A crisis brings values to the fore. Though executives were talking urgently about the purpose of business before COVID-19, the topic is even more important now. Organizations across all sectors have a part to play in the shared goal of flattening the disease’s growth curve. At healthcare organizations, of course, employees are aware of their critical role. But the same mentality extends to enterprises of all types. Scholastic is creating new at-home teaching materials. Clorox is expanding production capacity of and consumer access to germ-killing products. And just about every food retailer is staying open, despite the danger, to ensure that basic nutrition is available. Other companies are stepping up in their own brave ways, guaranteeing employee salaries during shutdowns, giving paid leave to factory workers with children who would otherwise be stranded at home, and repurposing production lines to focus on the most needed life and safety products.
This moment in history provides an opportunity, and a spur, for all organizations to ground themselves in their purpose — that is, to focus intensely on the core questions: Why do we exist? Why are we here? Whose needs are we here to meet?
Leadership plays a critical role in answering these questions and, more importantly, in delivering on the promise inherent in them. And though CEOs and top executives must be front and center in this recalibration, it is clear that boards will also play a significant role in closing the “purpose gap” — the distance between an organization’s stated aims and its lived behavior. Why? In many instances, board members have longer tenures and time frames in which to operate than CEOs. Across the S&P 500, for example, board member tenure averaged 10.7 years in 2018, compared to only five years for CEO tenure. Accordingly, boards of directors must take charge in overseeing their companies’ long-term direction and vitality, which means enforcing accountability for issues of purpose, longevity, and social impact. What’s more, boards are being explicitly asked by powerful asset managers to step up. This proxy voting season, some of the largest asset managers are communicating to boards that they are serious about board oversight for environmental, social, and governance (ESG) issues by outlining a new set of metrics for reporting on nonfinancial performance.
Drawing from our prior work on this topic, we have identified two main tenets of purpose with which senior management and boards must engage deeply: stakeholder capitalism and authentic action.
The advent of stakeholder capitalism. The longstanding view that the sole purpose of the corporation is to maximize shareholder value is quickly giving way to a more balanced way of thinking. Whether it is the U.S. Business Roundtable’s August 2019 effort to redefine the role of the corporation, the January 2020 Davos Manifesto by World Economic Forum chair Klaus Schwab, or BlackRock CEO Larry Fink’s most recent letter to CEOs, there is a growing clamor for stakeholder capitalism to become the standard of the day. In this new era, we’re seeing an unprecedented level of boardroom dialogue about ESG standards, practices, and disclosures. In March 2020, BlackRock advanced the conversation by issuing its own guidelines for board engagement and accountability on issues related to sustainability, long-term incentives, and human capital policies that assure employee stability and retention.
One could argue that these guidelines are long overdue. The old-school idea that each shareholder’s dollar was the only factor to be considered in executive decision making — and that it was more important than the well-being of employees, communities, and the environment — was, quite frankly, perverse. Why would any executive think his or her employees would be motivated to produce their best work if the stated purpose of that work is to maximize the wealth of thousands of nameless owners? Boards are charged with both oversight of a company’s ongoing operations and charting its long-term strategy, and so it falls upon them to grapple with how their companies respond to these new, more balanced demands.
And now that many companies are seeking government assistance to weather the challenges of the COVID-19 pandemic, jobs, money, stock ownership, and employee productivity — not to mention the oversight responsibilities of corporate boards — have all become part of a purpose that is even bigger and more important.
Walking the purpose talk. Ambitious corporate purpose statements have become almost mandatory over the last decade. But too often they are inspirational statements written to capture the good intentions of an enterprise, rather than its reality. In other instances, purpose statements continue to reaffirm the narrow goal of creating value for shareholders. Recently, many companies have rewritten their purpose statements in response to the overly simplistic idea that millennials — and only millennials — want to “do good” at work. And so the purpose statement tells them how their company does that “good.”
The truth is bigger than the ideas contained in these simple statements: Now, more than ever, people want to work for companies with missions and business philosophies that resonate with them intellectually and emotionally. They want to know why they are going to work each day. In our recent Harvard Business Review article, we argued that the core question any organization must answer when communicating purpose starts with its customers: That is, what group’s or person’s needs are companies being paid to meet? If the answer to that question is either not clear or not motivating to employees, the organization has a problem. Companies are born, survive, and thrive because some group of people is willing to continue to pay them to do what they do.
This is why focusing solely on writing inspirational purpose statements is misguided. CEOs and boards must wrestle with and resolve the tough but critical questions that underlie their statements: What is their firm doing? And why? And then they must work with management to close the purpose gap by figuring out how their organization can deliver on its purpose in its everyday activities.
Considering the challenges facing companies right now — including boosting the production of vital goods at a time of duress and stress — alignment between employee purpose and organizational purpose is crucial. Employees also need to see why they should continue to show up to work amid such difficult circumstances. This very basic professional need is obvious right now, but the need for purpose will only get stronger as we look to the transformative moves companies will have to make to adjust to the decade ahead. All companies in all sectors will need to figure out how to motivate their employees through some very tough terrain by grounding their work in purpose.
Putting purpose first starting now. Though operational executives are currently focused on stabilizing operations amid rapidly changing circumstances, it makes sense for boards to convene and begin to drive the right conversations around purpose now. Their members must ask the tough questions and hold the organization accountable for answers — most important among them, an answer for how purpose will drive the company forward. Without board intervention, the risk is that purpose will continue to live inside hollow statements, and the gap between the professed purpose and the lived reality of employees will only grow wider.
Without board intervention, the risk is that purpose will continue to live inside hollow statements, and the gap between the professed purpose and the lived reality of employees will only grow wider.
For centuries, theologians and philosophers have told us that seeking meaning is central to human experience. For the past several years, author Simon Sinek’s 2014 Ted Talk on “finding your why” has been the third-most-watched TED Talk of all time. Even before the pandemic, 21st-century humans were rediscovering an existential hunger and directing that hunger toward their workplaces, where so many of their waking hours are spent. If nothing else, this new age of restricted travel, sheltering in place, and a very public commitment to flattening the infection curve reminds us all that our lives and our way of life are truly precious.
The good news is that the purpose-in-business movement has come of age — arguably just in time. The role of business and the jobs that underlie the vitality of our economy will be critical topics in the coming weeks and months. Boards will have a meaningful role to play in moving the conversation about purpose forward, whether it’s by reconsidering the fiduciary purpose of the modern corporation; reevaluating corporate obligations to the government, the environment, and a broader set of stakeholders; or rediscovering their own company’s very specific reason for being.
- Sally Blount is the Michael L. Nemmers Professor of Strategy and former dean at the Kellogg School of Management at Northwestern University.
- Paul Leinwand is global managing director of capabilities-driven strategy and growth for Strategy&, PwC’s strategy consulting group. Based in Chicago, he is a principal with PwC US. He is the coauthor of Strategy that Works.