Five Qualities of Purpose-Led Business

Shareholders matter, and so do other people. Follow these five principles to create value for everyone the business touches.

May 2022 | Strategy

We, the public, are talking about corporate ‘purpose’ five times more than we were in 1994. The increase reflects society’s evolving expectations of business.

New demands of business

Six forces are challenging companies to rethink value and how it is created:

Reduced trust in corporations, since the 2008 financial crisis
Concerns about the environment
Rise in social inequality
Threats and opportunities of digitalisation
Demands for business to solve long-term social problems
Lower brand control, as consumers push agendas through social media

People use the word ‘purpose’ liberally. The ideas it refers to are diverse, complex and subjective. Nevertheless, certain qualities characterise business led by purpose beyond shareholder value. In this post I set out five that I believe are essential.

Purpose theory versus work practice

These principles will help companies consider how they might align day-to-day work with society’s demand for greater accountability. In a Harvard Business Review study of 474 executives supported by EY, over 80% said (across various responses) that an organisational purpose would benefit employees, customers and shareholders. Yet only 46% agreed that their company had a strong sense of purpose; just 38% felt their colleagues understood the purpose; and a mere 37% said their business model and operations were aligned with it.

Five qualities of purpose-led business

What in practice, then, is a purpose-led company? How does it differ from the typically profit-seeking corporations spawned by the Industrial Revolution? The following qualities apply regardless of an organisation’s sector, size or maturity.

Benefits people by design

First and foremost, a business with a strong purpose is designed to have a positive impact on people. Indeed, this is the very reason it exists. The commitment to enhancing people’s experiences, even lives, is integrated into everything the organisation aspires to do, and does in practice.

This differs from Corporate Social Responsibility (CSR) efforts, which can be a reputation-enhancing side-show to the core aim of profit maximisation.

Considers diverse individuals’ interests

A purpose-led company thinks holistically about its stakeholders and considers everyone it touches, directly or otherwise. Concern is not limited to the short-term interests of shareholders or investors.

Rather, the organisation also and deliberately considers its impact upon employees, customers, suppliers and partners, and the society or community in which it operates. Where possible, it strives to be a force for good for all these people. All are investors in, and beneficiaries of, the future of the enterprise.

Does no harm

No business can be all things to all men. The company must balance the interests of various parties. These may conflict with each other and so in practice the organisation does more or less for each group. What is important, however, is that the business cause no harm as a consequence of its operation.

A commitment to purpose means that the organisation will not, for example, sacrifice the well-being of employees to serve customers; nor will it compromise health and safety standards to boost revenue. Purpose-led companies seek creative, holistic solutions to such illusory paradoxes.

Views people as an end, not a means

Extreme profit-seeking, legitimised by the Industrial Revolution and reinforced by Milton Friedman – ‘the world’s dumbest idea’ – in the 1970s, takes people as a warm-blooded means to the steely end of shareholder value. Just consider for a second the (modern) term ‘human resources’.

Purpose-led businesses take people, their experiences and their well-being, as the primary end or aim of what they do. They look beyond the role – ‘Head of Accounts’ – to the whole person doing the work. They treat people who walk into the shop as individuals rather than simply ‘high-value prospects’.

Creates shareholder value as a by-product

Valid concerns with Friedman’s profit maximisation do not mean that profits and shareholder value must be abandoned. Still, a purpose-led business does not view financial outcomes as its reason for existing. Rather, these are a happy by-product of its ambitions to have positive impact on the world and its citizens.

The good news is that investments in purpose do not detract, but rather enhance, financial results. Purpose-led companies exhibit superior accounting and stock market performance.

One unifying principle

Purpose beyond shareholder value is good for people and ultimately good for business. Still, for established corporations especially, to align day-to-day work with an ambitious purpose is a tough challenge.

Underlying the five qualities, however, is a unifying principle: ‘strive to do good things for each person your business touches’. Every human being can relate to, and be energised by, such an idea.

Image Johannes Plenio | Unsplash

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