Given CEO Becky Willan tells investors what to look for when assessing a company’s commitment to purpose.
The case for purpose-driven business is now so evident that it should no longer need to be made. Organisations that contribute positively to a sustainable and inclusive future are simultaneously driving their own success. CEOs know this: only 7 percent of Fortune 500 CEOs believe their companies should “mainly focus on making profits and not be distracted by social goals.”1
With the early pioneers of purpose consistently delivering year-on-year success, it’s clear that the business of being good has been good for business. Supported by this growing evidence, there is now an expectation from investors that every business should be clear about its purpose and be actively delivering against it.
But what should investors be looking for to assess a company’s commitment to purpose, when there aren’t any reliable standards or ratings specific to purpose to refer to?
Actions speak louder than words
Investors won’t find what they’re looking for in an aspirational mantra about an organisation’s role in the world. Instead, purpose must be understood as a complete management strategy – one that goes beyond the ‘why’ to consider the ‘what’ and the ‘how’ – and embedded in every part of the organisation.
When viewed like this, there are some specific aspects of a business which give a strong indication of how embedded purpose actually is. Some questions feel more instinctive, like what governance structures are in place? What role does the board play? What is being measured? There are other, less obvious, but no less important things to look for.
Culture might not be something investors always play close attention to – but you should if you’re interested in purpose. In our experience, it’s one of the most important indicators for real purpose, which is why it’s a clear focus for our second edition of the Insider’s Guide to Purpose which compiles practical insights, advice and tools to help complex organisations make their purpose real.
The five purpose domains for investors to examine
- The board
- Organisational culture
- The board
We believe there are five questions that boards should be asking themselves to hold leadership teams to account for delivering against their organisation’s purpose. Investors should be asking the same questions of boards and leadership teams to open up a conversation around purpose, and get under the skin of how embedded their purpose really is:
- How much of your balance sheet is aligned with your purpose today?
- What are the biggest opportunities your purpose could unlock for your business?
- Would different stakeholders recognise your purpose as more than just words on a page (e.g. customers, colleagues, suppliers)?
- Do you have clear ‘red lines’ – the purpose promises you won’t break in pursuit of profit?
- When was the last time you challenged a decision on the grounds of your purpose?
Looking at how purpose shows up in governance structures offers a sure sign of how purpose-driven an organisation is. Since governance guides decision-making, shifting the way an organisation is structured, managed and monitored in line with the purpose will enable people at every level of the organisation to make purpose-driven decisions that pull the business towards its North Star.
Here are three examples of how purpose can be embedded into governance, which bring to life what you should be looking for:
- In 2019, Anglian Water changed its Articles of Association to commit it to delivering against its purpose. The directors are now legally obliged to consider the business’ long-term impact on customers, communities and the environment, and the board must hold them to account.
- At Lloyds Banking Group, ‘Organisational purpose’ has been identified as the number one principal risk in its latest risk register. Mitigating this risk is described as key to building a profitable and sustainable business, evidencing how integral purpose is to decision-making and the success of the business.
- Purpose-related targets have been embedded into long-term incentives for Natwest’s senior management team. The board receives regular updates on progress against these.
Investors should be paying attention to how purpose shows up in an organisation’s KPIs. Without data, it’s impossible to accurately track an organisation’s progress against their purpose and assess where they started, how far they’ve come and where they’re headed.
An ESG rating cannot be used as a proxy here. Purpose is designed to permeate through every part of a business, so it must be measured holistically and comprehensively, using specific purpose KPIs.
In our experience, there are five ways to approach this. Investors should look to see how answers to these questions show up in corporate disclosures, whether it be in the annual report and accounts or ESG reports:
- Are we building a business that’s a force for good?
- Example: The B Impact Assessment tool helps measure and improve positive impact performance for all stakeholders.
- Are we making progress towards purpose-driven outcomes?
- Example: Northumbrian Water uses a balanced scorecard to track performance against purpose across various themes.
- Are we creating value for the people who matter?
- Example: PayPal’s leadership team found many employees were struggling financially – in conflict with their purpose to help people take control of their finances. They introduced a new net disposable income metric and set a target to improve it.
- Are we living our purpose day to day?
- Example: Contexis Index is an analysis tool that measures how authentically purpose is lived within an organisation.
- What impact is purpose having on our business performance?
- Example: Unilever measures and tracks the performance of its purpose-driven Sustainable Living Brands to show how they generate superior results. The company publicly share this data to build the business case for purpose-driven brand building.
- Organisational culture
Governance and metrics are two critical areas where purpose must be hardwired if a business is to be considered purpose-driven. But as we lay out in the Insider’s Guide to Purpose, Volume 2, it’s vital that purpose is embedded into the culture of an organisation. Afterall, it’s culture not strategy that shifts mindsets and turns good intentions into action.
These characteristics don’t easily show up in corporate disclosures, but investors should be paying attention to how purpose is visible in leadership, colleague engagement, and brand and innovation, as these are the areas that will inspire and empower people to deliver against the organisation’s purpose.
Evidence of purpose showing up in organisational culture will vary from business to business depending on the industry and geography. This makes engagement with investor relations teams key to assessing this aspect of a business’ approach to purpose. For example by asking, what’s the lived experience of employees and how does purpose show up in their day to day?
There’s no such thing as a purpose-driven business without a robust sustainable and inclusive business strategy. Done well, a purpose-driven sustainability strategy helps deliver the overall business strategy, fulfils the company purpose, and tackles the most material social and environmental issues facing the business.
The cornerstones of serious sustainability strategies such as an ambitious and credible net zero strategy and science-based targets are indicators that investors will already be aware of. As will some of the established sustainability governance mechanisms like a sustainability Board committee that helps educate the Board, and cross-functional committees that engage employees across the business and external advisory councils that improve accountability.
Investors should be looking at how those targets, committees and advisory councils operate in the context of purpose. A truly purpose-driven business will have a sustainability strategy that in a clear and measurable way, helps to deliver the company purpose, not just one that reduces emissions and supports social causes.
1 Alan Murray, “The 2019 Fortune 500 CEO survey results are in,” Fortune, May 16, 2019, fortune.com