The key question for leaders tasked with setting corporate strategy is, “What is this company’s ultimate purpose?” Fortunately, the basic approach to answering that question has been clearly articulated by the U.S. Business Roundtable. In August 2019 it issued the “Statement on the Purpose of a Corporation,” signed by 181 CEOs from Apple to Walmart. It says a corporation exists for the benefit of all “stakeholders” including “customers, employees, suppliers, communities and shareholders.” In 2021 the Roundtable re-endorsed its position.
While the idea of addressing a corporation’s reason for existence has been around for years, embraced by companies such as Unilever and Patagonia, the 2019 statement was a small revolution. It demonstrated that this thinking had now entered the mainstream.
It also marked a shift in the Roundtable’s position. Previously it had posited that serving shareholder needs was the primary purpose of a corporation. In the wake of the 2007–08 Global Financial Crisis, the Roundtable realized that no one group could be the focus of corporate purpose — businesses must consider the needs of all their stakeholders.
My concern is that many companies don’t realize the full implications of going down the stakeholder-focused purpose path. For sure, it has many positive impacts, such as increased pride, employee engagement and morale, as a study by KPMG clearly demonstrates. But it also has significant implications for how strategic planning is conducted and it comes with a great corporate responsibility to follow through. So how does this play out for real-life firms and what does this mean for you and your business?
A Multiplicity of Metrics
BHP is Australia’s largest company by market capitalization and is valued at nearly 50 percent more than the second most valued, the Commonwealth Bank. According to its 2017 annual report, BHP’s purpose was focused on shareholders alone. It aimed “to create long-term shareholder value through the discovery acquisition, development, and marketing of natural resources.” Post-2019, its purpose statement, according to its latest annual report, has broadened: “to bring people and resources together to build a better world.”
The impact of this change in wording can be seen in BHP’s corporate strategic planning. In its 2017 annual report, the company’s emphasis was on financial performance and managing risk, in line with its shareholder focus. Its latest annual report carries a much broader and nuanced corporate tone, emphasizing BHP’s contribution to “social value.” The company “highlights” its performance around results such as the percentage of women in the workforce, greenhouse gas emissions, Indigenous people in the workforce, and the amount invested in environmental and social programs. It’s clear that the company is investing in, and measuring its impact on, a much broader group of stakeholders.
The Commonwealth Bank is Australia’s second largest company by market capitalization and the nation’s largest bank. In 2017 the bank did not have a stated purpose at all. However, in its 2017 annual report customers are “the overarching priority of our strategy.” Even the mention of staff (“people”) is in terms of what they can do for customers.
The bank has now shifted its position and in its latest annual report the company states that its corporate purpose is “to improve the financial well-being of our customers and communities.” It’s a significant expansion. The chairman’s report, which is part of the annual report, highlights “sustainable results for all stakeholders” and concludes with “we recognize the importance of achieving the best balance of outcomes for all stakeholders.” This emphasis is clearly absent from the chairman’s and CEO’s joint statement in the 2017 annual report.
Woolworths is Australia’s largest supermarket chain. By some reckonings Woolworths is ranked as Australia’s leading brand. In 2017 Woolworths seemed unsure of its corporate purpose and provided two statements. One focused on delivering quality — specifically “adding quality to life” for “our customers” and “our people.” The other was: “We are focused on shareholder returns through the effective deployment of capital and ensuring that we deliver on our Group targets.”
The company has now moved away from these earlier statements and any mention of shareholders. Its latest statement reads: “to create better experiences together for a better tomorrow.” The impact of this on its corporate strategic planning is demonstrated via the broader range of metrics it now provides across its stakeholder groups which are shareholders, customers, partners (suppliers), team (employees), and the community.
KPMG is one of the “big four” accounting firms in Australia. While it went down the purpose path prior to the Business Roundtable’s statement, it’s an apt illustration of the impact that doing so has on corporate strategy execution. Like many other businesses including Cisco, Hasbro, Deloitte and Intrepid Group, KPMG has established a special corporate role in the C-suite — Chief Purpose Officer. This person “is tasked with challenging the board and partnership on the decisions that are made, and ensure they are aligned with our purpose and values.”
The Tasks Ahead
My experience in consulting to companies over many years is that staff have a healthy scepticism around “management fads.” You need to be aware of this in your corporate strategic planning. Managers have workshopped mission statements. They’ve pondered the corporation’s vision. They’ve teased out the organization’s values. And they often wondered – to what effect? Now, they’re asked to consider corporate purpose.
While there’s evidence that companies with a clear purpose do better than those without one, this comes with much hard work. Here’s a partial list of your tasks ahead. I address these not only to CEOs and boards in businesses of all sizes, but also to senior executives in leadership positions.
Purpose-driven companies are part of the modern era and, I believe, are here to stay. As a result, corporate strategic planning methods have had to change and will continue to evolve further from this point.
This content was originally published here.