The challenge faced by investors is how they can tell whether a company is genuinely pursuing a purpose beyond profit, through which it seeks to generate its returns to investors. Last year we were challenged by a senior investor who asked what questions should be asked to get beneath the skin of whether a company is serious about this. We didn’t have a good answer and so we asked for their help.
In March 2018 we convened a group of leading investors from a range of asset management companies. They were keen to work on this and together they came up with a short list of key questions which an investor can ask a Chair, CEO or other senior executives to glean insights into the extent to which a company is being genuinely and effectively purpose-led. This is not a checklist but designed to stimulate deeper conversation, encouraging personal rather than pre-scripted answers.
The seniority of the participants displays an appetite from the investment industry to prompt a deeper discussion about purpose. This is a first step, and a contribution to other work aimed at improving the quality of dialogue between investors and companies. A number of the investors involved in creating this list are now going to try it out in their own organisations and share their feedback. We don’t see this an exhaustive list or as a static document and rather it will adapt and improve with use.
The 8 Questions:
- In simple terms, what is the company in business to deliver and for
whom? How does that differentiate you?
- What does success look like and how do you measure and review it?
- How does your pay policy link to long-term success?
- How are your board discussions and agenda anchored to your
purpose? Can you give some examples of how your purpose has
changed your decisions?
- What positive and negative impacts does your company have on
society? How are you maintaining your ‘licence to operate’?
- How are your people? Can you give examples of how you have
responded to specific concerns?
- Which external relationships are most important to achieving your
purpose (e.g. customer, supplier, regulatory)? What key measures
do you use to assess the strength of these?
- [For Chairs] How do you as a board know you are doing a good job?
Sacha Sadan, Director of Corporate Governance, Legal and General said “Having a clear corporate purpose is a critical part of creating long-term sustainable growth that benefits all stakeholders. The usefulness of companies is being increasingly challenged. These Blueprint questions, which were developed by investors, including ourselves, provides a simple and effective mechanism to help identify genuinely sustainable companies”
For more information – you can download our booklet: How can investors identify purpose led-companies?