Many companies can’t explain their purpose

Posted July 9, 2020

In Corporate Social Responsibility, Creating Shared Value, Innovation, Leadership

The current pandemic serves as a reminder that the fortunes of business and society are tightly linked and, with the phrase ‘corporate purpose’ trending of late, it’s worth defining what it is, what features it should have and which of Australia’s top-50 companies have clarity (or not) around their purpose.

From my analysis, one company gets a perfect score and another 15 rated very highly, however 19 fail to adequately explain why they exist, which means they may be drawn into shorter-term decisions that adversely impact people and the planet, and undermine their own longer-term profitability.

Why purpose?

Ongoing poor corporate behaviours – such as those exposed in the banking royal commission in Australia – have eroded trust and caused many people wonder if businesses care about anything other than maximising profits.

Well known figures like BlackRock’s Larry Fink and the CEO members of the US Business Roundtable have become advocates in their support for stakeholder capitalism, a model that installs corporate purpose as the means for growing and sustaining profits.

Reflecting on the role of corporate purpose, the CEO of food giant Danone, Emmanuel Faber, describes the connection between profit and purpose in this way:

Your company does not exist to make a profit. Making a profit is a way for your company to continue to exist.

This is quite an elevation as, in the past, companies have tended to regard purpose as the act of giving something back after profits have been made, or as responsible investments intended to protect a company’s brand and reputation. Adopting a meaningful and relevant social ‘purpose’ is now regarded as a must-have instead of being optional.

Purpose has moved from being a decorative piece of corporate architecture to the engine room for success.

Clarity of purpose is arguably the first step in creating a positive and enduring work culture which, in turn, underpins innovation, productivity and shareholder returns. However, a good purpose statement is not enough on its own, companies still need excellent strategic, operational and culture building skills in order to realise their potential.

In a corporate context, the term purpose is a proxy for ‘societal purpose’ or ‘social purpose’. Companies have traditionally talked about purpose in financial returns (“we maximise shareholder returns”) or activities (“we make cars”) instead of conveying a meaningful benefit to society (“we create sustainable transport solutions”).

Apart from its critical role in defining why, what and how a company goes about its business, purpose helps in:

(Re)defining the playing field
Exploring adjacent market opportunities
Creating new and innovative business models
Reshaping or enhancing value for customers; and
Unifying the organisation and building a positive culture.

What is a ‘purpose statement’?

There is no consistent way of expressing a corporate purpose – a potpourri of terms such as purpose, mission, vision and values that tend to cause confusion. For a simple and effective way forward, I recommend the following structure:

Vision – the aspiration – the outcome or better world the company would like to create
Purpose – the inspiration – the role the company is playing in creating that better world; and
Core Values – the dedication – the non-negotiable values and behaviours to be upheld in that pursuit.

For example, the largest company by size in the top-50 is CSL, whose purpose is “to save lives and protect people”. The role CSL is playing in creating a better world is easily grasped.

Purpose is most relevant to employees of a company – it’s a common goal that inspires them to give their best and provides a ‘true north’ that ensures resources are focused in the right areas.

A purpose statement provides a reference point for managers and leaders when decisions requiring trade-offs have to be made.

A vision and purpose may be combined into the one statement. For example, Telstra’s purpose is to “build a connected future so everyone can thrive”. In this case its purpose is to “build a connected future”, which is its role in creating a world where “everyone can thrive”.

Some commentators regard ‘purpose’ as a way of expressing a company’s unique strengths or competitive advantage. I disagree with this approach. In theory, two companies could have the same vision and purpose statement and they would still compete via their respective strategies. This is because vision and purpose statements are conveying social benefits or outcomes, which are not competing forces. The company that delivers those benefits in the most cost effective, skilled or innovative way through its strategy stands to gain an advantage.

What features should the purpose statement have?

What criteria could or should be applied when defining best practice for purpose statements? Again, this is a relatively new area and there’s no prescriptive or agreed formula. In my analysis, a rating is derived from considering and scoring the following elements:

Does it represent a genuine societal need?
Is it suitably focused, being neither too broad nor too specific?
Is it elegant, concise and easy to communicate?
Is it likely to inspire employees, customers and stakeholders?
How enduring is it likely to be?

Over time, I intend to modify this analytical approach and the weightings given to each element as more insight is gained.

How do Australia’s top-50 companies fare?

The results of the analysis are interesting and I should reiterate that having a great purpose statement does not guarantee success, this study is merely an assessment of existing company statements. In some cases there is no clearly defined mission or purpose statement and the most relevant or equivalent statement is used.

Overall, 19 companies (38%) rated below 50 on my 100 point scale, indicating there were deficiencies in two or more of the five factors. At the top of the table, one company had a perfect score, seven were in the 90s and another eight in the 80s. The average score was 60 and the median 62.

My high level comments are:

Health care companies are likely benefit from being in a sector with easily grasped social benefit.
Materials companies (mainly mining and resources) rank poorly, which could be partly due to them being B2B businesses.
While some readers may not agree with the scores I give to gaming companies, mining companies and others, they have been assessed on the basis of the quality of their statement alone, and not their actual impact.
One company is a conglomerate of many separate and diverse businesses, raising questions about the role that the purpose statement plays for a holding company versus its operating subsidiaries.

Highlights from the analysis:

Cochlear’s purpose statement of “We help people hear and be heard” attracted a perfect score.
Health care companies, Cochlear, Resmed (“Awaken your best”) and CSL (“to save lives and protect people”), filled the top three places, which is not surprising given that the sector is very purpose driven and easy to articulate.
They were followed by Aurizon (“To grow regional Australia by delivering bulk commodities to the world”) and Brambles (“To connect people with life’s essentials every day”).
The next five companies making up the top 10 were Medibank Private (“Better Health for Better Lives”), Telstra (“To build a connected future so everyone can thrive”), IAG (“We make your world a safer place”), Coles (“To sustainably feed all Australians to help them lead healthier, happier lives”) and Ramsay Health Care (“People Caring for People”).
Many of the major banks (CommBank, ANZ, Westpac) were in the top 20, however NAB (“To back the bold who move Australia forward”) and Macquarie Group (“To realise opportunity for the benefit of our clients, our shareholders and our people”) ranked low on the list.
Wesfarmers is a conglomerate that states its “primary objective is to provide a satisfactory return to shareholders”, and it ranks last on the table because of this financial focus. There is scope for it to consider the adoption of a more inspiring statement that gives insight into the nature and purpose of the businesses it seeks to acquire, hold or sell.
Materials companies dominated the lower end of the table with statements such as Northern Star’s (“To continue to build a safe, quality mining and exploration company, focused on creating value for shareholders”), Fortescue Metals (“…our vision of being the safest, lowest cost, most profitable mining company”), Woodside (“Our aim is to be a global leader in upstream oil and gas”), Evolution (“Inspired people creating Australia’s premier gold company”) and Newcrest (“Our vision is to be the Miner of Choice™ for our people, shareholders, host communities, partners and suppliers”) being very shareholder oriented.
In contrast, Rio Tinto ranks 17th (“To produce the materials essential to human progress”) and BHP is 22nd (“Our purpose is to bring people and resources together to build a better world”). Given the controversy surrounding Rio Tinto’s blasting of the Juukan Gorge, it shows that a good purpose statement does not necessarily translate into cultural, strategic nor operational excellence.
Some companies have such broad statements that they come across as vague, such as A2 Milk (“Helping people enjoy a better life”) and Woolworths (“We create better experiences together for a better tomorrow”).
It is hard to judge companies like Aristocrat (“Bring joy to life through the power of play”) because gambling isn’t illegal but does cause social harm.

You are welcome to DOWNLOAD the full listing and scores.

How to apply ‘purpose’ in business

You may want to reflect on your own purpose statement in light of this discussion. Apart from those companies already using it as a guiding light, I find some have great statements on paper but struggle to live up to them – their challenge is to affirm their purpose and then focus on implementation.

Conversely, there are companies that put little effort into crafting their statements but do act in socially beneficial and culturally aligned ways – for them it is about formalising their purpose and realising the greater benefits it can bring.

Interest from investors, executives and directors in purpose-led models is increasing because they are profit drivers, not drains.

As a result of this process, I’ve revised my own combined vision and purpose statement, although I’m sure there’s room for improvement: Helping people and organisations contribute something great towards our collective prosperity.

I invite you to share your own personal or organisational purpose, and provide your thoughts about its role in shaping a better future.

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Phil Preston helps people and organisations contribute something great and is the author of Connecting Profit With Purpose. You can download his summary report and he can be contacted via phil@philpreston.com.au or +61 408 259 633.