Opinions

What’s the Point of Purpose?

by .

In his latest article for Management Today, Jericho Partner Matthew Gwyther argues that in the age of Extinction Rebellion, businesses need a purpose beyond profit. But crusading capitalists miss the point if they forget the importance of providing jobs, growth and investment.

***

What’s your purpose as you sit behind your desk at work today? To get through the shift to 5.30 PM with the minimum of collateral damage to yourself and those you manage and lead? Do your bit for the company bottom line. Or do you have a higher calling? Do you believe your quotidien effort actually contributes towards making the world a better place? The jaded and world-weary may scoff at such a sentiment but  this isn’t a facetious rhetorical question.

The corporate buzzword of the moment is “purpose.” Its advocates believe that business has to be about more than making money and remind us that this was not news to the Cadburys, the Rowntrees, the founders of Lever Brothers. These were moral men with an eye to civic duty, benevolent stewardship and their afterlife. The purpose enthusiasts claim there’s currently a fundamental shift happening within companies and society – rather than a sole focus on profit maximisation, profit as a result or outcome of a company’s activity is what business should be aiming at.

Those who reject this supposition will also go back to the 19th century and point out that the top-hatted men whose iron, coal, banks  and railroads made industrial America Top Nation  (thus unseating those quaint Quakering and moralistic Brits)  were called ‘Robber Barons’, not ‘Civic-Minded Philanthropists’.

But what does “purpose” mean? Consider a couple of stabs at definition, both from distinguished American business academics. First the no nonsense member of the Chicago School Milton Friedman: “there is one and only one social responsibility [or purpose] of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Second, the milder and middle European outlook of Peter Drucker. “The purpose of business is to create a customer.” This is both witty and concise common sense but well worth remembering. One thing’s for sure – most CEOs on both sides of the Atlantic these days would rather Retweet Drucker or Greta Thunberg than be caught dead quoting Milton Friedman. Friedman is so out of fashion he ‘s almost beyond the pale.

That business should be  about more than pounds and the Washingtons isn’t new in the post-war era. Corporate Social Responsibility (CSR) was the watchword in the 90s, this then lost the R and became CR, which then morphed into ESG (Environmental, Social and Corporate Governance) as a way of actively measuring a company’s “responsible” behaviour. Following the Crash of 2008 when we were all forced to take a long, hard look at Financial Services in the longest recession in history purpose came along. What is it all about?

Image result for what's the purpose of this?

One of the better sets of principles for a purpose-driven business comes from the Uk charity and think tank Blueprint For Better Business. Blueprint proposes five such principles: Honesty and Fairness when dealing with customers and suppliers; being a responsible and responsive employer; having a purpose which delivers long term sustainable performance; being a Good Citizen; and being a Guardian for Future Generations. Few could argue with these principles but how one goes about accurately measuring whether they are being achieved and then adhered to is one of purpose’s big challenges.

But there are now increasing numbers of business leaders who are up for giving purpose a serious try. In the vanguard of the paradigm was Unilever’s recently retired CEO Paul Polman who has called for a cohort of “heroic CEOs” to fight climate change and global inequality. Even people like investor Blackrock’s Larry Fink (net worth over $1 billion) has woken up to the fact that his outfit may have to go a little further than Friedmanite maximisation of shareholder return – “without a sense of purpose, no company either public or private can achieve its full potential.”  The Co-Op Bank is now “for people with purpose” rather than fallen vicars with crystal meth. PWC chipped in by appointing a Chief Purpose Officer and the FT has launched its regular Moral Money section announcing that “the long term health of free enterprise capitalism will depend on delivering profit with purpose.”

This movement is the direct result of a widely held general lack of trust in business – most notably among millennials – which has led to talk of more government regulation and a crackdown on business. Among the more anxious there’s a genuine about a continuing licence to operate and sell goods plus services.  Capitalism requires a serious reset.

So, how does a company start doing something in practice? Where better to start than with Sue Garrard who until last year was one of  the masterminds behind Unilever’s Sustainable Living Plan 2010-2020. Garrard is no late-arriving woke-washer. She was brought up with parents and grandparents in the Salvation Army – “they put the right microchip into me,” she notes. She also spent time in government at the Department of Energy and Work and Pensions. Garrard understands big policy levers and nudge theory.

“So much came together after the Great Crash – CEO pay, the haves and the have nots, the sense that business must have been behind us getting into such a terrible mess.” Her hiring chat with Polman lasted 2.5 hours. In the Dutchman she had a CEO who was part campaigner, determined to the point of cussedness and not afraid to rub many backs up the wrong way.

“I’ve met many bosses over the years and most actually want to do the right thing,” she notes. “ They feel they haven’t spent 35 years getting to the top of the greasy pole just to deliver quarterly profit targets which they live or die by and have their kids feel awkward about what their parent is doing at the office. The trouble is a massive gap exists between intent and activism. Doing something is really tough and it was always tough at Unilever. It’s a painful, iterative journey. There’s no first mover advantage in purpose and sustainability. But the irony remains that I detect business is far more up for the fight than government.”

There are purists keen to remind board directors of public companies that their fiduciary duty is very Friedmanlike to fill the pockets of shareholders. Thus when Unilever received an unwelcome but lucrative takeover approach from Kraft – which had earlier done a number on that British corporate gem Cadburys – the defence had to be careful to talk about long term best interests of shareholders when rejecting it. Anyone who thinks Kraft more “purposeful” than Cadbury was or Unilever apparently is might struggle to convince public opinion.

Unilever has proved the poster child of Purpose. And Garrard is adamant that it works. Unilever possesses around 400 brands in total but 40 of these create 80% of total turnover. By the time she left Blackfriars 26 of these 40 big hitters had been given the thorough USLP treatment and she says they were growing 67% faster than the rest of the portfolio. “Take Lifebuoy,” she says. “We know that its use in India has contributed to reducing infant mortality so we said so and promoted the fact. Of course rivals have copied us in their marketing but consumers know when they are being conned. Also eventually regulators will not allow any more bullshit claims. Brands that are all talk and no do with be found out.”

How you find the path to purposeful virtue isn’t always straightforward. I can recall speaking to Stuart Rose then CEO of Marks & Spencer in the early Noughties when his organisation launched Plan A. Once M&S had put up the Open for Sustainability sign it was descended upon by dozens of single issue NGOs all convinced that their remedy to the retailer’s ills was the correct and only one. Even among apparently simple things such as packaging the retailer found itself being pulled in different directions. And once you commit you put yourself up for painful accusations of failure and hypocrisy.

Take genetically modified organisms for example. Purposeful companies tend to be very down on them. One the one hand you have Emanuel Faber the CEO of Danone proposing  shifting about half Danone’s products — representing some $1bn of yoghurt sales — to non-GMO ingredients. He argued that this was an important change that would improve soil health and biodiversity.

Ever since their introduction back in the 90s GMOs have been under attack from organisations like Greenpeace which even got The Daily Mail – always one for a scare story – on side when it obligingly labelled such products Frankenstein Food. But that’s only one side of the story. Golden Rice is a form of normal white rice that has been genetically modified to provide vitamin A to counter blindness and other diseases in children in the developing world. It was developed two decades ago but still struggles to gain approval in most nations. Stifling international regulations – mainly caused by intense lobbying by the likes of Greenpeace – have been blamed for delaying the approval of a food that could have helped save millions of lives this century.

Giles Gibbons has run his consultancy Good Business since 1994. It was founded with his then partner Steve Hilton when they left the ad agency Saatchis. Hilton has since left and via the Cameron government plus The Big Society has somehow wound up as a presenter in the States on Fox News. Meanwhile Gibbons knows all a corporate will need to grasp about golden rice, food miles and restaurant waste.  “It was the time of Naomi Klein’s No Logo and the verdict that brands were bad,” says Gibbons, “ But we wanted to be the defenders of good capitalism.”

For 25 years Gibbons has been ploughing the furrow of virtue and his faith remains strong.  “If you want the best people to work for you, great quality products from your supply chain, customers to want to buy your products, not to mention your shares, then you had better be on the right side of the purpose argument. If you’re shown to be on wrong side – beware. [You’ll have five minutes of not fame but Twitter pain.]  And, if you actively wish to generate change in our world then the only place to do it is via the capitalist system.”

As someone who’s been there and back in the T shirt Gibbons finds green-washing Johnny-Come-Latleys a serious barrier to progress. “The problem is that the word ‘purpose’ has been hijacked by the marketing departments of corporates as another word for brand strategy,” he groans. “ They get together and declare ‘we need a new purpose.’ And, hey presto. You cannot just pluck your purpose from the air and present it as a definition. Is it really possible for an organisation to have a different purpose from the brands within it – all our crisp products need a different purpose? Bizarre.

“A bank is defined by society – Nat West’s purpose is fundamentally the same as Lloyds. How can a biscuit company have a purpose? I mean c’mon. But it can go about its business in a responsible way. Purpose isn’t advertising it needs to be an organising idea. Very few business people go into the world trying to be bad. They don’t wear witches’ hats and cry ‘yippee’ at the destruction of the planet. Which isn’t to say bad things don’t happen. Life is complex. We now know trying to establish carbon footprints of every product as Tesco did back in 2006/07 isn’t the way forward. But the best businesses are open and engaged. They know they won’t please everybody but they will try to do The Right Thing if they can.”

Image result for what's the purpose of this?

Purpose as a prime tool of recruitment and engagement is now almost universally accepted. Why wouldn’t you go to work for John Lewis Partnership where the purpose is maintaining the  “happiness of the partners?” Even Master of the Universe investment bankers express amazement that would-be graduate recruits are more interested in pro-bono and sustainable work projects than the annual bonus. Sue Garrard acknowledges that Unilever now has the choice of the creme de la creme in the graduate recruitment market. But it’s a problem that those who make the cut come rapidly down to earth when they find themselves learning how to shift palets of  Domestos to Asda rather than going over to Borneo – by solar-powered yacht – to save the orangutans.

Holly Branson, 38, daughter of Old Beardy and involved in Virgin’s medical businesses is in on the purpose thing. In her recent, wide-eyed book Weconomy, You Can Find Meaning, Make a Living and Change the World, Branson Jnr argues that “social purpose is the biggest thing to happen to business since [the invention of] the assembly line.” The driving force behind this turn to purpose, says Branson, are millennials. The typical millennial worker wants “to work for a company that has purpose baked into its culture.” This might not include her father’s airline Virgin Atlantic.

However, rafts of surveys, articles, and polls suggest that the millennial generation, which came of age during the financial crisis, is highly sceptical of big business and market solutions. The purpose thing may have come too late for them. Across the globe this generation tends to favor a stronger role for governments, disapproves of tax cuts for the rich, likes trade unions more than its parents do, and feels more sympathy for Bernie Sanders or Jeremey Corbyn socialism—which it associates with equality and fairness—than for capitalism.

We should conclude by returning to Friedman who was not quite the villain he is sometimes made out to be. In his laser focus on the bottom line and the profits he is a realist. Were he alive he’d be interested in the example of Unilever. What concerned him was companies that take their eye off the knitting and go off on a crusade.

So what happens when your purpose and your long-term financial position clash, which they sometimes surely must? What happens when a ruthless competitor – like Amazon in the way it has put conventional retailers to its sword –  just competes you out of existence and doesn’t appear to clasp the five principles constantly to its corporate bosom? This isn’t to say there’s no role for business ethics, but that’s not the same as purpose, and also has to include the corporation’s role in society – to provide jobs, growth and prosperity – to survive –  which is the original Friedman point. There’s a certain amount of chicken and egg in here.

Where the capital goes remains vital. Investors are no less important stakeholders in  the proposed argument than customers. For now, the investment community seems divided. The Council of Institutional Investors — a US lobby group of which Fink’s BlackRock is a non-voting associate member — “respectfully disagreed” with the US Business Round Table statement, endorsing a more purposeful path saying “accountability to everyone means accountability to no one.” Earning a rate of return for pension funds and charities “is itself a social good — a very high one”, Paul Singer, founder of activist hedge fund Elliott Management, told The Economist.

The high moral tone that comes with many of the five principles does grate with some. The risk with purpose is when it all becomes puritanically reductive. When every single last corporate action is weighed in the balance of modern woke virtue.  We do all – well most of us – have to earn a living.

But there’s a higher problem that dwarfs, for example, removing plastic straws from fast food outlets and restaurants. John Lewis got the lead story on the BBC’s Business section of its website in November for a cosy yarn about forbidding plastic toys in christmas crackers. Minor sustainability tinkering around the edges isn’t going to solve the all-encompassing problem of global climate change. This is where an organisation like Extinction Rebellion has captured so many imaginations – it is purpose epitomised.

If it ever gets face-to-face with XR the problem business will find is that XR isn’t that interested – it has had it with “neoliberal” capitalism which it blames for the excess consumption and the wilful waste of natural resources which has led to climate crisis in the first place. Its puritan vision demands a purpose-based i.e planned economy not a free market. You’re not allowed a whim that leads you to take a weekend break with Ryanair in Tallinn. Or a prized alphonse mango air-freighted in from Bombay. Naughty cannot be nice. The Declaration of Rebellion states: “the wilful complicity displayed by our government has shattered meaningful democracy and cast aside the common interest in favour of short term gain and profit…we hereby declare the bonds of the social contract to be null and void.”

Neither are they impressed by Bank of England Governor Mark Carney’s entreaty that there are entrepreneurial billions to be made from global warming. If you suggest that achieving net zero carbon emissions by 2025 would crash the economy three times faster than a no deal Brexit the reply is “so be it.” That’s the problem with extreme virtue and why maybe sinful man doesn’t sit easily with its demands.

Way before Friedman and purpose came the Godfather of Business, Adam Smith who wrote in The Wealth of Nations –  “Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it…he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

You can read the full article here.

***

At Jericho, we are wary of the “purpose peddlers” who too often distort a critical debate. We help clients understand and identify authentic purpose inside-out and outside-in, building communities of influence to make accountability to purpose real. Find out more about what we do or download our creds.

If you would like to talk to us about identifying authentic purpose in your business, read more here and get in touch.


Sign up to be kept up to date

Subscribe