Embedding purpose into companies can be hard. But the right investors and governance structures can mean a bright future for sustainability.
It would be nice to say that the days of prioritizing short-term profit at the expense of long-term sustainability are over. Unfortunately, we’re not there yet.
It can still be tough for leaders who want to pursue a “purpose” beyond profiting shareholders. Investors may not support their goals, and implementing a purpose-oriented approach, like sustainability, can be challenging.
The experience of former Danone CEO Emmanuel Faber provides an example. For seven years, Faber demonstrated sustainability-oriented leadership, including legally making Danone an “Enterprise à mission,” a purpose-driven company. But in March 2021, activist investors forced Faber to step down, citing lagging financial performance.
What are the lessons from experiences like Faber’s? How can other leaders pursue purpose while navigating opposing forces?
NBS Executive Director Tima Bansal sat down with three experts to discuss the path forward for purpose-oriented companies. She spoke with:
Mark DesJardine, who studies how investors affect companies’ sustainability practices. He is an Assistant Professor at Pennsylvania State University.
Louise Roper, CEO of consultancy Volans, who works closely with CEOs and management teams in global organizations.
Chris Marquis, Professor of Sustainable Global Enterprise at Cornell University. His latest book is, Better Business: How the B Corp Movement Is Remaking Capitalism.
You can watch their whole discussion here.
Here are some highlights.
What Does Purpose Mean?
Purpose today means business helping society to address challenges – and embedding that goal at every level of the company. It’s often contrasted with Milton Friedman’s (1970) notion that the purpose of a company is to increase profits, and it’s linked to ideas like stakeholder capitalism and sustainability.
Purpose-Oriented Leaders Face Mixed Signals
Being a purpose-oriented leader means living with tension. On the one hand: Research shows overall growth in stakeholder capitalism, with boards increasingly rewarding CEOs for socially responsible actions. And society’s expectations are rising; companies risk criticism for greenwashing if they claim to be ‘purpose driven’ but don’t really embed the concept.
Meanwhile, investors send conflicting signals. Traditionally, investors focus on a company’s short-term share price. For example, Mark DesJardine has found that companies that spend more on CSR than their peers are more likely to be attacked by activist hedge funds; the funds pressure firms to cut costs and drive up short-term profits.
Although a purpose orientation brings real financial benefit to companies, those efforts may not be reflected in the short-term share price, Mark explained. For example, strong community and employee relationships can make companies more resilient and better able to achieve their goals, but short-term focused investors won’t be interested in these benefits if it means higher costs.
Long-term-oriented investors do exist, though, and existing investors can also be reoriented. Louise consults with a company where leaders have “worked tirelessly to ensure their investors align with them.” She points to Paul Polman as taking this approach at Unilever. By stopping quarterly reports and emphasizing the mission, he shifted the make-up of Unilever’s investors.
“Universal ownership” could be another positive trend, said Chris Marquis. This approach says institutional investors, like pension funds, should prioritize what’s best for the economy as a whole, to protect their diversified portfolios. This means avoiding harmful outcomes like natural resource depletion.
Even activist hedge funds can use their influence for good. That seemed to happen at Exxon in March 2021, where hedge fund Engine No. 1 forced the firm to appoint board members committed to an energy transition. “What we need is to have CEOs being fired for missing their social and environmental targets,” said Louise Volans. “In my world, anecdotally, I’m seeing a shift in that direction.”
How to Embed Purpose in a Company
For leaders facing this complex landscape, the experts had clear advice. For companies to have real impact, purpose shouldn’t be siloed off in the Corporate Social Responsibility or Marketing departments. Instead, it must be embedded deep within a company’s DNA.
But how can business leaders actually walk the talk? Mark, Louise, and Chris provided 5 key avenues to embedding purpose:
Formalize stakeholder value in corporate governance. By expanding a company’s responsibility to stakeholders beyond shareholders, leaders reduce their risk of being penalized in the name of ‘fiduciary duty’ when they prioritize long-term value.
Governance models that can help formalize this structure include certified B Corps, which meet a standard for positive impact, and public benefit corporations, for-profit companies with legally defined goals that include a range of stakeholders.
Get the team on board. Rewards work. Louise suggests turning abstract commitments into concrete action through “incentive structures that enable behaviours in alignment with purpose.” Rewards can be financial, but Louise has also seen clients increase employee support for sustainability by simply celebrating their actions at weekly team meetings.
Measure and report sustainability. Just start. Different frameworks and methodologies can make entering the world of ESG reporting feel overwhelming. But Chris tells leaders, “Pick just a few metrics, if you have to, and grow it from there.” Companies need to be transparent and accountable to build trust with their stakeholders in the long term.
Take time to connect with the right investors. Mark advises investor relations teams to recruit long-term investors explicitly. “Don’t sell [to investors] using growth expectations if you don’t want them to hold you to that,” Mark said. With investors on your side, “you have more freedom to carry out your purpose, even if it costs money in the short term.”
Build a strong narrative for your sustainability transition. “If you just come out and say, ‘short term shareholders don’t have a place in a company like ours’, and you don’t have a long-term plan, that’s going to sink your stock price,” said Mark. Instead, leaders need to craft a narrative to demonstrate that their sustainability strategy is a transition. Don’t alienate short-term investors before having the necessary foundation to attract and retain new, long-term investors.
What Is the Forecast for Purpose-Oriented Companies?
What does the future look like for purpose-focused leaders? Should they prepare for stormy seas ahead, or do positive trends mean smoother sailing? Our experts provide their forecast:
Chris: The path forward is like taking two steps forward, one step back. But we can’t be discouraged by the setbacks, like the attack on Danone. We need to keep pushing.
Louise: These are turbulent, transitionary times. But the companies that stay above water in the long term are going to be those that embed sustainability and purpose at the core.
Mark: There’s a long way left to go, and we need all hands on deck to get there. But collectively, we have the capacity to move forward.
And, they emphasize that purpose doesn’t reside solely in (big) companies. Everyone has multiple identities: consumer, employee, citizen, investor, parent. Leaders should be activists “in every role [they] play in society,” said Louise.
What Does Purpose Mean to You?
How does your company embed and maintain purpose? What challenges do you face? Join the conversation in this LinkedIn group, or let us know what you want to focus on in future discussions, in the comments below.
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