Avoid the either/or with purpose-driven strategy

By Carey Oven and Amy Silverstein

The Business Roundtable’s 2019 Statement on the Purpose of a Corporation was redefined to focus on all stakeholders: customers, employees, suppliers, the community, and shareholders. Since 2019, questions about stakeholder versus shareholder value have arisen, but evidence suggests that there need not be a choice between the two; the core strategy can integrate purpose to drive and sustain long-term value, serving shareholders and stakeholders alike.

Many boards have been following purpose-driven strategies and having robust discussions about environmental and societal impacts on their organizations for years. We now see some companies repositioning their entire strategies to incorporate purpose as a critical component. Lest these businesses be viewed as anomalies, consider the lessons learned from the pandemic. Marketplace evidence suggests that purpose-driven strategies have contributed to the performance of companies that are surviving and even beating expectations. BlackRock cites an example in the consumer market that “during 2020, 81 percent of a globally representative selection of sustainable indexes outperformed their parent benchmarks.” The New York University Stern Center for Sustainable Business 2020 Sustainable Market Share Index found that “despite representing only 16 percent of the [consumer packaged goods] market, sustainability-marketed products accounted for more than half of the growth from 2015 to 2019, with this growth persisting through the COVID-19 pandemic.”

As implementing a purpose-driven strategy can yield tangible returns, a board’s next question may be, How can my board develop and execute on a purpose-driven strategy? Most companies already have a stated mission or vision and purpose. Directors can help transform that purpose from a tagline into a substantive, integrated part of the strategy by taking the following steps with management:

1. Define why society should want your business to succeed, understand how your core business both benefits and harms society, and identify material social and environmental issues.
2. Confirm that internal or external activities, such as sales, information technology work, and workforce policies, as well as internal processes, are consistent with stated positions and values.
3. Invest in a manner designed to have a positive societal impact and generate business value.
4. Articulate a differentiated, coherent, and integrated social-value proposition that reinforces both purpose and business objectives.

In considering these steps, directors should remember that one size does not fit all. Following someone else’s approach—whether that of a peer company, an investor, or some other third party—is less likely to work if it is not suited to your company’s culture, workforce, history, and other unique characteristics.

Directors can help their companies develop and execute on a purpose-driven strategy by doing the following:

• Support the treatment of sustainability as part of the company’s core strategy.
• Provide candid advice and feedback to management.
• Help management drive accountability.
• Strengthen governance practices and policies to facilitate and bolster board and management interactions.

Boards can delegate oversight of specific purpose-driven activities to a committee; the compensation committee, for example, might oversee workforce well-being. The board can also delegate general oversight responsibility for such activities to a committee or retain responsibility at the full-board level. Directors should further support company efforts to communicate its purpose-driven activities, whether through formal disclosures or otherwise. The board can work with management to influence and reinforce a positive culture able to reap the benefits of a purpose-driven strategy.

Such strategies can yield tangible benefits. Directors are positioned to help their companies develop and implement these strategies to the benefit of all stakeholders—including shareholders.