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2019 Was the Year of Purpose. Will 2020 Bring Balance?

November 18, 2019

Posted in: WATSON Views

 

In 2019, purpose is paramount. The tug of war between purpose and profit has evolved into a co-operative game. Companies are adopting environment, social, and governance (ESG) practices at the board and organizational level and finding unique ways to measure purpose and impact. Boards are considering a broader web of stakeholders to understand the complex outcomes of important strategic decisions. Leaders are talking about what they do and why they do it in very different ways. Purpose is on the governance radar and it is shifting the dialogue in the boardroom.

 

Boards have always talked about purpose in an implicit way. By setting mission, vision, values, and strategy, they partner with management to determine the organization’s north star – where are we going and how we will get there. What is unique about the way boards and organizations talk about purpose now is that these conversations often go beyond the business to weave in social purpose. It isn’t just about making widgets, providing services, or selling goods. It’s about making communities stronger, addressing social problems, and contributing positively to society.

 

We are seeing business purpose layered within broader social purpose that together guide what organizations do and why they do it. Patagonia recently changed their mission statement to “We’re in business to save our home planet.” Warby Parker exists “To offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses.” Asana’s raison d’être is “To help humanity thrive by enabling all teams to work together effortlessly.” These companies still sell clothing, glasses, and applications, respectively, but do so within the context of their broader social purpose.

 

Just as organizations are considering and reframing their social purpose, leaders are increasingly calling on the private sector to help solve public problems. BlackRock Chair, Larry Fink’s 2019 letter to CEOs calls for the private sector to respond to societal issues – “unnerved by fundamental economic changes and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues.” [1] Similarly, Senator Elizabeth Warren’s Accountable Capitalism Act has proposed a requirement that large US corporations create a public benefit; it “obligates company directors to consider the interests of all corporate stakeholders –  including employees, customers, shareholders, and the communities in which the company operates.”[2] While law and policy tend to lag behind societal change, these significant signals demonstrate the closing gap between profit and purpose.

 

The idea of businesses purpose aligning with social purpose is also deeply connected to the idea of long-term business sustainability (financial, social, environmental, etc.) and therefore long-term financial results. Strong, clear purpose and values go hand in hand with long-term strategies that support sustained organizational health and management of long-term risks. At times, this demands boards and management teams accept short-term losses, in order to achieve long-term strategies and maximize impact.

 

With this sharpened focus on the role of the organization as a driver of social good, what role do boards play in shaping and stewarding their organization’s broader social purpose? Serving both profit and public good requires boards to broaden their view of the interconnected consequences of decisions – both intended and unintended – that go beyond the balance sheet. The board also has an important role to play in making sure ESG factors are appropriately considered and embedded in the organization’s strategy, risk management, investment framework, HR practices, and culture. Now that organizations are more explicit and intentional about the why, directors are expected to steward this purpose with diligence and care.

 

Boards can play an important role in signaling and articulating how purpose meets practice. Boards that ground their work in purpose intentionally link governance structures and practices to specific ESG issues. They help bring stakeholders and shareholders along by clearly articulating the link between ESG principles and board practices. Instead of simply asking questions around sustainability practices, they develop a formal board mandate on sustainability to signal the importance of this key area. Instead of striving for gender parity because “it’s the right thing to do”, they articulate how it relates to ESG and contributes to the organization’s purpose.

 

Often an increase in focus on purpose happens in parallel with other forms of transformation, whether in business model, culture, leadership, or structure – often intended to orient the organization to long-term value creation, where value is measured financially as well as in terms of broader impact. This creates another set of challenges for boards, as it might mean a short-term decline in financial results, a change in the type of investor who is interested in the business, changes in leadership, or other disruptions. To play their role in navigating change and keeping the organization aligned on purpose, directors will need to have a high sense of personal alignment and commitment to the organization’s purpose. It must be authentic, compelling, and achievable in their eyes, which raises the bar for both the quality of the purpose and the quality and fit of great directors.

 

Stay tuned for our next article in the series to meet The Purpose-Driven Director.