• Categories: Role of the board
  • Published: Aug 7, 2022
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Prompted by the challenges they now face—particularly to their social licence to operate—more companies are now recognising the importance of meeting the expectations of a wider range of stakeholders. This is reflected their growing attention to the articulation of corporate purpose and to addressing the various matters labelled as ‘ESG’ (Environment, Social and Governance). As the following statement indicates, however, not all are succeeding.

Some take a check-the-box approach or bolt simplistic catchphrases onto existing corporate social responsibility reports. Superficial branding efforts around purpose that are not anchored in the organizational DNA only serve to undermine leadership credibility. [1]

Those who are struggling (and even those who are not) may be interested in the article by McKinsey’s Celia Huber, Sebastian Leape, Larissa Mark and Bruce Simpson: The board’s role in embedding corporate purpose: Five actions directors can take today.

In this brief review we highlight the five specific actions recommended by Huber et al. They list these under the headings ‘building’, ‘owning’, ‘assessing’, ‘reinforcing’ and ‘driving’ purpose (B.O.A.R.D). They contend these actions can help boards partner with management to create a ‘purpose narrative’ that has clear commitments and targets, to fully embed that purpose in the organisation, and to monitor progress.

(1) Build an authentic purpose narrative with management.

We couldn’t agree more with their advice that creating a purpose statement and a supporting narrative should not be a branding exercise but rather a deeply reflective process. It is hard to understand how boards and their management teams find it so difficult to express why their enterprise exists, what it must achieve, and how it must conduct its affairs to satisfy important stakeholder interests. In reviewing a wide range of purported purpose statements we are constantly reminded of Richard Rumelt’s observation that high-level strategic statements are often: “more motto than mission”. [2]

They argue for a process in which both board and senior management try to understand all stakeholders’ perspectives on the company’s strengths, vulnerabilities and relevant industry trends.


(2) Own purpose in board practices.

Boards should ensure that purpose and ESG-type considerations are regular components of board dialogue. They go so far as to suggest there should be a board committee that includes purpose as one of its remits. It follows that boards should have relevant expertise within their membership.

(3) Assess purpose commitments, ensuring management sets clear and measurable goals, actions
and accountability.

Huber et al say that purpose is made real when it connects to clear commitments, targets and action plans that cascade down through the organisation. We also agree with their observation that the definition of corporate purpose should be sufficient to guide decisions on investments in time, capital and other resources—and their related contention that a purpose statement should also point to what the company should stop doing.

The accountability aspect is also important. A company should report externally on its progress in achieving the outcomes that connect to the company’s purpose.


(4) Reinforce the ‘purpose’ lens in core board decisions.

The authors propose that boards use their purpose statement to pressure-test decisions and trade- offs in company strategy, investments, risk and performance management, HR and culture, governance, and external reporting.

Boards, they say, should also be vigilant in monitoring management decisions that could undermine the stated purpose. They offer as an example companies that were criticised for laying off workers while instituting share buybacks or increasing executive compensation during the COVID-19 pandemic. Dissonance can also arise when a company engages with industry groups or lobbyists whose goals are inconsistent with the company’s purpose orientation.


(5) Drive organisational accountability for purpose through management evaluations and
reporting.

The article proposes that, as part of a board’s oversight role, it should establish organisational accountability around purpose. For example, linking ESG-related performance metrics to management team compensation ensures these are treated just as seriously as profit and revenue targets. Boards can also take a lead in celebrating achievements that are purpose-linked. Inspiring stories can be shared with employees and the public, via annual reports, ESG reporting and press releases.

The authors also exhort boards not to allow purpose and ESG goals to drop off their agenda during crises. Purpose-related considerations should guide decisions even—or especially—when organisations must make hard choices.


Notes:

(1) Celia Huber, Sebastian Leape, Larissa Mark, and Bruce Simpson 'The board’s role in embedding corporate purpose: Five actions directors can take today'. McKinsey & Co, November 2020.

(2) Rumelt, Richard P (2011) 'Good Strategy/Bad Strategy: The Difference and Why It Matters'. London, Profile Books