Are corporations serving their purpose?

Amidst the upheaval of a global pandemic, a mounting climate emergency and rising inequality, a chorus of stakeholders has been calling on business to help society address these challenges. Among those calls, a recurring question is being debated: what is the purpose of business?

In response, pioneering companies are defining why they exist, beyond serving shareholders. A growing number are adopting a social purpose to contribute to a better world.

However, they are gravely at risk of failing to implement it.

Enter the Corporate Knights social purpose ranking, the first of its kind in the world. By shedding light on purpose leaders and laggards, it hopes to head off “purpose-washing” (where purpose statements aremore of a marketing mantra than raison d’être). Instead, our report hopes to create an implementation roadmap for authentic businesses and leaders.

I collaborated with Corporate Knights in studying pioneering social purpose companies to determine the state of play among companies operating in Canada, including private, domestic companies and public, global companies. We began by looking at nearly 200 companies and found that only 17% had adopted a purpose that went beyond creating value for shareholders and customers to expressly creating value for society – if they had a publicly expressed purpose at all.

For each of the 34 companies that made it into the rating, we applied eight governance and implementation criteria: in addition to assessing whether their corporate values embodied their purpose, we evaluated their strategy, incentives, CEO and executive performance objectives, formalized governance responsibilities for the board and CEO, and disclosures. We found that all 34 are on the pathway to embedding their purpose into their business by demonstrating some or several of these practices. That’s the good news. The bad news is that many are at risk of only paying lip service to their purpose by not implementing the purpose fundamentals.

Among the leaders, Unilever, the fast-moving consumer goods company and long-time sustainable business darling, has had more than 10 years to get it right. A decade ago, it adopted its social purpose: to “makes sustainable living commonplace.”

Today, its business strategy includes:

develop our portfolio into high-growth spaces (e.g., plant-based foods);
win with our brands as a force for good, powered by purpose and innovation (e.g., improve people’s health, confidence and well-being);
and build a purpose-led, future-fit organization and growth culture (e.g., be a beacon for values-based leadership).

Unilever’s 2020 annual report reveals progress on its purpose. Among its reported metrics, the company has helped 1.3 billion people improve their health and hygiene since 2010. Plus, the company has a number of clear purpose targets, for example:

€1-billion annual sales from plant-based meat and dairy alternatives by 2027;
double the number of products that deliver positive nutrition by 2025;
and everyone who directly provides goods and services to Unilever will earn at least a living wage or income by 2030.

These are some of the practices that earned Unilever a “gold” rating in the Corporate Knights social purpose rating system.

Half of the companies we studied in detail revealed exemplary practices on the path to purpose. Yet these success stories were not without complication. Most of the companies failed to embed purpose responsibilities in the role of the board and CEO. This puzzled us; we expected that once a purpose was adopted as the firm’s reason for being, the board and CEO would have formal responsibility for oversight and execution of the purpose, respectively.

34 of 197 firms we evaluated were on the path to embedding purpose into their businesses. The bad news: many are at risk of only paying lip service to that purpose.

We also found several sample companies conflating social purpose with their corporate social responsibility or ESG (environment, social, governance) program. This would be expected among companies whose purpose was to improve broad social, environmental and economic conditions in their communities and markets. However, a number of companies mixed up having ESG goals with having a purpose. Over time, stakeholders – including shareholders, employees and customers – will perceive this purpose “say–do” gap and doubt its authenticity.

The rating also revealed a social purpose transition pathway. It validated that a social purpose is not “once and done,” but a continuous path of improvement. Whether public or private, global or domestic, companies that authentically adopt a societal purpose as the reason they exist embark on a journey, transitioning not only their own operations but those around them to become a force for good. Fortunately, the early evidence is that pursuing a purpose that benefits stakeholders and broader society is not only purposeful but profitable. According to one Harvard Business School study, firms exhibiting both high purpose and management clarity have systematically higher stock market performance.

The purpose governance playbook revealed by this investigation sets the rules of the game. We are in the early innings of purpose and the bases are loaded. By following the social purpose transition pathway re-ealed by these pioneers, businesses around the world can reap the benefits of purpose, foster stakeholder trust, and help build a sustainable future.