Corporate purpose has arrived. Or, rather, it has returned.
If you had gone to sleep in 1981 and woken up last week, the latest statement from the Business Roundtable, an influential association of US CEOs, on the purpose of the corporation would not surprise you. It’s what happened in the intervening four decades that makes the organization’s recent affirmation that “each of our stakeholders is essential”—including customers, employees, suppliers, communities, and shareholders—and “we commit to deliver value for all of them” a tectonic shift.
In 1999, the Business Roundtable asserted that “the principal objective of a business enterprise is to generate economic returns to its owners.” At the time, shareholder capitalism was at its most self-assuredly ascendant. Certainly, that sentiment was a far cry from the organization’s 1981 statement that “the shareholder must receive a good return but the legitimate concerns of other constituencies also must have the appropriate attention.” The latest statement makes one wonder: is capitalism circa 2019 evolving into something that wouldn’t have felt out of place in the 1980s?
There are reasons to believe this time is different. Climate change, inequality, and diversity and inclusion are major policy concerns. Public trust in institutions is at an all-time low, and many increasingly look to businesses as the key agents for change on major societal issues. This trend is reinforced by the rise of ESG (environmental, social, governance) investors, which now hold approximately a third of global investment assets. Additionally, companies are more transnational than before, control vastly more data, and yet can be overwhelmed by global outrage in the time it takes to post a tweet. Consumers—especially millennials and Generation Z—have become more connected and socially conscious and are demanding new standards of sustainability from corporations.
As a result, the need for purpose is more pressing now than ever. But there is risk that purpose becomes the next corporate social responsibility: a focus on feel-good initiatives not linked to strategy, decisions, performance, or anything fundamental to the way a company works. We think that would be a mistake. Talking purpose without walking it can you expose you to claims of hypocrisy—“woke-washing,” in the memorable phrase of Unilever CEO Alan Jope.
Our challenge to our clients is: how can you go from words on a page to facts on the ground? How do you move from branding and slogans to something that is lived in the day-to-day?
A corporate purpose is a commitment from the company to its stakeholders; its legitimacy derives from how the company embeds it and is seen to “live” it. To that end, purpose should guide everything else and be evident in all a company does. A fully embedded purpose should show up across all elements of the organization’s DNA.
We find that companies embed purpose across the nine elements of their DNA to differing degrees, grouped into three categories of ambition:
- Necessary foundations that are near-term and uncontroversial actions that lay the groundwork for later changes in line with the purpose. These are actions such as measuring and reporting societal KPIs, removing waste from the supply chain, and signing on to industry-wide initiatives to address common challenges.
- Substantive changes offer clear signals to employees, shareholders, and society-at-large that the company’s purpose is not business as usual. For example, truck manufacturer Scania holds an annual Climate Day and stops operations so employees can join sustainability training, while Microsoft levies an internal carbon tax to generate the funds to invest in decarbonization initiatives.
- Consequential trade-offs involve significant change and arguably challenging compromises among stakeholder interests. CVS Health stopped selling tobacco products because they didn’t align with its purpose to “help people on their path to better health,” forgoing $2 billion in annual revenues.
These kinds of actions are the early manifestations of embedded purpose. While there are many inspiring examples of corporate choices being made, we would argue that no one (yet) has cracked the code of comprehensively embedding purpose across all elements of the company’s DNA—although some companies are certainly far ahead of others. Most important, very few companies have clearly determined which trade-offs they are willing to make and whether purpose implies anything at all for how they do business or make day-to-day decisions.
We expect purpose will be one of the defining business issues of the next 20 years. Whether all stakeholders see companies embed it authentically will have a major effect on the future legitimacy of business in the eyes of society.
The authors wish to thank Michael Birshan and Megan Lee for their contributions to this article.