There is a fundamental shift occurring both within companies and more generally in society. A move from the dominant view that the purpose of business is just to maximize returns to shareholders, toward seeing the purpose of business as being to benefit society, producing sustainable returns to investors as one outcome.
There is growing evidence that purpose-led businesses deliver better long-term performance and are better able to attract, motivate and retain talent, especially among the millennials who will account for three quarters of the global workforce by 2025.
And there is a rising expectation from at least some investors that every business should be clear about its purpose. Larry Fink, chairman and chief executive of BlackRock, the world’s largest asset manager, was unequivocal in his 2018 letter to his CEOs: ‘Without a sense of purpose, no company, either public or private, can achieve its full potential.’
But the true power of being purpose-led is not just about having a purpose that is inspiring, authentic and practical. It is also a mind-set shift about what motivates people. Putting people at the heart of business success – and meaning it – is what unlocks intrinsic motivation and moves people to commit to a shared worthwhile endeavor.
As businesses rush to rediscover their purpose, however, and consultancies compete to help them, there is a real risk that what results is just a rebranding of the status quo without anything else really changing. The benefits – for both business and society – of thinking differently about purpose and people could be lost.
This is why in March 2018, A Blueprint for Better Business and Quintin Price, the former global head of active strategies at BlackRock, convened a group of 10 leading stewardship investors from a range of asset management companies with combined assets under management of more than $8 tn.
Together, they drafted a short list of questions they think help get under the skin on whether a company is serious about purpose:
- In simple terms, what is the company in business to deliver, and for whom? How does that differentiate you?
- What does success look like, and how do you measure and review it?
- How does your pay policy link to long-term success?
- How are your board discussions and agenda anchored to your purpose? Can you give some examples of how your purpose has changed your decisions?
- What positive and negative impacts does your company have on society? How are you maintaining your ‘license to operate’?
- How are your people? Can you give examples of how you have responded to specific concerns?
- Which external relationships are most important to achieving your purpose (for example, customer, supplier, regulatory)? What key measures do you use to assess the strength of these?
- [For chairs] How do you as a board know you are doing a good job?
At first glance, these questions might seem quite simple, but that is their strength. Their simplicity is key to eliciting an honest, open conversation that goes beyond prepared statements and can’t be answered with a data point or by ticking a box.
Instead, they invite business leaders to reflect on issues at the heart of their business, particularly how they are living out their purpose, how far they genuinely put people at the heart of their success, and the quality of their governance.
For example, the first question opens up a dialogue about the purpose of the company that can’t be answered with a well-rehearsed purpose statement. The conversation will shed light on whether the leader sees the business as existing to benefit society through its goods or services, to maximize returns to its shareholders, or something else entirely.
Questions two, three and four then help reveal how far the company’s purpose guides its core business and pay policy and influences key decisions. If a company is truly committed to being purpose-led and thinking long term, its board meetings and the way it rewards its people will reflect this. All too often, both remain focused on short-term returns.
The impetus to change doesn’t have to come from investors only. Business leaders can ask themselves these questions to get a different take on how purpose and people are seen in their own organizations and to examine their own motivations and practices. This is not a one-way interrogation; it is about widening the dialogue for the benefit of all.
The good news is that a group of top UK investors think questions such as these should be discussed in investor meetings with company chairs and CEOs. Their commitment was to try to get them asked more often. Companies can help by being explicit about expecting them to be asked.
Charles Wookey is CEO of A Blueprint for Better Business, an independent charity that acts as a catalyst to help businesses be inspired and guided by a purpose that serves society
