The quest for purpose is (probably) as old as human consciousness.
2500 years ago, Socrates claimed that an unexamined life is not worth living. Since then, the pursuit of purpose has surfaced countless answers, spanning all spheres of life: from religion, to philosophy, the arts, politics and psychology.
The sphere of business is no exception. Here, the quest has largely been an ideological one for the right economic system and the role of business in society(macro-level). More recently it has become a hot topic for individual businesses in the pursuit of strategic competitive advantage and sustainable performance (micro-level). At the individual level the quest has intensified with the modern search for personal happiness. According to a 2010 study in the Journal of Applied Psychology, people who have purpose, live longer and happier lives. Might this not also be true for companies?
In this article we focus on the macro- and micro-level to better understand why the quest for purpose is of growing importance to business governance and strategy, and why it will be at the core of next generation leadership, with some consequences for how we develop leaders.
The Macro Level
Businesses do not operate in a vacuum. They are part of a larger societal and economic system that sets the context and criteria for the purpose of business and the rules under which it should operate. Here, the question is that of the role and responsibility of business in society.
Adam Smith, in the 18th century and John Stuart Mill in the 19th century helped frame the purpose of the economy and how to organize it through markets to create wealth for the greater good. Despite Karl Marx’s criticism in the shadows of early industrialization, and his counter proposal (communism), capitalism (for some, social market capitalism), emerged as the winning school of thought, linked to democracy, and a framework of shared human rights, rooted in western values, and forged in the age of enlightenment.
Over time, market liberalism, together with shareholder value, taught us that the purpose of business is business (Milton Freeman). This mantra largely shaped mainstream thinking in the second half of the 20th century, at least for public companies. Family-owned businesses have always tended to take a longer-term view and wider stakeholder perspective, perhaps because it is more personal.
In the past three decades, however, this old grid of orientation has come under increasing pressure. Growing social tension, globalization, climate change, the limits of growth (Club of Rome) and failing corporate conduct are just some of the challenges. Consequently, regulation and legal scrutiny have been rising and so have stakeholder expectations from customers, investors, and employees.
The growing number of lawsuits and legal actions against business conduct are just one symptom of poor judgement by businesses and individual leaders. Dieselgate (VW), LIBOR rigging by banks (UBS), the financial crisis of 2008 (triggered through risky subprime lending), the Anderson / Enron case, WorldCom and Wirecard. Almost allsectors have been impacted. These prominent cases were extremely expensive, and sometimes fatal. The damage for economies, societies, industries, and individuals has been immense. One indicator of the growing cost of misconduct are the mounting fines business is subjected to because of misconduct. Misconduct is ultimately a symptom of misaligned or unenforced purpose and values. In financial services, banks alone had to pay more than $300 billion in fines over the past decade.
This has coincided with the emergence of new theories and a paradigm of more inclusive markets and sustainable economic models, pushing for a revised contract between business and society and a business purpose that reaches beyond short-term profit.
Conscious capitalism, circular economies, the green economy, are just some of the new concepts that have become part of a wider public debate. They all push for a more inclusive responsibility of business and more accountability for business leaders, while recognizing the central role of business in developing healthy and prosperous societies. Business holds about 80% of the resources and as the Edelman Global Trust Barometer highlights is seen to be the most competent sector to address the big issues, like climate change, inequality, access to skills and healthcare, ahead of NGOs and Government.
It is in this dynamic context, that individual businesses have come under pressure to justify – and perhaps – re-think their purpose to keep (some would say to re-earn) their license to operate and play a more proactive role in helping to restore trust in business and society. Purpose is at the core of this debate.
The Micro-level
This takes us to the choices that individual companies must make in finding their purpose. At a practical level, companies can take two different routes, a defensive or an offensive approach.
Defensive Strategy
The defensive approach translates into a re-calibration of purpose and business conduct from a governance and risk perspective. If a company is found to make claims and decisions that are not in accordance with current regulation or legislation, it exposes itself to material risk. The legal limit, however, may not always be the right boundary, as not everything that is legal today, will necessarily be legal tomorrow. And not everything that is legal can be justified to stakeholders from an ethical perspective. There also is no guarantee that customers will be happy to buy from companies that just comply with minimum legal standards. Competitors might take the high ground and build a differentiated brand based on an appealing purpose or ethical claim, building a purpose-based offering and reputation. Bio-products, green investment, or electrical cars are examples. In other words, purpose has become part of the competitive strategy. According to the 2022 Edelman Trust Barometer, 58% of customers buy or advocate a brand based on their beliefs and values. So, purpose matters beyond legal compliance.
Stakeholders might hold higher expectations than regulators. Senior leaders must decide at what level they want to operate (must/could/should) and set the right tone at the top.
While a defensive approach (compliance with legal limit) protects companies from regulatory risk, most organizational leaders understand that a defensive play alone is not good enough to win. Looking at purpose from a defensive (legal and risk) perspective only, is both, limited and limiting.
Offensive Strategy
Against this backdrop, businesses have started to engage a new agenda and narrative, one of responsible leadership and enlightened self-regulation.
Today most business leaders believe their businesses serve a larger purpose than profit and should make a positive contribution to society. This is reflected in adherence to new Codes of Conduct, standards of good governance, membership to the UN Global Compact and adoption of UN Millennial Goals, developing ESG and Sustainability Strategies, pledges to carbon neutrality and support for the development of more holistic reporting standards, such as the Global Reporting Initiative. The recent commitment of the US Business Roundtable to stakeholder value, is a further step in this direction and so are alternative forms of corporate set-up and certification, like the B-Corp movement.
From an optimistic standpoint, the combination of both approaches (offensive and defensive) can move us towards an emerging scenario that combines responsible market models and responsible business with responsible leadership at its core. This will go hand in hand with a wider definition of value, based on triple bottom line principles (People, Planet, Profit) and include externalities, such as environmental cost, into decision making and reporting.
We still have a long way to go, but new measures for performance of ESG and sustainability reporting are evolving. It will take some time for these to mature and become widely accepted standards to reflect the full cost of business. However, these ideas are already influencing the quest for purpose and decision making of leaders today.
From a leadership and leadership development point of view, these developments increase complexity, require awareness of risk/regulation in decision making and drive a longer-term, systemic view in strategy development and execution. They also require a deeper dive into individual purpose to be effective and deliver the desired outcomes.
Managing the dynamic interplay between business purpose, public expectations, business conduct/risk, strategy and aligned behaviours/culture are key challenges for the future, not only for strategic leadership and senior executives on boards, but leadership at all levels.
All leaders constantly need to consider purpose and ethical standards in their day-to-day decisions to align with top-down organizational purpose and conduct. This also includes their responsibility to set an example and guide their teams to think about their wider responsibility and the long-term risk which they might impose on the business through their decisions and actions.
At any given time, leaders need to deliver multiple forms of value, to multiple stakeholders against multiple time horizons, a dynamic set of expectations, often at global scale and with different regulators and markets dynamics at play. To navigate this complexity, finding a clear purpose is the right starting point. Not every business needs a higher purpose to be successful. However, defining purpose has long-term implications for strategy, decision-making, resource allocation, and risk. It determines which customers, investors, and talent the business will attract.
Finding purpose
Whatever the approach, offensive or defensive, finding purpose is a deliberate act of leadership. Purpose is a quest, it is not given, it needs to be found.
The purpose of a company describes the reason it exists. It captures more than the functional purpose it serves through its products or services.
Purpose is the inner sanctum of corporate culture, the “ultima ratio” or “last resort” of orientation in decision making.
- Purpose is both, an internal and an external obligation and promise.
- Giving something a purpose, is giving it a value.
- Purpose is not static. It can evolve over time.
- Organisational purpose is a social construct, and the result of a process of inclusion and stakeholder consultation, influenced by evolving societal context and ideas.
The Japanese concept of “Ikigai”, loosely translated as “the reason for living” is a good starting point for the search of an authentic purpose. The concept traces back to the 7th century Han Period and suggests that purpose can be found at the intersection of four overlapping inquiries:
- what you are good at,
- what you love
- what the world needs
- what you could be paid for
Founders of companies know this. The purpose of the business is not just about the formal function of product or service. It also is about the enjoyment of doing something that represents ‘my unique competence and capabilities’ and something that ‘I am passionate about’. Purpose is not just an obligation, it should also provide energy and inspiration and bring together what the world needs, with my authentic/distinctive strengths and my passion. Here are some examples.
Innovation: Bosch: We spearhead innovation, we develop products that are “Invented for life,” that spark enthusiasm, that improve quality of life, and that help conserve natural resources.
R&D: Pfizer: Deliver Breakthrough to change patients’ lives Roche: Doing now, what patients need next
Customer centricity: Amazon: Earth’s most customer-centric company, Earth’s best employer, and Earth’s safest place to work. Apple; Brining the best user experience to our customers
Health: GSK: We unite science, technology, and talent to get ahead of disease together
Technology: Microsoft: to enable people and businesses throughout the world to realize their full potential by creating technology that transforms the way people work, play, and communicate. Siemens: to create outstanding and high-performing technology and products that will revolutionize the world and change the perceptions of its users and customers.
Purpose is multi-faceted. It serves as an anchor. It provides certainty and confidence in complexity. It helps to navigate what is right and what is worthwhile. It assigns value to our actions by giving them meaning in context of a wider set of expectations (humanity/society). Purpose both roots companies in what they value and it drives them forward in creating competitive advantage. It gives meaning, direction, and energy to actions.
Purpose is an individual company’s choice. Based on the four circles of Ikigai, each purpose statement will be different, However, the choice is not totally free. There is another dimension to consider. As we saw earlier, purpose always sits within the context of societal expectations and business ethics. The following matrix shows four base quadrants for businesses to consider in calibrating their purpose from ethical and stakeholder perspectives. The matrix also shows how different levels of maturity on the purpose curve manifest themselves through focus on specific actions. Different levels of maturity are described by the level of integration of ethical standards and breadth of stakeholder value. The current discussion of corporate purpose seems to point toward a trend where businesses choose their purpose higher-up the purpose curve, moving from a defensive approach (denial and compliance) to a more offensive strategy by operating at a more advanced level of integration (Pless/Maak 2007).
The economist has been the predominant model. Here purpose statements typically define what companies’ functional purpose is and what practical problem they solve. It operates on the basis that the business of business is business. An example is the industrial gases company, Praxair: To make the planet more productive.
The Idealist are organizations who serve a social cause, the business is a conduit to achieve this. Social enterprises, microfinance, cooperatives, and NGOs fall under this umbrella. One of the few corporate examples are Patagonia; their purpose: In business to save our home planet or Warby Parker: Leading the way for socially conscious business.
The Strategist is where companies operate as good corporate citizens, focused on doing their business and delivering long-term shareholder value while doing good in the process, often through philanthropy, foundations, CSR programs, but also via innovation e.g.by investing into new green technologies
One example is Tetra Pack: We commit to making food safe and available, everywhere, and we promise to protect what’s good: food, people, and the planet
The Integrator is the business that puts responsible leadership at its core and considers all stakeholders in its decisions to serve the greater good by doing the right thing. It becomes a proactive enabler of inclusive and sustainable/regenerative societies. Some examples are Tesla: accelerate the world’s transition to sustainable energy. Unilever, making sustainable living common place, Starbucks; to inspire the human spirit, Henkel: Pioneers at heart for the good of generations.
When I ask executives, which quadrant their company plays in, most say in the strategist box. When I ask why, the answer often is a dominant concern to meet investor expectations. Businesses need to find the right balance between stakeholder needs. As institutional investors like Blackrock, Vanguard and others are pushing corporates for adoption of well-defined ESG standards, it might be easier for corporates to choose a more offensive approach in their future quest for purpose.
However, there is another reason why businesses are careful not to move up the purpose curve too far and too fast. They are concerned to over-promise. This is the risk of internal alignment and the need to build the capability to deliver on the promise. It should not backfire. In this sense, finding your purpose is not a totally free choice, it is limited by leaderships’ capability to align and deliver. Purpose should focus on what you are good at. There is a difference between where you want to play and where you can play. Companies need to be able to play both the offensive and defensive strategies well, to move up the purpose curve
Not every business needs to have a higher purpose, but it needs to be authentic and well delivered.
The higher the purpose, the more attractive it is to stakeholders. External and internal stakeholder expectations are pushing companies up the purpose curve. This is another reason why there is so much pressure on leaders to engage the quest for purpose.
This article is an introductory piece to the main article that appears in the print issue of DLQ40, by Ralf Schneider.
