In today’s business landscape, companies face growing expectations to positively impact environmental, social, and governance (ESG) issues. With stakeholders demanding sustainable practices and transparency on a wide range of non-financial matters, the operating environment grows increasingly turbulent. Some see ESG as a compliance burden, draining resources from “true” business priorities. However, research shows that organizational purpose – a clear mission centered on benefiting all stakeholders – can guide companies through this evolving landscape. When backed by authentic actions, purpose strengthens resilience and fuels long-term growth.
Today we will explore how corporate leaders can embrace purpose as their north star, navigating ESG issues in a way that meets demands while reinforcing their organizations’ core reason for being.
Defining Corporate Purpose
Research establishes that purpose-driven companies significantly outperform peers financially. Studies from Harvard Business Review found “purpose-led” firms grew profits twice as fast as S&P 500 companies and experienced half the volatility (HBR, 2020). Additionally, McKinsey found over 90% of executives believe having a strong sense of purpose improves decision making and innovation (McKinsey, 2015).
But what exactly is corporate purpose? Researchers describe it as a concise statement of a company’s fundamental reason for existence beyond just profit – its overarching goals for benefiting stakeholders and society (Collins & Porras, 1994; Sinek, 2009). An effective purpose inspires personnel and guides priority-setting through a shared higher calling (Collins & Porras, 1994). Top-tier purposes, like “enriching lives” or “unlocking human potential,” instill passion while allowing flexibility in how the aims are achieved over time (Sinek, 2009).
Aligning Operations with Purpose
Having a clearly defined purpose is just the start – leaders must ensure day-to-day operations reflect its spirit. Research finds purpose is best nurtured when embedded throughout organizational culture and strategies (HBR, 2020; McKinsey, 2015). Five practices can reinforce purpose-driven action:
Emphasize purpose in talent strategies. Hire and promote people committed to the mission. Define roles and objectives linked to purpose achievement (McKinsey, 2015).
Incorporate purpose in product/service design. Consider stakeholder needs, not just profit. Pioneer beneficial innovations (Porter & Kramer, 2011).
Connect financial targets to purpose metrics. Measure and incentivize progress on non-financial goals related to the purpose (Eccles & Klimenko, 2019).
Embed purpose in decision frameworks. Assess options’ alignment with purpose, not just risk-return (HBR, 2020).
Communicate purpose across functions. Coordinate strategies and functions under a single North Star (Kiron et al., 2021).
These policies ensure operations energetically pursue the purpose, rather than view it as separate PR. When incorporated thoughtfully, they empower teams to make purpose-driven choices across situations.
Applying Purpose to ESG Challenges
With purpose set as the lodestar, companies can address ESG demands in a strategic, value-adding manner. Purpose gives leaders a consistent framework for prioritizing issues and targeting initiatives with highest purpose-impact. Three focus areas show purpose in action:
Environmental Stewardship: Companies with a people-focused purpose may install energy efficiencies to cut costs for customers or invest savings in worker communities. A purpose of innovating sustainably could spur R&D into renewable technologies benefitting all stakeholders long-term. Measuring initiatives’ alignment with purpose prevents greenwashing and ensures environmentalism enhances rather than conflicts with the core mission.
Social Impact: Social issues are often a complex web demanding nuanced, consultative solutions respecting varied stakeholder perspectives. Purpose offers a thread through this complexity, guiding companies to initiatives clearly serving core stakeholder groups while avoiding campaigns seen as disingenuous “check-box” efforts. For example, an insurance provider embracing financial wellness could pair products with financial literacy programs in underserved communities.
Governance Reform: Governance reform tied to purpose strengthens accountability to stakeholders rather than serving as public relations. A mining company striving to “power progress responsibly” might establish a community oversight board or tie executive pay to sustainability targets, ensuring shareholders and locals share in natural resources' benefits. Transparency on such efforts reassures stakeholders that purpose, not profits alone, remains the true North Star.
By prioritizing ESG efforts most aligned with their purpose, companies address issues strategically while avoiding diffuse initiatives lacking coherence or benefit. This focus yields initiatives stakeholders authentically respect as value-driven rather than public relations. Thus purpose provides critical guidance amid ESG turbulence.
Case Study: Salesforce
Salesforce exemplifies applying purpose to navigate ESG demands. Founded with a mission of “equality of opportunity, respect, connection and trust,” Salesforce designs its products and operates in a way advancing this vision. The software company empowers non-profits through discounted offerings and launched programs like “Trailblazer.org” training underserved youth in tech skills. Salesforce reinvests 1% of equity, 1% of product, and 1% of employee time in non-profits each year through their “1-1-1 Model.”
Beyond philanthropy, Salesforce authentically integrates purpose into core strategies. It established “stakeholder governance,” appointing a board member to represent customer/employee interests. Moreover, Salesforce launched products like its “ sustainability cloud” empowering clients to track and publish ESG data. This ties corporate purpose to profit by developing offerings serving stakeholders’ evolving needs. As a result, Salesforce attracts high-caliber mission-driven talent and enjoys fierce customer loyalty, gaining resilience to navigate industry shifts. Its TSR has topped S&P 500 for the past decade by fulfilling its vision of empowering equality (Salesforce, 2021). Salesforce proves thriving by purpose-driven innovation serving all stakeholders.
Conclusion
Embracing corporate purpose provides invaluable guidance for companies navigating today’s shifting landscape amid growing ESG expectations. With a clearly defined purpose, leaders gain a North Star aligning operations and directing strategic choices – including which issues to prioritize amid complexity. By coupling purpose with authentic action, executives reassure stakeholders of their fundamental commitment beyond compliance or public image. This builds trust empowering innovation and resilience through change. While ESG demands will keep evolving, their impact need not disrupt companies whose core reason for being remains serving all stakeholders through challenges. Letting corporate purpose lead the way, businesses gain clarity and confidence navigating today’s turbulence toward brighter tomorrows.
References
Collins, J. C., & Porras, J. I. (1994). Built to last: Successful habits of visionary companies. Random House.
Eccles, R. G., & Klimenko, S. (2019). The investor revolution. Harvard Business Review, 97(3), 106–116.
HBR. (2020, January-February). Why purpose. Harvard Business Review. https://hbr.org/2020/01/why-purpose
Kiron, D., Kruschwitz, N., Reeves, M., & Goh, E. (2021). The employee experience issue. MIT Sloan Management Review, 62(3), 1–16.
McKinsey. (2015, January). Why purpose. McKinsey Quarterly. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/why-purpose
Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89(1), 62–77.
Salesforce. (2021). Citizenship report 2021. Author. https://www.salesforce.com/content/dam/web/en_us/www/documents/reports/citizenship/2021-citizenship-report.pdf
Sinek, S. (2009). Start with why: How great leaders inspire everyone to take action. Penguin.
Jonathan H. Westover, PhD is Chief Academic & Learning Officer (HCI Academy); Chair/Professor, Organizational Leadership (UVU); OD Consultant (Human Capital Innovations). Read Jonathan Westover's executive profile here.
