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Profits through purpose

May 7th 2019

“Doing well by doing good” is certainly in vogue. It seems you can’t turn around in business circles without running headlong into concepts like shared value, purpose, long-term value, sustainability, social investment and corporate responsibility. But while it runs the risk of all becoming a little ‘buzzwordy’, I would argue this is on balance a very good thing.

As my co-authors and I observed in a recent research report examining the link between purpose and performance, the last year will probably be remembered as the year of ‘peak purpose’. Between Larry Fink, the leader of the world’s largest fund manager, saying that companies must serve a social good, and Paul Polman, outgoing CEO of Unilever, arguing for a return to business serving the social interest, public sentiment is growing behind a need to better navigate the relationship between business and the community. Anyone doubting how seriously corporate-community relationships are being taken would do well to watch parts of the testimony of Mark Zuckerberg before the House and Senate in the wake of the Cambridge Analytica scandal. Or, indeed, the testimony, and response to testimony, of Ken Henry before the Royal Commission.

People are starting to find their voice when it comes to the impact of companies on the world.

On a personal level, having spent over 13 years building large-scale community impact programs for companies (first in my role as Founder at Karrikins Group, and now in my new role as a Partner in the Climate Change and Sustainability practice at EY) I can attest first-hand to how important social impact and community relationships are becoming to the best companies.

But it’s not all just anecdotes. Increasingly robust bodies of evidence (as summarised in our report mentioned above and elsewhere) suggest that companies with a clear connection to purpose outperform their non-purpose driven peers, drive more innovation, better engage their people, and create longer-term and more sustainable value. Further, consumers increasingly want to buy from companies they see as making a positive impact on the world, and will be more loyal to brands they feel make a difference.

Research from EY’s Embankment Project for Inclusive Capitalism finds that a company’s market value is increasingly detached from tangible components of its book value. Intangible assets such as brand, growth prospects, IP now represent up to 80% of the market value of a company. That is, the market increasingly factors intangible assets such as social impact and conscience into share price.

On these grounds, I suppose you could cynically call this article less an ‘ode to social conscience’, and more ‘an ode to the role that social conscience can play driving business performance’. Whilst some pure altruists may find it frustrating that making a positive impact needs to link to the bottom line to drive change in business practice, I think pragmatists would agree that we will take what we can get!

The truth is, as consumers more and more demand companies be held to account for their social impact, and the value of companies becomes more and more based on intangible parts of the balance sheet, it is a perfect time to ‘get serious’ about our relationship to communities.

Whilst previously the impact of a company on the community was often dismissed as an externality to be ignored, or in the best case relegated to the purview of a marketing-focused corporate responsibility function, today focusing on enhancing the quality of a company’s impact on the community can sit at the heart of genuine competitive advantage. We are seeing darlings of Silicon Valley and Wall Street increasingly be the companies that have at their heart a socially motivated raison d’etre. Consider Tesla as a case in point, who exist ‘to accelerate the world’s transition to renewable energy’ – they sell 76,000 cars per year versus Ford’s two million-plus, yet are priced as a more valuable company.

But having a social conscience need not be the domain only of those companies who have been founded on social impact principles. All organisations can extract value from thinking carefully about the impact they have on the world around them, and in particular by putting purpose at the middle of their decision making.

To do so, leaders should think about the four drivers of alignment to purpose:

  • clarity: the ability to clearly articulate your reason for being (over and above making money) in ways that are emotionally compelling and behaviourally directive
  • commitment: the willingness to lean into difficult decisions to stay aligned to your purpose even when those decisions come with a short-term cost
  • confidence: the recognition that great companies and have grand aspirations, and a commensurate willingness to set lofty and ambitious goals for impact
  • confluence: the ability to manage a broad set of stakeholders beyond only shareholders or customers in making decisions about enterprise behaviour

These four things together are the drivers of alignment to purpose that can help translate a broad notion like ‘social conscience’ into something concrete that lives and breathes in corporate decision-making.

Given the state of the world in which we find ourselves, I argue passionately that it’s never been more important for companies to understand and moderate their impact on the world. Luckily, as detailed in this article, this does not have to mean a choice between profit or purpose; ‘doing well by doing good’ can be a strategy that works to drive results, not a mere cliché or buzzword.

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