“No wise fish would go anywhere without a porpoise." "Wouldn't it, really?" said Alice, in a tone of great surprise. (Alice’s Adventures in Wonderland, 1865) It’s rare for a company to be quite so bemused by “Purpose” as Alice was by the Mock Turtle. Indeed many companies espouse purpose and annual reports and websites recount purpose. But the linkage between purpose, strategy and investor proposition is often more challenging and when ESG is folded into the mix those sitting at the Board table can indeed feel like Alice. This matters for a number of reasons: 1. Increasingly Corporate Governance Codes hold Boards accountable for purpose.
“The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.”
2018 UK Corporate Governance Code
2. Investors are recognising the value of purpose.
“The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society... a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders... Ultimately, purpose is the engine of long-term profitability.”
Larry Fink, Chairman and Chief Executive Officer of Blackrock
3. Employees are demanding purpose.
“Millennials want their work to have a purpose, to contribute something to the world and they want to be proud of their employer. The brands that appeal to young people as consumers including those that stress their environmental and social record, are the same brands that appeal to them as employers.”
PWC, Millennials at Work
ESG is multifaceted, including in the demands it makes of the Board. As ESG impinges increasingly on the Board Agenda, the articulation of a coherent corporate purpose has become a necessity. But Board Members are frequently unsure what it really means, and how to go about ensuring that it’s not just a re-heated “Mission Statement” but instead articulates a vision and a path for the organisation to create value for shareholders as well as other stakeholders. In carrying out Board Evaluations Fidelio clearly sees the value of purpose. There is also the appetite for greater clarity. We therefore included a module on defining purpose in Fidelio’s recent “A Seat at the Table” Board learning programme. Fidelio partner Alistair Stranack introduced participants to the “Why?” [the organisation exists] and “Who?” [it is serving] of Purpose, as well as to the need for it to be focused and selective and integrated with the organisation’s strategy. Without the lynchpin of purpose it is exceptionally difficult to embed ESG into the corporate strategy. Failure to address ESG can in turn risk the licence to operate and limit access to capital. Alistair provided examples of companies that have articulated a compelling purpose, and also a primer for Board Directors seeking to establish a purpose that motivates and unifies. At least some of the benefit is in the process of getting there.
For Fidelio's Board Primer on Purpose, click here.