A business is created with a purpose. It sets out to offer a service or deliver a product that solves a problem or meets a need. But how can businesses utilise their corporate purpose to solve the challenges our planet and its people face? In this 1st article in a series of 2, Prof. C. Mayer looks at the theory behind a good purpose. In the soon to follow 2nd article we unveil Spadel’s new purpose.
For years, sustainability has been at the centre of Spadel’s identity. In this ongoing journey our goal to become a B Corp reflects our ambition to become a positive impact company. Defining the correct purpose can be great enabler to achieve this goal. So we recently embarked on a purpose exercise of our own, including all Spadel employees and a selection of external stakeholders in the process. But what exactly is a good purpose? Professor Colin Mayer, CBE and Co-Editor of the book Putting Purpose into Practice, explains.
“Many companies, and increasingly institutional investors, appreciate the importance of corporate purpose. It is the reason why a business exists. A business is created to solve the problems that you and I face as individuals, as communities and as the natural world. It needs to be commercially viable, financially sustainable, and profitable to be successful. By this definition, the corporate purpose of a business is to produce profitable solutions for the problems of people and planet. However, we take this even further in our book Putting Purpose Into Practice (available for free online). We argue that in the process of solving those problems profitably, companies should not profit from producing problems for people or planet.”
The purpose of business is not to create profit. The purpose of business is to create profitable solutions to the problems of people and planet. Not to profit by creating problems for people and planet.
“There are a lot of privileges that come with being a business or corporation, distinct from the individuals that comprise it. A company has the benefit of limited liability, of having shares that can be traded on stock markets around the world, of being financially supported by governments from around the world when economic conditions become difficult, such as during the recent financial crisis or the COVID-19 pandemic. A company enjoys a lot of privileges, in return for which there are obligations. They need to justify their existence, which is linked to this notion of solving problems profitably.”
When a business is established, its purpose is normally quite clear. However, as companies grow, and in particular as they become listed on stock markets and actively traded, that notion of underlying purpose becomes more opaque. Companies have to periodically reconsider and reaffirm their corporate purpose. A process that should engage everyone in the organisation so that everyone feels part of the process and feels their voice is heard, argues Colin.
By bringing a great deal of clarity to what that corporate purpose is, you are able to clearly define and embed the corporate strategy moving forward.
“Companies often talk about being on a journey when it comes to determining their purpose. And that’s a key element – bringing a great deal of clarity to what that purpose is – as it will define corporate strategy moving forward. We’ve been working on a programme called the Enacting Purpose Initiative in Oxford, in which we work together with the boards of the some of the world’s largest traded companies to help determine and implement purpose in their businesses.”
“To this end, we’ve developed a framework called SCORE, which is an acronym for the main features that are essential to embedding purpose into a company. S stands for ‘simplify’; to bring great clarity to a company’s purpose. C stands for ‘connect’; it is about connecting the purpose with the company’s strategy, but also about connecting with all the organisations that a business needs to help deliver on its purpose. From local authorities to NGO’s or civil society organisations, the economics of mutuality are what help businesses thrive.”
“Third up is O, which stands for ‘ownership’. It relates to the formal ownership of a company: is it family-owned, is it listed and actively traded, is there a dominant block holder? These things have a significant bearing on a company’s ability to credibly commit to its corporate purpose. But it is also about giving everyone in the organisation a sense of ownership of their part in delivering on the corporate purpose. People need to feel they have a clearly defined role in terms of how they contribute to the business.”
“R is for ‘reward’. Linking the incentive arrangements within an organisation with the delivery of its purpose. Matters such as remuneration and promotion are clearly determined by the company’s purpose and the extent to which people contribute to it. As part of that, measuring performance is very important. It’s not just about evaluating the profits of a business or whether it really is delivering on purpose, it is also about company culture and ensuring that the values and principles are not only aligned with this purpose, but that they pervade the organisation too.”
“Finally, E is for ‘exemplify’. Bringing that corporate purpose to life so that it has real meaning for people both inside and outside the organisation. Exemplification is about bringing your purpose to life through narratives around it and the successes achieved and challenges faced in delivering on that purpose. It’s hugely important to be authentic in what is said and to be forthcoming about problems and challenges faced.”
“The question is how we can ensure that not only more companies adopt a corporate purpose, but that it is truly meaningful. For many companies it is a great way of promoting their business and attracting talent, but they have to show it really is a demonstration of their commitment to addressing problems and not just profiting from producing them. Engaging institutional investors in serious discussions about purpose, beyond just talking about Environmental, Social, and Governance measures, is often quite difficult. Many don’t quite understand the link or the differences in what it means to be a purposeful business.”
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