Why Corporate Purpose is Business-Critical
Why it needs a paradigm change to become future-proof
Successful companies sometimes forget why they exist beyond making money. They know what they did to become successful. But now the world is changing (or their position in it) and they need to adapt more than just how they run their business.
In many cases this is asking for a new story – based on ambition (that often needs to be refueled) and tradition (the roots of which sometimes go back to the 19th century. Such a revitalizing story may require doing business in a different and unique way. Through bringing such a narrative to life corporate leadership can reaffirm the corporate mission in a transforming environment – translating tradition into future.
The key to reframing or even reinventing the reason why a company exists requires a change of perspective: moving from a shareholder value to a stakeholder value approach. This journey starts with identifying challenges humanity (or a part of it) is facing that a company helps to cope with through an existing or evolving business model.
“The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society.” (Michael Porter, Harvard Business School)
It’s not only business professors who are asking for such a paradigm change in corporate strategy. Large Institutional investors are also pressing companies to follow this way. Simply because they are afraid of reactions to the impact global integration, digitalization, and climate change are going to have on societies.
“Society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies serve a social purpose.” (Larry Fink, CEO, Blackrock)
Some corporate leaders already have been turning their heads around, as they reintegrate the various streams of value creation: for shareholders, employees, business partners and societies.
"The term 'Corporate Social Responsibility’ is dead. Too often, it is reduced to an annex on page 92 of the annual report. It isn’t supposed to be this way. Responsibility – e.g. how a company makes use of limited resources – must become a part of the DNA of companies. At the end of the day, we have to make CSR departments unnecessary through addressing ecological and social questions with entrepreneurial activities.” (Tim Höttges, CEO, Deutsche Telekom)
As boards need to consider stakeholder interests beyond investors in a much broader, stronger and connected way, it seems unavoidable to adapt corporate governance accordingly:
“Ideas about the broader social purpose of corporations have the potential to drive corporate governance reforms into uncharted territory requiring navigation of new questions about how to measure and compare corporate performance, how to hold companies accountable and how to incentivize managers.” (Martin Lipton, Founding Partner, WLRK).
The one challenge that most companies are aware and partly afraid of, is the war for talent. Generations Y and Z prefer to work for organizations that contribute to the wellbeing of societies through their core business. Good is the new cool.
“We must remember why they are with us: To contribute to something bigger than themselves. It's critical we articulate a clear purpose and story that we can share and serve.” (Jack Dorsey, CEO Twitter & Square).
New ways of working
However, older employees are changing their perspective too, as they are facing the challenge to work much longer years than earlier generations.
“The contract between the organisation and the individual is beginning to change. The old contract looked like this: ‘I work to buy stuff that makes me happy.’ The new contract will be, ‘I work to make me happy’. I don’t see many companies realising how profound that change will be.” (Lynda Gratton, Professor, London Business School)
Politicians are feeling the growing heat as well. So far, they have not come forward with attractive visions or feasible solutions. Instead they issue growing demands towards companies in general and especially to those forming the data-industrial complex.
“Responsible corporate behavior is an elementary precondition for making social market economy work. The social obligation of property is written in the constitution and has not lost its necessity and validity because of the globalization.” (Angela Merkel, Chancellor, Federal Republic of Germany)
This goes well along with what civil society asks from corporations. More and more NGOs, campaigning platforms and activists emerge demonstrating more effective craftsmanship and strategies for using social media to engage local or international crowds than the political and business establishment.
A recent example: The fight for the preservation of the Hambach Forest had been ridiculed as a hopeless tree hugger campaign for many years. After the government of North Rhine-Westphalia had shouldered in in favor of RWE’s open-cast mining plans, the forest developed into a symbol for the mainstream societal opposition against the traditional energy sector.
Reactions ranged from “The fight in the Hambach Forest raises a fundamental question: What matters more – short-term profit or long-term wellbeing?” (Sonya Diehn, Deutsche Welle) via “RWE needs to keep an eye on the blow to its image” (Peter Crampton, Macquarie) to “RWE needs to do everything they can to reduce CO2 emissions to reduce costs for the shareholders” (Thomas Deser, Union Investment).
It seems as if companies do not have a more promising option than building their strategies on a future-proof purpose beyond profit for shareholders.
Christopher Storck is Professor of Strategy and Communication Management at the Quadriga University of Applied Sciences in Berlin and a partner of the management consultancy Hering Schuppener.