A purpose which delivers long term sustainable performance

A purpose-led business is one which aims to achieve both long term sustainable performance and a positive contribution to society and to the well-being and development of people. Purpose and dialogue sit in the middle of the Principles because purpose is the animating reason which connects all the relationships, and true dialogue is the mechanism through which generative relationships are sustained and developed.

For more on what it means for a business to operate true to a purpose that serves society see: What is the role of business in society?

For more on why it is vital Business respects the dignity of people see: What it is to be human

A fair return for responsible investors

This principle recognises that one outcome of a purpose-led business is long term sustainable performance.

• The word “so” in the definition is crucial. It means “thereby” – that is, that the profit is derived through operating to a purpose that serves society and respects the dignity of people. Profit is one outcome of purpose but is not the purpose of the business. Profit is necessary for the business to survive but it also enables the business to fulfil its purpose and to deliver the benefits to society envisaged by that purpose.
• A purpose-led business does not seek to maximise anything, but rather to balance decision-taking in such a way that it optimises for purpose. Delivering fair returns to responsible investors becomes one necessary constraint (in the same way as paying interest on debt). This enables a business to think more broadly about how to optimise creating value for society which includes but is not limited to financial returns.
• This is not to say that there is a mindset of an inevitable trade-off between purpose and profit; in fact, they go hand in hand. A purpose-led business has a broader aim – to create value for society. The consistent delivery of fair returns to investors is one essential aspect of doing that. And as John Kay points out in his book ‘Obliquity’, very often we achieve goals as a side effect of aiming at something else. This is one way of understanding the apparently paradoxical evidence that well-run companies pursuing their purpose can end up delivering higher financial returns than those who aim at maximising profit.
• Investors are one of the relationships that enable the business and should be fairly rewarded. Equally, as with all relationships, they are expected to contribute to the business by being responsible This means that the company is oriented towards value creation for longer-term horizon investors, rather than taking actions primarily to serve those investors who simply seek short term actions to fund short term returns. This orientation includes seeking investors that are aligned to the long-term value creation that the business is creating.
• Committed investors are aligned to the purpose and challenge the business and its leadership against the purpose. This encourages a wider dialogue with investors than simply on financial returns. It also invites investors, who are stewards of individual savings and investments, to engage in turn with their ultimate beneficiaries e.g. people contributing to their pension fund, and take their views into account in the way they challenge the purpose, the performance and the financial and social returns that the business has committed to deliver.

Enables and welcomes public scrutiny

• Enabling and welcoming public scrutiny is more than a reporting obligation or assertion of facts. It requires engaging with different stakeholders in open and generative dialogue about how the company is performing in pursuit of its purpose and what more it can contribute, with and alongside it’s stakeholders. It embraces listening to and hearing the voices of employees, customers, suppliers and communities and creating the mediums and fora to do that.
• For those such as investors and regulators who have legal rights to, and sometimes prescriptive forms of, information requirements, the ethos is to go beyond what is prescribed by law and hear their voice and seek to understand the needs that underpin their legal rights. Obscuring important facts and insights in a torrent of communication is not enabling and welcoming scrutiny.
• When it comes to reporting, a company which truly engages in dialogue with it’s stakeholders can then illustrate how the choices it makes is consistent with its purpose, how it is delivering value for all it’s key relationships and society as a whole. Dialogue with stakeholders also shapes the choice of measurement used in reporting and the commitments made. Reporting becomes much more meaningful for all those on whom the company’s purpose is relevant to and depends on. It is less of a tick box exercise, and instead provides context and information to enable deeper dialogue and opportunities for learning and further progression.
• It is also essential for the company to bring to life in its communication the relationship between why it exists, what it does and how it does it. Investors and other stakeholders seek narrative reporting which is clear and honest, and which also explains how material stakeholder relationships have been taken into account in key strategic decisions

A good example of how public reporting by large companies is evolving to show how different stakeholder groups have been taken into account is through some of the s172 reports in the UK, where Directors set out how different stakeholder groups have been considered in key strategic decisions: see this EY report on s172 reporting

For more on measures and reporting see: Assessing progress in becoming purpose-led

Fostering dialogue is an important aspect that comes up in each of the further four Principles explored below. Dialogue in the context of inclusion is discussed in: Valuing diversity and building bridges (Plurality)

For some general considerations on how to approach dialogue see: Navigating dialogue in business