Our latest CGR report reveals that 82% of companies have sought to articulate why they exist and what they stand for during the last 12 months. Sarah Bell looks at the importance of purpose.
Why do you exist? What do you stand for? These are big questions.
They can feel tough to tackle among the day-to-day running of a business. But as we move into the new decade, knowing and clearly communicating why you do what you do will become increasingly vital. It's integral to both setting and delivering an effective strategy, the pace and consistency of decision making and attracting and retaining talent.
The 2018 UK Corporate Governance Code (the Code) reflects this growing importance by putting a renewed focus on a company’s purpose and using this to shape its values, strategy, and culture.
Yet, the research from our latest Corporate Governance Review (CGR) reveals that many statements are more akin to strategic straplines. They show intent, but give little detail or indeed confidence in how companies embed purpose to provide guidance and decision-making clarity.
The CGR shows that just 6% of companies measure progress against their corporate purpose. Even fewer link delivery against this to executive remuneration.
That’s a problem, but here’s how you can start working on the solution.
When it comes to tackling purpose, a lack of definition can be a problem.
Terms such as 'purpose', 'strategy', 'mission', and 'vision' are often used interchangeably, confusing an issue that's already frustrated by a lack of hard metrics. While these elements are linked, however, there are clear differences between them:
'Purpose' is your 'why'
It should both drive you and inspire those that work with you. As a constant, your purpose is both the bedrock to build on and the North Star to guide you in decision making, particularly in dilemma scenarios, both on the front-line and at board level.
'Mission' is your 'how'
The short-, mid- and long-term planning that shapes the strategy, designed to fulfil your purpose. Necessarily adaptable, your mission uses your purpose to inform the strategic changes it makes. Mission is the line between purpose and vision.
'Vision' is where you aspire to be
The results you want to reach for; the measurable goals you want to achieve over a mid-term horizon. Your vision reminds you of the impact you want to make on your stakeholders (present and future) and helps to align leadership and the wider team.
More than money
The importance of defining your purpose may be easy to grasp, but what the Code specifically asks for, and where many still struggle, is an expansion of that definition beyond financial success. Profit, ultimately, is an outcome of a business’s productivity. A business’s purpose needs to be more.
This isn’t about deprioritising profitability, but understanding that a purpose looks beyond profit to define the intended impact an organisation has.
Purpose is what shapes decision making, interactions, use of capital and how that usage attracts resources; it shapes the event.
Profit is what you see after the event has happened. Companies that understand this relationship start to see tangible benefits.
So, how do you prioritise your purpose in a way that drives profitability as well? You need to progress through five steps:
A clear purpose gives people something to believe in, empowering and energising your workforce in terms of discretionary effort, while also helping attract and retain new talent.
Clarity aligns resources to a common goal, creating efficiency through a shared, and clearly understood, focus.
Your purpose operates as an easily identifiable direction, providing guidance in decision making, stability and resilience. This, in turn, lays the groundwork for building trust.
This building of trust generates a reputational return. Your purpose builds consistency; offering a through line around which goodwill can grow.
With a clear correlation between reputation and brand loyalty, that increase is important.
Ultimately, clearly articulated purpose, embedded throughout your business, makes you more attractive to investors concerned with long-term performance. This can lead to greater investor confidence, access to cheaper debt through certainty and further add to a business's stability and resilience.
Getting purpose right
The advantages of embedding a clear purpose throughout your business can’t be ignored. Neither can the increasing evidence that businesses with a clear and enduring purpose outperform the market. So, what does best practice look like?
Engage with stakeholders and prioritise purpose at board level. Work from the bottom up and consult with key stakeholders to agree a clear and meaningful articulation of your purpose that informs decision making and isn’t just a strategic strapline dictated by management.
Work that purpose, and the values it embodies, through your decision-making frameworks across the business.
Bring the purpose to life in a way that connects with your business model, internal controls and strategy so that it feels integral and not a disconnected ideal.
Reward and review
Signal your commitment to purpose by setting measurable goals. Encourage the right behaviours while actively discouraging contradictory behaviours across all levels of the business, starting at the board, and track impact and progress.
Identify steps and measurable goals related to purpose to help stakeholders understand your company’s mission, your path towards effectively embedding purpose and what success looks like.
Embedding your purpose
Your purpose is your reason for being. It should be clear, enduring and it should inspire. It is long-term clarity in a short-term world, and there is no better time to start working on it than now.