LinkedIn: Profit and Purpose Webinar – Q&A part 2
These wide-ranging and insightful questions were asked by the audience of our Blueprint webinar a few weeks ago, during which I spoke with Alex Edmans about the challenges businesses face thinking about purpose and responsibility in relation to real practical challenges and questions that have surfaced through Blueprint’s engagements with FTSE 100 companies. You can watch the webinar on demand – HERE
Because we couldn’t get to so many questions on the night on the night, Alex and I have been working on together on a series of posts with the aim to answer them all – this is part 2 and you can read the first set of questions – HERE
Audience question 7: If a society is prosperous on the whole, all companies operating in that society may benefit from sustainable growth. In that light, a prosperous society could be a common purpose for all stakeholders of the society at large. How can companies and their shareholders come together for achieving this common value?
Alex Edmans (AE): Companies should adopt the pie-growing mentality and recognise that many actions to serve wider society ultimately bounce back and help the company in the long-term. Investors should also recognise this, and give companies the leeway to pursue social value, even at the expense of short-term profit.
Dee Corrigan (DC): Achieving a common value requires coming together to create a shared understanding of what that common value is.
In creating this shared understanding, it can be helpful to first recognise that the market never exists in a pure state, “it is shaped by the cultural configurations which define it and give it direction” (source). In recent decades, a dominant view influencing our markets has been that the purpose of business is to maximise profits. This view is being increasingly challenged. In coming together companies and investors can reimagine a different construct where businesses perform a useful social function by producing goods that are truly good and services that truly serve, thereby delivering a sustainable and fair return to responsible investors. Similarly, investor, as stewards of other people’s money, are being challenged to be responsible not only to secure financial returns but also to ensure investments contribute to a better society and a sustainable ecosystem. In this context company and investors are in fact both contributing in complementary ways to the common good.
To illustrate this shift one of the things we are seeing in practice is that conversations that tended to take place between a director of sustainability and an ESG lead, are now starting to take place between the CEO and the lead fund manager for example discussing a company’s climate commitments and transition plans.
One final point is that in reimagining this different construct, it is essential to have good quality dialogue and constructive debate about the role of business, not just amongst the business investor and community but more broadly in our societies. Business is a part of society, not apart from it.
Audience question 8: Have you successfully brought CFOs into purpose conversations by asking for their help in identifying KPIs for tracking performance + purpose? If so, what were the KPIs?
AE: I haven’t advised on KPIs for a specific company, because I try to focus on my expertise which is large-scale evidence and general principles and frameworks that apply across companies in general; a CFO herself (or a consultant that’s worked with a company for months or years) is best placed to identify the best KPI for one specific company. However, I can share a couple of metrics that companies came up with themselves, to highlight how these metrics should be tailored to its purpose. MYBank (a Chinese digital bank) measures the number of small and micro companies that receive its loans and had never previously received a business loan. Agribusiness Olam reports the number of smallholder farmers that participate in its programmes to teach sustainable farming practices. Electronic Arts measures not only the female composition of its workforce (as all companies do) but its customer base since it’s historically male dominated.
While there’s a big push for common sustainability metrics, and I generally agree with the importance of comparability, we need to recognise its limits. Some of the most important dimensions of purpose may be unique to that company, and certain common metrics may not be so material to a particular company. For example, while the climate crisis is indeed very serious, for some companies, human rights issues in the supply chain may be even more important.
DC: The short answer to your questions is yes, CFOs should be involved in identifying and reporting on KPIs. Social and environmental matters should not sit in a separate sustainability report perpetuating siloed thinking. Non-financial measures need to be deployed alongside financial measures under the responsibility of the CFO.
I don’t believe it’s sufficient for a CFO to be brought into the conversation about an organisation’s purpose only at the point of discussing KPIs. The CFO, along with all members of the executive team, are integral to the profound shift in becoming purpose-led and must be part of the journey, discussions, and decisions from the outset. One of the key learnings from our engagement with business it that while it’s great to have a visionary CEO, or another member of the leadership team who is passionate about being purpose-led, deep and sometimes difficult challenges can emerge further down the line if all members of the executive committee are not fully committed or haven’t taken the time to consider and think through the implications of this shift for their role and function.
For example, if the CFO is engaged from the outset she can facilitate a discussion about the role of KPIs in becoming purpose-led and how KPIs are used. KPIs are helpful and necessary in understanding and assessing progress, but not all problems have a data solution. We often say What counts is what gets counted and what really counts can’t be counted. The challenge is to recognise that both statements are true, and the CFO and finance team can be pivotal in helping the leadership team and board hold the tension of this paradox. The finance team can also help raise awareness of the limitations of KPIs – rather than reinforce them. For example, we notice that once KPIs are defined, the focus in an organisation can shift to how well a company/team/programme measures against the KPI, forgetting about the organisation’s purpose. This can have many unintended consequences, not least in limiting potential for learning and experimentation within the organisation. The lessons outlined in this HBR article, Don’t Let Metrics Undermine Your Business provide good insight for any CFO consider KPIs to track performance and purpose.
Audience question 9: Is there a risk that measurement replaces genuine culture change (you make a good point in your blog Dee about ensuring not just top-down imposed purpose) – what about principles? Are there lessons from world of regulation around behaviours/principles – e.g. FCA increasing emphasis on behaviours to ensure companies do right by customers, rather than rules based compliance approaches. To what extent are companies you’re encountering looking at their performance frameworks, recruitment priorities etc to help with culture change?
AE: Yes, I agree with this – the push for measuring sustainability is generally well-founded, but sometimes is rather one-sided and fails to recognise the limitations of measures, which I wrote about here. An excessive focus on metrics can lead to “hitting the target, but missing the point” – e.g. focusing on the number of jobs rather than the quality of jobs. I fully agree with behaviours/principles, and would add to that processes. For example, in addition to reporting measures of demographic diversity, companies can explain how they ensure a diversity of thinking – e.g. how the C-suite hears the voice of employees, how to encourage speaking up, how the company tolerates mistakes.
DC: Rules and codes are important signals of intent. And, though they can guide us, they can only take us so far. One analogy is a soccer game. Becoming a good player or a good team is about more than just obeying the rules of the game. It is about honing the skills of passing, tackling, reading the game and cultivating a great team spirit. In the same way the desired conduct in a purpose-led business will be far more demanding than mere compliance. It demands cultivating the skills needed and forming the habits so that decisions are naturally made in a way that it true to the purpose of the business, and which respects people.
Genuine purpose-led culture change takes time, every nook and cranny of an organisation needs to be reviewed. It involves developing new skills, unlearning and relearning, experimenting and innovating. Performance structures, recruitment processes all need to be looked at with the aim of supporting new behaviours companies are seeking to cultivate.
Audience question 10: You’ve mentioned “doing the right thing” as being an important ingredient of Purpose (and I agree). Is there some merit in looking at what some of the historical (non-business) thinkers had to say about this – I am thinking Plato’s discussions on virtue, Cicero’s On Duties and applying the thinking to modern business dilemmas? For example, by opening up a meaningful dialogue among business communities – if a business could get away with doing the wrong thing (and no one would ever know), would it do it? And if you would choose to do the right thing in that scenario, why?
AE: I have to confess I’m not an expert on Plato and Cicero, so am unable to comment on your specific references. However, I can comment on the broader point on interdisciplinary thinking, which I’m a big advocate – that expands beyond philosophy and history to other disciplines. Many current approaches assume rational economic woman, but one of my other fields is behavioural economics. This leads to very different conclusions than economic theories. Economic theory would say that you should never give shares to employees. An employee has such a small effect on the stock price that it won’t cause him to work harder. But, people don’t think in terms of economic cost-benefit. Giving an employee shares makes him feel a partner in the enterprise and creates intrinsic motivation. Indeed, while purpose was historically a “management” topic, I bring a “finance” perspective to it, which allows me to use financial tools to demonstrate its impact on long-term returns and present the business case, not just the moral case.
DC: I think it’s important to recognise that we live and work in moral space all the time, and our ethical dispositions develop constantly. No set rules can determine every situation. Choosing the appropriate responses is a combination of competence and character. A healthy purpose-led culture helps to develop both, creating an environment of practical wisdom day in day out in business. We draw on the ethical tradition of virtue ethics in our work, an approach which goes back to Aristotle in the West and Confucius in the East, which sees the ethical and practical as inseparable. Learning and developing virtuous habits or behaviours is about learning to discern and read a situation well, and to develop the reflexes to respond appropriately and act in a purposeful way. One way a company can support in developing these reflexes is by inviting dialogue on an ethical question like the one you posed. Or for example a company we are engaged with runs drop-in decision clinics, where people explore difficult decisions they are facing with their colleagues. How we engage in conversations about ethical questions or difficult decisions is as important as the outcome or decision made in developing a purpose-led culture, it is part of developing competence and character.
Audience question 11: I recognise that it is not just about funding projects, there is also a need for resources (people and things) to deliver purposeful change in the world. How do you see employee/stakeholder involvement as a part of the challenge (or the solution) here?
AE: I think employees and stakeholders have a huge role to play. Given the massive size of some companies today, it’s tempting for a single employee or customer to think that she can play little role. However, many innovations that happen within companies come from employees. M-Pesa came about because Vodafone employees saw how Kenyan citizens were transferring mobile minutes rather than using cash, and wondered if they could use Vodafone’s technology to allow them to transfer money instead. On the flipside, employees have successfully whistle-blown and held companies to account for non-purposeful behaviour. Turning to customers, Lego’s Ambassador Programme, which saw its customers as an extension of its R&D department, came up with many innovations which helped turn Lego around after it was close to bankruptcy.
DC: The power of purpose to inspire and motivate people can only be realised if people are truly part of the process of developing a purpose-led strategy and culture. Of course, from our experience, we recognise it’s important to set the intention to become purpose-led from the top, but a purpose-led organisation also recognises that everyone has the desire to contribute ideas to strategy and culture development and are collaborators in fulfilling a company’s purpose as Alex illustrated in the examples he provides.
One helpful framing/question we use is … instead of doing this to and for people, purpose-led organisations do things with and alongside people. How would being with and alongside your employees and stakeholder change your approach to a specific challenge you are facing?
Audience question 12: What do you see as the catalyst to leaders “thinking” purposeful and how does that get created?
AE: One catalyst for leaders is understanding that purpose is not just ethical – it’s good business. This is why much of my work focuses on the business case for purpose, not just the moral case.
A second is for leaders to recognise that purpose doesn’t mean being all things to all people. Some leaders may fear that, if they announce they’re becoming a purposeful company and don’t end up contributing to all 17 Sustainable Development Goals, they’ll be exposed for being hypocritical. But purpose is about being focused and targeted – a purposeful company dedicates itself to the social problems that it has comparative advantage in solving and affects the stakeholders issues that are most material to it.
DC: It’s a great question. I’m not sure there is one catalyst. Part of our work which can have a catalytic effect is to ask incisive questions which can raise awareness of the assumptions and beliefs that underpin how leaders lead. At the core of what inhibits change are limiting assumptions and beliefs. These are often tacit and unacknowledged, and hold a powerful grip on us, restricting what we imagine is possible to change. The very process of exposing and reflecting on an unquestioned belief or assumption can be energising and liberating. This is particularly true for the assumptions we make – or beliefs we hold – about the role of business in society and what motivates people.
Your question also prompted me to reflect on how we see our role at Blueprint as catalysts, which speaks indirectly to the second part of your question how does that get created. I draw on Theodore Zeldin idea on being a catalyst to inform my work “To be a catalyst is the ambition most appropriate for those who see the world as being in constant change, and who, without thinking that they can control it, wish to influence its direction.” By constantly raising awareness of and challenging core assumptions – rather than going straight to having answers and a plan – leaders can start to think purposefully, relinquish the need for control and be more comfortable with the direction purpose will take their organisation on, along with all the ambiguity and messiness that the journey entails.
Thanks to everyone who attended and to our audience members who took time to share questions – our final set of questions will be published next week.