It’s proxy season again, and as The Economist recently noted, “Annual Meetings are the new frontline in the fight for corporate purpose.” But while activist shareholders are pushing leaders harder than ever to run their businesses in enlightened ways that deliver results for all stakeholders, it alone won’t be enough to achieve more targeted business practices. For that we need something more: a large-scale shift in the way leaders approach the goal.
Certainly, there are very few companies today that exceed their goals. In 2019, the Business Roundable, a group of CEOs of America’s largest corporations, released a formal statement on “The Purpose of a Corporation” committing to a multi-stakeholder vision of business. But a year after the roundtable statement, amid the pandemic, most major companies did not seem to have deviated much from the normal course of business, changing their policies in favor of employees or other diverse stakeholders, as well as investors. As the Washington Post reported in late 2020, many of the country’s 50 largest companies were making profits, even as the majority of them laid off workers. Further, as a more recent report from the Brookings Institute noted, only a fraction of the nation’s largest employers now pay their employees a living wage, even though shareholders have benefited tremendously.
We might surmise that this disappointing track record reflects a lack of will on the part of business leaders. Sure it does. But it also reflects a lack of skill. As my field research within companies has suggested, companies are failing to adopt a multi-stakeholder approach for a simple reason: Despite the many books written on the subject, the vast majority of leaders still do not know how they can embed the goal more broadly in their organizations .
Not all companies have underperformed when it comes to target. I entered a select group of companies engaged in what I call ‘deep purpose’. Companies like Etsy and Gotham Greens speak up, embracing purpose as a fundamental operating principle, and embedding it throughout their organizations to structure decision-making and work processes. Etsy has made commitments in three areas related to the goal (diversity, environmental responsibility, and people empowerment), and reported publicly on progress. Gotham Greens has embraced a revolutionary business model that reinvents agriculture to be both more sustainable and support local communities.
Based on my extensive field research on purpose, I’ve learned what it looks like to foster a sense of real purpose at work. And as immediately became apparent, it is very different from standard practice at most companies.
How do you anchor a goal? First, you imbue the target with historical depth. Leaders often assume that if we use high-minded language, they will inspire others. In reality, words on their own usually have little meaning. Employees often find purpose more authentic when leaders connect it to history and when they tell powerful, believable stories about the rationale and impact of the purpose. Toy maker LEGO did this with memorable effect as part of its extraordinary resurgence in the 2000s, linking its purpose to the Founder’s Founder which is written in the phrase “only the best is good enough”. Employees became more involved in the company’s success, even to the point that leaders were held accountable for adhering to LEGO’s historical values.
Second, the goal seems more genuine when leaders make it personal. Leaders often articulate a goal for organizations, forgetting that employees have their own personal goals. Companies like Microsoft that explicitly connect the purpose of the organization to that of employees have an easier time bringing the purpose to life in employees’ day-to-day work. Microsoft did that in part by creating a forum called Microsoft Life that celebrates employees, their personal missions, and their work at the company.
Third, and most importantly, there is a sense of real purpose at work when companies rearrange their ventures around purpose. Leaders often view the goal to a limited extent as a marketing or human resources exercise. Companies like the global professional services firm EY that go the deepest with purpose take a much more comprehensive approach, viewing purpose as an operating system and embedding it into processes, organizational structures and culture. EY has implemented a system of metrics to drive behavior related to its purpose. “Businesses really need to be able to show what they’re doing,” EY’s CEO Carmine Di Sibio told me. “They get in trouble if they talk a lot about the goal and it’s just talk.” Imagine what it feels like when everything about your work aligns with its purpose in obvious, even obvious ways. This is experienced by employees of deep purpose companies at work.
Fourth, a sense of real purpose develops when leaders devise and execute goal-oriented strategies. At deep purpose companies, strategy follows from purpose, not the other way around. Furthermore, when executing the strategy, leaders rely on the inevitable trade-offs that arise between social and commercial priorities. At companies like ETSY, purpose becomes a way to navigate between conflicting stakeholders and time horizons. During its turnaround in the 2010s, ETSY made a series of difficult changes, including layoffs, aimed at improving both its financial performance and the ability to achieve its goals. In the long run, all stakeholders have benefited, including employees. Employees understood the need to make sacrifices for the cause and their commitment remained exceptionally high; in 2019, 96 percent of those surveyed were proud of the company.
It is difficult to deeply entrench the purpose, but leaders must remember the business value of pursuing a multi-stakeholder approach. Employees and customers increasingly expect companies to tackle social issues. And research has consistently shown strong links between purpose and performance dimensions such as growth, profitability and innovation. Leaders need to go deeper on purpose, not just because it’s the right thing to do, but because the future success of their business depends on it.
Encouragingly, some CEOs — 68 percent of those surveyed in one survey — are putting “more emphasis” on purpose. It’s also encouraging, as I’ve noted, that activist shareholders are doing the same. But that is not enough. To feel genuine and meaningful, leaders need to take a new approach to embedding it in their organizations. They must observe it in their day-to-day work, hold others accountable for acting in a manner consistent with that purpose, and make the purpose alive for their staff.
The opinions expressed here by Inc.com columnists are their own, not Inc.com’s.
This post Leaders need the will to pursue their goals. They also need the skill
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