Purpose: Are we on the same page?
The purpose statement from one FTSE 100 business states: ‘Our purpose is to create long-term shareholder value through the discovery, acquisition, development and marketing of natural resources.’ The statement is not only so broad that it might be considered vague, but it is also singularly profit-centred.
Getting purpose right matters. It reflects how a business views its relevance and place in the world, the value it brings to its customers and employees, and how it manages those relationships in a responsible and sustainable way. Purpose is a fundamental part of a company’s wider value creation story, and an essential component in building or rebuilding trust with stakeholders. And after numerous corporate scandals and governance failures in just the last handful of years, trust is on many investors’ minds.
As Dr Marc Ventresca, Associate Professor of Strategic Management at the University of Oxford’s SaÏd Business School points out: ‘Corporate leaders today have the challenge of envisioning how to renew the corporate-society contract in the 21st century, such that firms contribute in distinct, relevant ways to societal wellbeing.’ Society grants corporations a licence to operate. So purpose that is well defined and integrated can be the glue that revives and maintains this all-important social contract.
Over the past year, there has been a growing realisation among investors that organisations which are purpose-driven, rather than profit-driven, outperform their peers. In fact, a recent report by the Beacon Institute of the accounting and consulting firm EY highlighted that 90% of executives understand the importance of purpose, but only 46% say it informs strategic and operational decision making. The report goes on to highlight that 40% of executives worldwide say their company has a broad purpose, and that companies that have embedded purpose most thoroughly report the highest incremental value creation.
Luminous believes that getting purpose right is fundamental to telling a company’s story. Our brand and investor engagement teams work with clients to articulate their purpose and communicate it throughout their business; demonstrating how the business model is aligned to purpose and how strategy supports its fulfilment. Businesses that recognise that purpose drives profit will be best placed to meet the demands and challenges of an uncertain future, along with benefiting from increasing customer loyalty, more strongly maintaining brand and reputation, and being able to innovate more effectively. In short, if you create a strong corporate purpose and hire staff who believe in it, the benefits of implementing purpose-driven measures far outweigh the costs.
If you would like to chat more about how Luminous can help define your corporate purpose, please get in touch.Go back