Purpose vs Profit: Making Purpose Tangible for Stakeholders

Chris Andrew
By Chris Andrew
Strategy Director

Having a purpose as a business is a fundamental part of your success.

Your business purpose is your North Star, your guiding light, informing everything from strategic decisions to company culture. But how do you convince financially-motivated shareholders to embrace investment in something that, up until a few years ago, might have been considered little more than marketing spiel?

There are five main points to convince the most stalwart of stakeholders to embrace the investment in developing their company’s purpose:

  1. A purpose already exists within the business, it just hasn’t been articulated or communicated effectively yet
  2. Customers want to engage with businesses with a purpose
  3. Employees want to work for a business with purpose
  4. Investors and investing firms want to place their funds with businesses that have purpose
  5. Purpose empowers better performance and therefore profit

Many businesses have a purpose already

In our ‘Connecting Your People To Your Company Purpose’ webinar in September 2020, Ali Fox-Robinson, Head of Colleague & Community Engagement at Pfizer, said:

“About three years ago, Pfizer, articulated its purpose: ‘breakthroughs that change patients' lives’. It's been hugely energising because 90,000 people around the world can get behind something and have a framework they can really live and work by.”

It wasn’t that Pfizer didn’t have this purpose already, rather it hadn’t been clearly articulated, nor had it been communicated to employees or made relevant to them as individuals.  

Indeed, many organisations already have a purpose over and above generating shareholder return. When this is the case, having an effective internal communications strategy (Pfizer) is needed to connect and embed this purpose with your employees. 

Customers want to engage with a business with a purpose they can relate to

There is growing evidence that customers want the businesses they engage with and buy from to define and articulate what they stand for and why. 

Freud famously wrote: “What decides the purpose of life is simply the pleasure principle”. The id, according to Freud, is the driving force of human behaviour (Verywellmind.com, 2020) – guiding the pursuit of pleasure, governed mostly by the ego and super-ego to keep instincts socially acceptable. 

Purpose is also discussed in Maslow’s hierarchy of needs (Saul McLeod, 2020), suggesting we only reach ‘all that we can be’ or self-actualization, when each rung of the ladder has been met.

Maslow’s theory has felt more vivid this year especially. Most of us have been forced to think about our physiological needs and how we will access critical supplies. With health challenges and employment compromised, our safety needs have been compromised and with our connections with friends and family restricted, our love and belonging needs are compromised.

But it’s not just academic sociological theory that dictates business should embrace purpose, there’s commercial evidence too.

Professor Virginia Harper Ho, a researcher at the University of Kansas, says many millennials are demanding companies be more socially responsible.

The fact that millennials surpassed baby boomers as the largest living adult demographic in 2019, with a collective estimated spending power of  $1.4 trillion in 2020, should make shareholders sit up and take notice.

Employees want to work for Businesses with Purpose

According to a 2017 Korn Ferry survey of more than 1000 recruiters, candidates made final job decisions based on a company’s culture and purpose rather than the benefits package.

Ali Fox-Robinson of Pfizer shared an anecdote demonstrating how important articulating their purpose has already been in attracting and retaining talent: 

“I interviewed one of our graduates earlier this year and I asked her why she chose Pfizer. She said ‘I came because I really loved what I heard about the purpose’. And when I showed up and started working here, it turned out to be true’”. 

Investors want to back Businesses with Purpose

In its 2019 letter to the companies it invests in, BlackRock, which manages more than $5 trillion in assets worldwide, said it expects company directors to be able to express how their firm intends to grow profits and benefit the community over the long term. The letter states:

 “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

The letter continued to say:

“Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.”

A direct insight from one of the world’s most influential investment firms should be enough to convince shareholders of the benefits of being a purpose-led business. 

In the Korn Ferry article ‘Profits VS Purpose’, Professor Harper Ho continues: “There’s been a tipping point among investors. Businesses can be profitable and do good at the same time.”

Purpose dives profit

Ultimately, it is still profit that excites shareholders.

“But if your sole reason to exist is shareholder value, that isn’t a very 21st Century way to be doing business and in the long term, you will not be as successful as those purpose-led businesses.”, Chris Hopkins, Founding Director and Lead Communications Consultant at Caburn Hope.

Business has been changing for nearly a decade and even though purpose-led businesses deliver successes above and beyond revenue, companies with an articulated and embedded purpose, generate profits in spades. 

In another study – as far back at 2011 – by Harvard University Professor Michael Porter and senior fellow Mark Kramer, businesses that took a long-term approach to growth over short term profitability were identified as having higher brand loyalty, higher employee retention rates, better resource allocation and an overall competitive advantage. The co-authors reported:

“Shared value is not social responsibility, philanthropy or even sustainability, but a new way to achieve economic success.

There is an overwhelming and growing body of evidence that demonstrates the improved performance of purpose-led businesses, both culturally and financially:

  • Brands with a purpose set on improving our quality of life outperform the stock market by 120% (Interbrand 2017)
  • According to Kantar’s Purpose Study, purpose-led brands had seen their valuation surge by 175% over the past 12 years, versus a growth rate of just 70% for brands uncertain of their role (Kantar 2018)
  • In 2018, Unilever’s Sustainable Living Brands grew 69% faster than the rest of the business, compared to 46% in 2017 (Unilever 2019)
  • Babson professor and Whole Foods advisor, Raj Sisojdia, studied 28 companies from 1996-2013 and concluded that purpose-driven enterprises grew by 1681% compared to the S&P 500 average of 118% (Sisodia 2014)
  • The Global Leadership Forecast 2018 by DDI World found that purposeful companies outperformed the rest of the market by 42% (DDI World 2018)
  • Researchers at the School of Management at SUNY Binghamton found that certified B Corps had an impressive 51% revenue growth rate during the 2008 financial crisis (Yale 2018)
  • Certified B Corps in the UK are growing 28 times faster than the national economic growth of 0.5%. Leading B Corp FMCG brands grew on average 21% in 2017, compared to a national average of 3% across their respective sectors. (B Corp 2018)

And finally, In his book, Grow the Pie: How Great Companies Deliver Both Purpose and Profit, Alex Edmans details his study into purpose and its positive effect on profit. Companies with a high employee satisfaction rate [delivered by engagement programmes communicating authentic purpose], outperformed their peers by up to 3.8% over a 28-year period. 

Christopher, continues: “There has been a mindset shift in business over the last decade away from ‘profit for shareholders’ to ‘benefits for all stakeholders’.  Companies now define success, not just in profit generated, but in the wider impact they can have within their industry, the personal success they can bring to their employees and their positive impact on the world.”  

The conversation to have with shareholders, therefore, isn’t whether or not your business needs a purpose, but when you’re going to start powerfully communicating, living and breathing it.

 

 

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