Purpose aligns with performance
by Nicholas Dungan
Major business firms need to prepare now for a sea-change in the way they fit in global society. Global firms — multinational enterprises, financial institutions, professional services firms — will henceforth be compelled to prove, convincingly and continuously, their commitment and their conduct as exemplary global citizens.
Corporate social responsibility (CSR), environmental-social-governance criteria (ESG) and even ‘purpose’ as presently expressed will soon be replaced by a more holistic, broad-based concept of corporate citizenship. As a consequence, global business firms will be held to a higher standard of societal behaviour by the whole range of their stakeholders: shareholders of course but also employees, customers, suppliers, the media, government, regulators, NGOs and the public will judge companies by their contribution to society as much as by their business performance.
Shortcomings of CSR, ESG and ‘purpose’
The definition of CSR varies from firm to firm and is largely the result of each company’s own approach and values. CSR is therefore widely perceived to generate greenwashing and virtuesignalling. Companies gain no credibility by engaging in self-serving corporate messaging.
ESG is investors’ perception of a company’s behaviour and also varies from one institutional investor to another. ESG is susceptible to criticism for being too much of a box-ticking exercise, failing to take a broad-based holistic approach. In particular, while the ‘E’ and the ‘G’ can operate defensibly on the basis of relatively uniform criteria, the ’S’ — which is where the essence of corporate citizenship lies — remains the subject of continuing debate.
The concept of purpose has been imposed on companies without their actually being prepared for it. Companies have had to state a purpose on the basis of their current business model. Purpose thus comes to be seen as not much more than a new label on a pre-existing organisation. Companies actually need to achieve a philosophy of purpose before being able to state what their purpose is. In other words, companies should not be asking ‘What business are we in and how can that benefit society?’; they need to ask ‘What is our benefit to society and, from there, what business should we be in?’.
The good citizen
Achieving a philosophy of purpose is not easy but it is the fountainhead of corporate citizenship. And, since Antiquity, everyone can identify a good citizen from a bad citizen. To quote the Stanford Encyclopedia of Philosophy’s entry on John Rawls: ‘Reasonable citizens have the capacity to abide by fair terms of cooperation, even at the expense of their own interests.’ This is the standard to which companies will be held as corporate citizens, globally and locally. It is much more universal, clear and uniform — much more humanist — than CSR or ESG.
Purpose and performance enhance each other
True purpose and positive performance are mutually reinforcing, but only so long as they derive from sound strategic thinking that is recognised as viable by the broadest possible range of stakeholders.
In order to pursue — and in order to prove, convincingly and continuously — their commitment to corporate citizenship, global firms will therefore increasingly be required to demonstrate the quality of their strategic thinking, over and above their business performance. This is a paramount
implication of corporate citizenship.
Requirements of thought leadership
Thought leaders are the go-to people in their field of expertise. They are the trusted sources to whom others turn for insight. An essential component of thought leadership is education. Thought leaders help others understand complex issues and the implications and impacts of those issues. Thought leadership results in the increased empowerment of those who follow, listen to and learn from the thought leader.
Thought leadership is not about mere messaging. It is about expertise, trust, recognised authority. It is not just about communication — it is about big-picture, long-term, blue-sky thinking first, then about how that thinking translates realistically into practice. Corporate messages — the company just talking about itself — rarely contribute to thought leadership and often detract from it: indeed, they may erode brand equity if deployed on their own.
The thought leadership required to underpin corporate citizenship must be global and it must be strategic in order for the firm to be recognised as a thought leader in its field:
• global: the breadth and depth of thinking must be all-encompassing, address multi-stakeholder relationships from a pluri-disciplinary platform and extend beyond comfortable close-to-home geographies;
• strategic: the thinking must focus on major long-term issues facing the firm, its industry or profession and all societal stakeholders;
• leadership: the firm achieves — and then must maintain — its status as a multi-stakeholder standard-setter for the best quality thinking about the fundamental strategic issues of its business, industry or professional sector within the widest definition of global society.
Despite heightened awareness, global firms — industrial, financial, services — have yet to come fully to terms with the imperative for broad-based, holistic corporate citizenship. All leading global business firms need to reconsider their business models. And they need to prove to society their ability to think globally and strategically as standard-setters, in order to remain global leaders.