In recent years, sustainability issues, be they environmental (climate change, pollution), social (poverty, modern slavery) or governance related (diversity, risk, compliance), have entered public consciousness like never before. Today, the business of business is more than just business, and many organisations are articulating this as part of a clear corporate purpose that is central to their strategy.
A focus on purpose
In order to report effectively, we believe that companies need to articulate their corporate purpose clearly and use this to demonstrate the impact on the environment and the value brought to wider society. A company’s purpose is usually a stated objective that defines that company’s ‘reason for existing’. While companies are often bound to provide a financial return to their shareholders, a purpose should look beyond profit and articulate the additional value that the company creates for society. A purpose is usually intended to provide a guiding philosophy for a company’s stakeholders (particularly employees) to keep at the forefront of their mind as they go about their daily business.
For example, PwC’s purpose is “to build trust in society and solve important problems”.
Making the case for purpose-driven business
While the perspective of shareholder primacy may still hold true, many today embrace a more expansive approach to consider a broader stakeholder group. Regardless of where one stands on the issue, one thing is certain: there are heightened expectations for each company to define its purpose, balance the needs of all of its stakeholders, and decide how it will measure and communicate success.
Time and again, evidence suggests that, perhaps paradoxically, companies with a purpose beyond shareholder return tend to make more money in the medium to long term. This tends to be because organisations that prioritise purpose tend to transform more vigorously than their peers and do a better job of seeing the big picture, typically focusing on long-term improvements rather than short-term gains.
Leading with purpose also brings additional benefits related to staff recruitment, motivation and retention as employees tend to be more passionate and engaged. Customers on the other hand tend to be more loyal to those organisations that are aligned to their personal purpose. This enables companies to achieve continued loyalty, consistency, and relevance in the lives of their consumers.
So what does good purpose reporting look like?
An effective purpose statement should:
Be short
Go beyond the profit motive
Explain how the core business activities contribute to society
Be adopted and recognised throughout the business
If a purpose is truly part of how a company does business, we would expect to see it featured front and centre in the Annual Report.
In summary, a company that balances the needs of all stakeholders can drive shareholder value while playing a broader role in society. The role of the board in this process is key, and so management and their investors should engage in the debate as to what is important for each company. To this end, disclosing purpose-led information that goes beyond the financial statements will enhance the level of transparency and accountability to society and the broader stakeholder group.
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