to stand for more than just the bottom line.
Last year the US Business Roundtable, which includes CEOs from more than 180 leading US companies, issued an open letter titled Statement of the Purpose of a Corporation, which included the sentence: “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
This may, at first, sound like typical corporate puffery, but by identifying five constituencies of which shareholders are but one (customers, employees, suppliers and communities being the others), it shakes up the profit-for-shareholders sole purpose view. More specifically they cover:
• Delivering value to our customers.
• Investing in our employees.
• Dealing fairly and ethically with our suppliers.
• Supporting the communities in which we work.
• Generating long-term value for our shareholders.
This viewpoint is also driving investment decisions of major fund managers typified by Larry Fink of BlackRock in his renowned annual letters to CEOs.
“Having a Purpose beyond Profit that is more than just a slogan is a major part of being a sustainable business (and by that we mean one that will last and endure rather than one that focuses on environmental sustainability).
“It helps recruit and retain staff, attract and keep customers, attract suppliers that will work in tandem with you and will help in government relations.”
The Institute of Directors (IoD) puts it very succinctly in its Top Five Issues for Directors in 2020 saying: “That purpose is critical to governance is not a new concept. Determining purpose is, after all, the first pillar of the IoD’s Four Pillars of Governance Best Practice for New Zealand directors. Recently, however, it has been getting much greater attention as the effectiveness and value of capitalism and corporate governance are questioned.”
This goes beyond previous discussions around triple bottom lines, sustainability and diversity and brings it into a more holistic view of what the business should be striving for.
This is where corporate boards might look towards organisations in the Not-for-Profit sector for inspiration – a reverse of the usual lens. NFP organsiations raison d’etre is their purpose – to support the communities and groups they represent.
Governing for purpose also tends to be circular – while initially it may appear more altruistic by showing genuine care for stakeholders, the business is likely to become more attractive for customers, potential and existing staff and be a customer of choice for your suppliers.
This then improves the businesses sustainability. So, while it may appear to go against the profit purpose, in the longer term it is likely to support it.
So, what is your organisation’s purpose?
more than just a slogan is a major part of being a sustainable business – one that will last and endure. By Cathy Parker.