How purpose is changing the board M&A oversight role: What directors are saying

By Nikki Beck and Annie Adams

While the past two years have been defined and dominated by the global spread of COVID-19, the world has also witnessed a renewed reckoning with racial, economic, and environmental issues. Progress in the economy and success in business has taken place against a backdrop of protests in the streets, splintered politics, and an ever-more-worrying climate outlook.

These are powerful forces. Companies can feel the urgency, and the need to respond in constructive ways, as consumers and workers demand that businesses generate positive social impact. Society is asking how companies can produce solutions, not problems. Corporate boards, in their oversight role, have an opportunity to respond to this growing demand from diverse stakeholders seeking better outcomes.

Taken together, these concerns put a premium on corporate purpose—the ability of a company to align around a set of principles that define how it contributes to the greater good. Purpose can permeate the organization and extend into everything the company does, including mergers and acquisitions (M&A).

The organizations that will thrive today and in the future will be those that define their purpose broadly, addressing a broad range of stakeholders. They will be the companies that acknowledge, as the Business Roundtable articulated in its 2019 redefinition of corporate purpose, a responsibility to their customers, employees, and communities, while also generating long-term value to investors. Businesses have a moment right now where they can engage the stakeholders who they may have failed to fully recognize in the past.

Defining purpose

Purpose is bigger than the environmental, social, and governance (ESG) objectives that are a focus for a growing number of investors. It is broader than the diversity, equity, and inclusion goals that corporate managements have begun to address, and it goes beyond the environmental, health, and safety programs or corporate social responsibility initiatives companies may already have in place.

Deloitte views purpose from the perspective of inclusive prosperity—defined as the effort to drive value through a focus on greater inclusion and shared prosperity. This is about what companies can do to make the world more equitable, accessible, safe, and sustainable for all stakeholders. This is about value creation seen through the lens of what a business can do to improve the community or society in which it operates.

Executives and directors may have a range of definitions in mind as they discuss purpose. Some may be referring to a longstanding set of values the company brings to its decision making. Others may think of purpose as how the company responds to demands from customers, employees, or the community for better efforts on diversity or faster action on carbon emissions. Some leaders may see purpose mostly in terms of the company’s brand, products, and reputation.

And yet, the purpose conversation, however it’s defined, is reordering priorities for executives and directors. Bringing these new priorities to the table will be increasingly important as companies plan M&A strategy and pursue deals.

To assess how companies are using purpose as a lens for M&A strategy, target evaluation, and deal execution, we interviewed a select group of corporate directors across a variety of industries. We asked what role purpose plays in dealmaking today, where it comes into play, and how it affects decisions. We asked how they see this changing in coming years. This report is based on their responses, along with the experiences of Deloitte professionals who advise on thousands of transactions each year.

Key projections

• Purpose doesn’t set M&A strategy yet—but that may change
• Corporate purpose increasingly defines what acquisition targets are viable
• Purpose is playing a bigger role in integration planning and execution
• Purpose-driven investment funds are driving purpose in M&A

Board implications

• Board members should be actively engaged in the purpose discussion
• Boards need a clear definition of purpose—and a way to measure progress
• Boards should consider how M&A can be an engine to achieve a company’s purpose