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Purpose goes beyond profit

When Purpose goes beyond Profit: Success in an Era of Stakeholder Capitalism

 

Business & Technology Services
3 March 2020

Former President Barack Obama has three bits of advice for his daughters: “Be kind, be useful, be fearless.”

Speaking at the annual Salesforce Dreamforce conference in 2019 he applied that mantra to a business setting. Businesses need to rethink their purpose and realign their mission: successful business should be kind and useful, not just worried about the bottom line.

But as purpose is increasingly informing business strategy, the broader impact a business has across its ecosystem is becoming more important and more visible. And the traditional ways to measure a business’ success don’t sit comfortably with this purpose-driven approach. Profits and turnover alone don’t take account of the positive change companies may create or how they might be influencing better outcomes for their workers and local community.

The rise of purpose-driven businesses

According to Forrester’s 2020 predictions, consumers will increasingly pay attention to a business’ values. Those companies that can successfully articulate their purpose – and deliver on it without just painting a veneer of authenticity – will be the ones that thrive.

The ability of businesses to influence and improve the environment and society will become increasingly entwined with their ability to deliver economic success. And they can’t afford for purpose to just be some amorphous concept – with social media enabling people to speak up, their actions are visible; and cultural changes driven by a millennial workforce are creating a higher bar for companies.

So how should we be measuring success against this backdrop? Nonprofit Just Capital, for example, ranks American companies which are contributing towards a ‘more just’ society. Founder Paul Tudor Jones claims we have “ripped the humanity” out of our companies.

Measuring success against…

… contributions towards the Sustainable Development Goal(s) (SDG)

Forbes calls Salesforce a Silicon Valley business with a difference – it has an unparalleled commitment to doing good. It has generated hundreds of millions of dollars for good causes, and started the Pledge 1% movement.

The company is aligning itself to helping meet the UN’s Sustainable Development Goals, for example signing up to the UN Women’s Empowerment Principles, and the UN Global Compact. And as a result they are also attracting a higher calibre of people wanting to work for them.

The World Benchmarking Alliance was launched in 2018 off the back of this increasing focus on the role of the private sector in driving greater sustainability, equality and prosperity. A joint venture of Aviva, Index Initiative and the United Nations Foundation, it aims to provide free, publicly available information about how companies are performing against the SDGs. Using this information, consumers, investors and the government can decide where to spend their money and direct their advocacy and policy efforts.

… environmental commitment

Clothing brand Patagonia is a longstanding advocate for being environmentally friendly. It’s recent initiatives include running TV ads in support of the protection of public lands and filing a lawsuit to prevent the Bears Ears National Monument in Utah from being shrunk.  It has also launched Patagonia Action Works, a digital platform to connect people with grassroots groups working to protect the environment.

And one of its key achievements is undoubtedly as the driving force behind the Sustainable Apparel Coalition. Along with Walmart it launched what has become a groundbreaking 200-business strong industry collaboration  which seeks to measure and improve the social and environmental sustainability impacts of the sector.

The group has developed the Higg Index to allow brands to measure and score their performance. Demonstrating the power of working across the value chain, it helps businesses make meaningful changes, including in their supply chains, and helps create strong CSR policies that promote the well-being of workers and the planet.

Fellow clothing brand H&M meanwhile publishes a regularly updated list of all its suppliers as a way of ensuring supply chain transparency. This means they can be held publicly accountable for the standards and conduct of their suppliers.

More broadly, B Certifications have also become an increasingly well-respected, but tricky to attain, measure of environmental and social performance. There are over 2,500 certified B Corps in 50 countries around the world ranging from small companies to larger enterprises such as Patagonia and Ben & Jerry’s. Danone is working to become the largest B Corp.

… support for the local community

Having a positive impact can start close to home: a growing number of companies are looking to the changes they can bring about in their local community. Economist Michael Porter at Harvard Business School argues we have moved on from traditional corporate social responsibility initiatives – it’s possible to create a ‘shared value’ structure, where the business model is built around both turning a profit and benefiting society.

Diageo has identified three areas it believes it can drive improvements in the communities where it works – entrepreneurship, employability and skills development; health and wellbeing; and empowering women. It has selected a number of criteria it can use to measure its impact against targets.

Elsewhere, the LBG Framework was formed by a group of companies including NatWest and BP with the aim of creating a common standard for measuring community investment. Companies in the LBG Network collectively contributed more than $2.9bn to community causes in the last reporting year, helping more than 94 million people.

.… creating a fair workplace that promotes wellbeing

Of course, purpose-driven businesses also need to practise what they preach when it comes to their own employees.

Military banking and insurance company USAA has been building a wellbeing culture for over a decade – it employs a chief medical officer, has on-site health clinics and fitness equipment, and promotes healthy eating through its employee cafes. Senior leaders take on the duty of instilling the culture and act as role models for employees.

Diageo has a focus on female empowerment – both by reaching 50% representation on its board and 40% on its executive committee, and through ‘Plan W’ which is helping communities around the world by providing training to women.

Combining profits and purpose

Using profits and turnover as a frame of reference reinforces behaviours and cultures that can undermine broader macro-societal needs. And they drive short term policies and fixes which are at odds with a structure that supports stakeholder capitalism.

Profitability provided a useful shorthand for a company’s success. But with the eyes of both customers and investors focused on doing business better, companies need to be willing to perform against a broader range of measures. The best companies need to stand for purpose, balance, career development, social and environmental commitments.

About the author(s)
Business & Technology Services

TCS’ Business and Technology Services organization combines the power of business excellence with digital innovations to help enterprises and leaders be purpose-driven and performance-oriented, making the shift from shareholder value to stakeholder value. By harnessing the abundance of data, talent, connectivity and capital, B&TS helps leading companies around the world build ecosystems that fuel growth and innovation, foster collaboration and engagement across ecosystems, improve health, safety, and well-being, enabling empowerment and inclusivity, and driving sustainability and positive environmental impact.

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