Purpose aligned with profit
by Nicholas Dungan and Antonio de Lecea
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.
Building upon CSR, ESG and ‘purpose’
The definition of CSR varies from firm to firm amongst stakeholders, reflecting each one’s approaches and values. It is often vulnerable to greenwashing and virtue signalling, with companies engaging in self-serving corporate messaging and gaining no credibility from that.
ESG is a more structured, pluridimensional approach to assess a company’s behaviour. It is mostly used by investors to minimise the reputational risk of being perceived as financing companies that create significant collateral damage to others or to society at large. But ESG still varies from one institutional investor to another, although initiatives are ongoing to bring some consistency. ESG is susceptible to becoming too much of a box-ticking exercise, failing to take a broad-based, meaningful, approach. In particular, while the ‘E’ and the ‘G’ can operate defensibly on the basis of relatively uniform criteria, the scope of ’S’ remains more exposed to continuing debate. And like CSR, ESG is also vulnerable to greenwashing.
The concept of purpose has sometimes been imposed on companies without their actually being prepared for it. Too often purpose is not much more than a new label on a pre-existing organisation, which may then be perceived as a smokescreen. Companies actually need to seek true, meaningful purpose by asking ‘What is, or can be, our benefit to society and, from there, what business should we be in?’ They must also consider ‘Are we destroying value elsewhere as we operate to achieve our purpose and can we create value along that dimension?’
The good citizen
Identifying purpose and (re)orienting the business towards it is not easy but it is one fountainhead of corporate citizenship. The other is identifying and avoiding harmful side effects to society. Since Antiquity, everyone knows how to distinguish 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.’
Purpose and financial performance enhance each other
True purpose and no harm to society need not be at the expense of shareholders’ own interests. As Colin Mayer, Professor at Oxford University, puts it: ‘The purpose of business is “to produce profitable solutions to the problems of people and planet, and not to profit from producing problems for people and planet”. In the process, business produces profits.’
Achieving purpose as good corporate citizens and achieving sustainable financial performance can be and should be mutually reinforcing, but only so long as they derive from sound strategic thinking and planning. They should also be recognised as legitimate 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 corporate-citizenship leadership
Thus it is that companies can become leaders in their field of corporate-citizenship expertise. They can become trusted sources to whom others turn for insight. Essential components of corporate-citizenship leadership are education and engagement. Corporate-citizenship leaders help others understand complex issues and the implications and impacts of those issues, increasing the empowerment of those who follow, listen to, and learn from the leader. Similarly, following and listening other stakeholders, and learning from them, ensures continued relevance of purpose, do-no-harm criteria and means.
Corporate-citizenship 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. The usual corporate messages — the company just talking about itself — rarely contribute to corporate-citizenship leadership and often detract from it: they may in fact erode brand equity if deployed on their own.
The thinking required to underpin corporate citizenship must be global and it must be strategic in order for the firm to be recognised as a corporate-citizenship leader in its field:
• global: the breadth and depth of thinking must be broad, 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 corporate-citizenship reference regarding the fundamental strategic issues of its business, industry or professional sector within the widest definition of global society.
Despite increasingly heightened awareness, global firms — industrial, financial, services — have yet to come fully to terms with the imperative for broad-based corporate citizenship. All leading global business firms need to review their business models. And they need to prove to society their ability to think and act globally and strategically in order to remain global leaders.