Enacting Purpose within the Modern Corporation

Rupert Younger is Director at the Oxford University Centre for Corporate Reputation; Colin Mayer is the Peter Moores Professor of Management Studies at University of Oxford Saïd Business School; and Robert G. Eccles is Visiting Professor of Management Practice at Oxford University Said Business School. This post is based on an EPI report. Related research from the Program on Corporate Governance includes For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).

The Enacting Purpose Initiative (EPI) is a multi-institution partnership between the University of Oxford; the University of California, Berkeley; BrightHouse (a BCG company); the British Academy; Federated Hermes EOS; and Wachtell, Lipton, Rosen & Katz. The purpose of the EPI is to develop guidance for boards of directors, senior management, and investors for how companies can articulate, implement, and report on their purpose.

Recent calls for better articulation of purpose from global investment management firms, together with specific commitments on purpose by asset owners, are accelerating this momentum and elevating it to a critical board issue. To deliver value for different stakeholders, purpose has to be more than a marketing slogan or a vague set of values. It has to become an organizing principle, the reason why an organization exists. Boards of directors across all sectors today face a growing drumbeat of calls from multiple stakeholders including customers, employees, and suppliers for a clearer explanation of their organizational purpose.

What is purpose? Purpose reflects the raison d’etre of an organization, defining its reason to exist. Properly understood, it becomes the most important organizing principle within the organization, informing and guiding strategic decisions and activities. Today there is a greater emerging awareness and understanding of “purpose as strategy,” as distinct from the more standard and now common focus on “purpose as culture.” The COVID-19 crisis and calls for the need to “Build Back Better” have simply accelerated this trend.

Purpose as strategy celebrates the central position of purpose within decision-making. It provides a powerful frame to guide the organization’s board, senior executives, shareholders and other stakeholders on the difficult choices required to meet the challenges and opportunities of the next decade. It is particularly valuable in this era of advanced stakeholder capitalism. An important consequence of the shift from shareholder to stakeholder capitalism is that the old management maxim of “doing what we do today, even better’ is no longer enough to deliver sustained organizational success. Purpose as strategy engages the core precept of business innovation and provides a critical focus on why the organization exists. The principles and practices of purpose as culture are critical to effective operations and implementation, but they do not set the agenda for transformation.

Organizations that actively engage with their purpose take actions that make profits the outcome of purpose-informed and purpose-driven strategies. Making a profit, and particularly a sustainable profit, depends on the alignment of diverse activities across the full range of principles and practices over time. Purpose informs and directs strategic decisions: doing business in new and different ways, exploring new technologies, supply chains, business models and governance. Purpose in this conception is not the destination.

Just as a distinction needs to be made between purpose as strategy and purpose as culture, it is important to be clear about the difference between purpose and other terms that are often used, sometimes in a very confusing way, with it: values, mission, and vision. Purpose is why the organization exists.

Values articulate how an organization behaves. Values capture the way an organization intends to operate, underpinning corporate culture. They usually take the form of a series of bullet points which are short and simple, indicating expected behaviors and norms.

Mission sets out what the organization does. It captures the day-to-day activities of the organization. It is directly linked to the strategy of the organization and is underpinned by the values deployed to deliver the mission. It is very practical and descriptive in nature.

Vision describes where the organization intends to have impact. It describes the outcome that the organization wants to see from the successful delivery of its stated purpose. Put simply, vision captures what success looks like. By its nature, vision statements are aspirational, large scale and usually long-term.

This clarity in framing served as the backdrop foundation for the work of an EPI European Steering Group of company chairs, senior executives, and youth ambassadors from 30 organizations across the UK and continental Europe. The full report, “Enacting Purpose in the Modern Corporation: A Framework for Boards of Directors,” details the insights gained from this group. In particular, it presents a simple and practical SCORE framework, devised by Rupert Younger, that can help boards, senior executives, and shareholders ensure that purpose is enacted in the company. The five elements of the SCORE Framework are:

1. Simplify: Make your purpose simple and convincing, with shared frames of reference. Complicated strategies fail. Leaders need to work carefully to simplify the complexity involved in enacting business activity. Purpose is no different. It needs to be simple enough to be understood by the entire organisational workforce, the wider supply chain and other connected stakeholders. A statement of purpose should be precise, not vague or woolly. It should establish what and whose problems the organisation seeks to solve and it should be convincing about why the organisation is particularly well-suited to addressing them. As explained by Sir Roger Carr, Chair, BAE Systems, “Simplicity allows immediate buy-in at scale when building stakeholder consensus really matters.”

2. Connect: Once it has been simply and clearly articulated, corporate purpose must drive what the organisation does—its strategy and capital allocation decisions. Strategy is about choices that are made and choices that are consciously rejected after serious deliberation. For purpose to be enacted with authenticity, it has to be the reference point for such decisions. Internally, boards need to make sure that purpose translates into what everyone in the organisation does, because unless purpose statements translate into actions they are meaningless. Externally, the board should ensure that the organisation’s purpose connects with partner organisations throughout its supply chain and customer markets. Stefan Oschmann, CEO Merck, observed that “There is not a single townhall or business review where I don’t relate to our purpose. Focusing our efforts on the most urgent questions and challenges of humankind creates advantages not only for society but also for our business.”

3. Own: Ownership of purpose starts with the board. It has to put in place appropriate structures, control systems and processes for enacting purpose. This goes well beyond formal committee structures such as risk, compliance and ethics committees. It has to be embraced by everyone in the organisation from the board to the shop floor. The purpose also has to be accepted and supported by the organisation’s shareholders if it is to have any credibility. Gian-Maria Gros Pietro, Chair, Intesa Sanpaolo pointed out that, “We cannot directly control outcomes, but we can lead and stimulate activity through what we do. This is ownership on a broad scale.”

4. Reward: The board has to define measures of performance that evaluate the success of the organisation in delivering on its purpose. It should build a group-wide performance measurement system that aligns the organisation’s incentives and rewards with promotion of purposeful behaviour. For the majority of management, financial measures remain the most significant elements of compensation and promotion. It is important that these correctly reflect the success of the company in delivering on its purpose. The financial measures should be combined with material non-financial metrics that record the success of the organisation in a balanced way, delivering benefits to all its stakeholders including its shareholders. According to Emma Marcegaglia, Chair, Marcegaglia Group, “Purpose is a powerful motivator. Bringing our people with us as we transform the company is our first priority. We actively link nonfinancial metrics into our rewards system.”

5. Exemplify: A key role of leadership is to bring organisational purpose to life through communication and narrative strategies. Done well, these build a sense of shared identity around a common purpose that inspires those working in the organisation to believe that they are contributing as a team to something that is meaningful and fulfilling. The narratives should be vivid and uplifting but also authentic in conveying honestly and openly the challenges and failures as well as the successes. They should reveal a willingness of the leadership to accept personal sacrifices in bearing their share of the costs of failure as well as the rewards of success. Paul Moore, Corporate Affairs Director, ITV emphasized that “Storytelling offers a powerful narrative arc for talking about purpose. Having a purpose that our people believe in helps them get out of bed positively on a Monday morning and be happy to talk about their work to friends on a Friday evening.”

The EPI is now in the process of forming a North American Steering Group. North America is the largest corporate market and the one with some of the largest and most systemically important companies and investors in the world. Understanding how purpose intent can be put into practice in this market is a primary focus for the Enacting Purpose Initiative. We are fortunate to be working with our partners—the University of California, Berkeley; BrightHouse (a BCG Company); the British Academy; Federated Hermes EOS; and Wachtell, Lipton, Rosen & Katz. Together we are identifying and inviting the organizations that we believe can provide a valuable perspective on purpose in the U.S. context. It already seems clear that there are specific themes and issues that will need addressing—the differences in roles between executive and non-executive board members, legal responsibilities of both of these groups, and nuances due to a different regulatory environment being three obvious and critical areas. We also plan to examine in more depth the role of shareholders by forming an Investor Steering Group of a global set of asset owners and asset managers to provide the insights and views in complement to both the U.S. and the EU Steering Groups.

We will be meeting over the course of three months this fall—September, October and November—with a view to publishing a new report early in the first half of 2021.

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