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The Purpose Driven Board

January 20, 2020

Posted in: WATSON Views

Part 3 – The Purpose Driven Series

A recent Edelman study of over 600 institutional investors found that “84 percent of investor respondents agree that maximizing shareholder returns can no longer be the primary goal of the corporation, and that business leaders must commit to balancing the needs of shareholders with those of employees, local communities, customers, partners and suppliers.” A further 99% of respondents “expect the Board of Directors (of the companies in which they invest) to oversee at least one ESG topic.”

As we enter the age of stakeholder governance, organizations are recognizing that their social license to operate is at stake. With this in mind, the evolution to a purpose-focused boardroom is well underway – and while many directors support this shift, they struggle to conceptualize what a purpose-driven board looks like in practice. We believe purpose-driven boards play a lead role in defining purpose and see all issues through a broad and long-term lens.

Purpose-driven boards help define their organization’s purpose. They go beyond mission, vision, and regulatory pressures and think about their organization’s role in society. They think about the impacts of their organization’s actions on shareholders, stakeholders, employees, and communities. They consider and embrace how the organization can use its strength and defined purpose to affect meaningful societal change. They guide management to embed a connection to purpose in the culture of their organization.

Purpose-driven boards see things through a broad lens. They consider many factors to determine whether a decision will affect the long-term viability of the corporation (both intended and unintended). In making decisions, they think about who/what could potentially be impacted and how, and how these consequences relate to the organization’s purpose, strategy, and risk profile. They balance multiple interests to maximize positive impacts and mitigate negative impacts. They guide management in seeking profitable opportunities to strategically collaborate with other organizations for the greater societal good.

Purpose-driven boards adopt a long-term view. They ground decision making in a long-term lens to ensure what the organization does today sets it up for future success. They bring a long-term view to short-term decisions by overseeing and guiding areas of importance to the sustainability of the organization and by taking a longer view of strategy and risk. They consider wider stakeholder issues in terms of strategy, risk, and sustainability and engage in meaningful long-term relationships with stakeholder groups. They discuss and assess the strength and sustainability of the organization’s social license to operate to secure a viable future beyond financial value creation.

How does a board shift to a purpose-driven focus? It takes deliberate thought, proactive action, and regular practice, starting with the following:

  • Dedicated time on the board calendar to examine and articulate the organization’s purpose and long-term strategies across multiple dimensions, beyond the financials
  • A clear understanding of the evolving nature of the board’s duties and responsibilities
  • A sharp focus on the appropriate board composition and dynamics to respond to the organization’s risks and opportunities in the current business environment
  • Alignment on the board’s role in overseeing purpose drivers – e.g., strategy, risk, ESG and sustainability, organizational culture, leadership, corporate performance, and stakeholder engagement
  • Governance structures, frameworks, and practices that are strategic in focus, deliberately tied to the organization’s purpose, and regularly evaluated
  • A clear understanding of who the organization’s stakeholders are and their key concerns
  • Clear articulation to stakeholders of the board’s governance philosophy and role and how these relate to the orgnization’s purpose
  • Coherent and meaningful links between the governance report and other disclosures
  • Meaningful, collaborative dialogue (beyond disclosures) with stakeholders about the board’s approach to governing the organization’s purpose

While the function of the board remains the same (in overseeing and evaluating various interests, objectives, risks, opportunities, and strategies), the purpose-driven era requires boards to adjust their mindsets, culture, and processes to respond effectively. We believe boards that embrace a purpose-driven mindset will cultivate stronger, sustainable organizations in the global community.

What structures, practices, and education does your board need to shift to embrace this mindset?

Catch up on the Purpose Driven Series:

Part 1 – 2019 Was The Year of Purpose. What will 2020 Bring?

Part 2 – The Purpose-Driven Director