It's proxy season again, and as The Economist recently observed, "Annual meetings are the new frontline in the battle over corporate purpose." But although activist shareholders are pushing leaders harder than ever to run their businesses in enlightened ways that deliver for all stakeholders, it won't be enough on its own to deliver more purposeful business practices. For that, we need something more: a wholesale shift in how leaders approach purpose.
To be sure, few companies today deliver broadly on their purposes. In 2019, the Business Roundtable, a group of CEOs from America's biggest companies, issued a formal statement on "The Purpose of a Corporation" in which it pledged a commitment to a multi-stakeholder view of business. But a year after the roundtable's statement, in the midst of the pandemic, most big companies didn't seem to have departed much from business as usual and be changing their policies to benefit employees or other diverse stakeholders as well as investors. As The Washington Post reported in late 2020, many of the country's 50 biggest companies earned profits even as a majority of them laid off employees. Further, as a more recent Brookings Institution report observed, only a fraction of the nation's largest employers now pay their workers a living wage, even as shareholders have profited fabulously.
We might presume that this disappointing track record reflects a lack of will on the part of business leaders. Certainly, it does. But it also reflects a lack of skill. As my field research inside companies has suggested, companies fail to deliver on a multi-stakeholder approach for a simple reason: Despite reams written on the subject, the vast majority of leaders still don't know how to embed purpose more broadly inside their organizations.
Not all companies have underperformed when it comes to purpose. I've gone inside a select group of companies that practice what I call "deep purpose." Firms like Etsy and Gotham Greens actually walk the talk, embracing purpose as a foundational operating principle and embedding it throughout their organizations to structure decision-making and work processes. Etsy made commitments in three areas related to its purpose (diversity, environmental responsibility, and empowering people), reporting publicly on its progress. Gotham Greens has embraced a revolutionary business model that reinvents agriculture to be both more sustainable and supportive of local communities.
Through my extensive field research on purpose, I learned what it looks like to foster a sense of true purpose at work. And, as became immediately obvious, it's much different than standard practice at most firms.
How do you embed purpose? First, you infuse the purpose with historical depth. Leaders often presume that if you come up with high-minded language, you'll inspire others. In truth, words themselves usually carry little meaning on their own. Employees often find purpose more authentic when leaders connect it with history, and when they tell powerful, credible stories about the purpose's rationale and impact. Toymaker LEGO did this to memorable effect as part of its extraordinary revival during the 2000s, connecting its purpose back to its founder's founding spirit inscribed in the line, "Only the best is good enough." Employees became more invested in the company's success, even to the point of holding leaders accountable for living up to LEGO's historic values.
Second, purpose seems more genuine when leaders make it personal. Leaders often articulate a purpose for organizations, forgetting that employees have personal purposes of their own. Companies like Microsoft that explicitly tie the organization's purpose to those of employees have an easier time bringing the purpose alive in employees' daily work. Microsoft did that in part by creating a forum called Microsoft Life that celebrates employees, their personal missions, and their work at the company.
Third, and most critically, a sense of true purpose emerges at work when companies rewire their enterprises around purpose. Leaders often regard purpose in a limited way as either a marketing or human resources exercise. Companies, like the global professional services firm EY, that go deepest with purpose take a much more comprehensive approach, treating purpose as an operating system and embedding it in processes, organizational structures, and culture. EY adopted a system of metrics to spur behaviors associated with its purpose. "Companies really have to be able to show what they're doing," EY's CEO, Carmine Di Sibio, told me. "They get into trouble when they talk a lot about purpose and it's just talk." Imagine what it feels like when everything about your work ties back in clear, even obvious ways to the purpose. That's what employees at deep-purpose companies experience on the job."
Fourth, a sense of true purpose emerges when leaders forge and execute purposeful strategies. At deep-purpose companies, strategy follows from purpose, not the other way around. Further, in executing strategy, leaders lean in to the inevitable tradeoffs that emerge between social and commercial priorities. At companies like Etsy, purpose becomes a way to navigate between conflicting stakeholders and time horizons. During its turnaround during the 2010s, Etsy made a set of difficult changes, including layoffs, designed to improve both its financial performance and its ability to deliver on its purpose. Over the long term, all stakeholders benefited, including employees. Employees understood the need to sacrifice on behalf of the purpose and their engagement remained exceptionally high; in 2019, 96 percent of those surveyed expressed pride in the company.
Embedding purpose deeply is difficult, but leaders should remember the business value of pursuing a multi-stakeholder approach. Employees and customers increasingly expect companies to address social issues. And research has consistently shown strong links between purpose and performance dimensions such as growth, profitability, and innovation. Leaders must go deeper on purpose not simply because it is the right thing to do, but also because their companies' future success hinges on it.
It's encouraging that some CEOs--68 percent of those queried in one survey--are placing "more emphasis" on purpose. It's also encouraging, as I've noted, that activist shareholders are doing so too. But that's not enough. For the purpose to feel genuine and meaningful, leaders must take a new approach to embedding it in their organizations. They must live it in their daily work, hold others accountable for acting in ways congruent with that purpose, and bring the purpose alive for their workforce.