The events of 2020 raised the bar for a company’s role in society. Stakeholder expectations have risen as the COVID-19 pandemic and racial justice movement brought heightened attention to deep-rooted inequalities in health and economic opportunities globally.
Corporate Purpose provides a framework and playbook for companies to find their footing in this new normal. Purpose defines a company’s core reason for being and the resulting positive impact it has on the world. It answers the question, “What would the world lose if your company disappeared?” Companies with a strong Corporate Purpose clearly define the positive impact they want to have on the world, and use Purpose to shape their strategy, inspire employees, and steer choices in moments of truth. Purpose orients a company externally, while inspiring internally.
Declaring a societal purpose externally can open up the opportunity for critics to search for Purpose-washing. Meeting the bar requires multiple proof points including measurable external commitments on chosen environmental, social, and governance (ESG) initiatives; full embedding of Purpose into the organizational DNA; engagement of all levels of the organization; and alignment of individual, team, and Corporate Purpose. At an individual level, Purpose provides direction and intention to employees’ work. For teams, it creates a shared sense of meaning and a shared psychological safety. For organizations, Purpose addresses rising expectations on businesses and provides a North Star for major decisions.
But embedding Purpose in an organization is easier said than done. Only 44% of employees believe their organizational purpose is aligned and activated with their personal purpose, according to a recent McKinsey survey.
We see three common pitfalls, each of which lends itself to a set of solutions.
Pitfall 1: Branding vs. business
Purpose is treated as a branding versus a business exercise. Purpose statements will appear shallow unless they are linked to real business decisions. Purpose is not a branding exercise, but should be integrated into both internal decisions (e.g., about people, or promotions) and external decisions (about capital allocation, product design, or procurement). Critics are quick to call companies out when Purpose feels more like PR.
Solution: Luckily, there is an emerging playbook. Use Purpose to help sharpen a company’s direction and to clarify the “why” of major corporate decisions. Build a detailed Purpose narrative, starting with a Purpose statement, translated into specific organizational changes and commitments that are tracked and measured. That Purpose narrative should then be embedded across five P’s of a company: its Portfolio strategy and products; People and culture; Processes and systems; Performance metrics; and external Positions and engagement.
DSM (founded as Dutch State Mines) was originally incorporated as a coal company and had expanded into bulk chemicals. In 2001, petrochemicals made up 20% of DSM’s assets and accounted for one-third of sales. But its executive team went deep on Purpose to view a new triple bottom line approach: People, Planet, and Profit. From 2001 through 2015, DSM used its Purpose to shift its portfolio, divesting many of its core businesses (including petrochemicals and ammonia) and making over 25 acquisitions in food, feed, nutrition, and other businesses in line with its Purpose to “create brighter lives for all.”
Pitfall 2: Lack of buy-in
Insufficient employee participation, and narrow stakeholder engagement. Purpose is often cooked up internally and owned only by the executive team, often not even including the board within the organization. But it is the employees whose engagement with Purpose counts the most.
Solution: In our recent series of CEO discussions with Fortune over the last year, CEOs consistently noted that Purpose should start with your employees. Making Purpose personal means connecting individual day-to-day tasks to a larger corporate Purpose and societal goals. Companies have used Purpose to delegate decision-making and empower front-line employees to act with autonomy. Further, our research shows that aligning individual and corporate purpose unlocks four times as much employee engagement, employee well-being, 3.4 times as much excitement, and improved health outcomes. Employees who have a strong sense of purpose in their work may see increased performance, creativity, and motivation. They may also feel more empowered to provide new ideas and solutions.
Investing in employees is a large part of the increasing materiality of “S,” the social responsibility element, in ESG. As the pandemic has heightened scrutiny on corporate actions for employees, customers, suppliers, and communities, many investors believe the importance of “S” will increase post-COVID-19.
Pitfall 3: Poor external engagement
Purpose stops at the corporate frontier and does not reach across the company’s entire ecosystem. Insufficient engagement externally—including with unlikely partners and a company’s largest critics—can be a missed opportunity to really uncover company vulnerabilities and superpowers and generate innovative ideas from stakeholder perspectives.
Solution: View Purpose as the company’s bridge to society, including the corporate value chain of suppliers, customers, contractors, media, nongovernment organizations, and the public. Dynamic relationships across the value chain could improve trust, transparency, and efficiency, and generate a full view of the company’s impact in society. A Purpose narrative should first be tested with stakeholders for authenticity, but then act as a bridge to continue to engage and understand stakeholder needs. Building stakeholder relationships provides a genuine feedback cycle for the ecosystem to improve its products, operations, and ideas.
Unilever developed a stakeholder engagement model to live the company’s Purpose to “make sustainable living commonplace” and deliver on its Sustainable Living Plan. Unilever regularly seeks feedback from suppliers, employees, customers, scientists, communities, and trade associations to refine its business. But the company also meaningfully invests in these relationships and builds trust. Unilever extended €500 million (about $590 million) in cash relief to its value-chain partners in light of COVID-19 to protect livelihoods. It provided early payment to vulnerable small and medium suppliers and extended credit to small-scale retail customers. Unilever also estimates 70% of its innovations are linked to working with strategic suppliers.
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At its core, Purpose can shape a company’s interactions with stakeholders and society. Purpose must be genuine, authentic, and deeply embedded in your organization’s business model—and living a strong Purpose will strengthen a company’s resilience and value.
Bruce Simpson is a former senior partner of McKinsey & Company. Bill Schaninger is a senior partner at McKinsey & Company.
