At the Spring Seminar, in our series of workshops, we had a solid exchange on corporate purpose. I’d like to share what I covered in a scene-setting talk at the purpose workshop.

In a recent Ernst and Young study, purpose was defined as an “aspirational reason for being, that is grounded in humanity and inspires call to action”.

I like the definition, but also tend to put purpose in context with strategy and culture. As I see it, leaders run companies largely by pulling the levers of strategy, culture and purpose.

If Strategy is what we do and how we work towards our goals, and Culture is who we are and what we stand for, Purpose is why we exist.

A clear purpose, and the behaviors it fosters, will better engage employees, customers, business partners and communities.  Studies show that companies that are attuned to the world around them – and live a clearly articulated purpose – fare better than their peers.

And purpose-led companies outperform, according to studies by IMD, the Swiss business school, and Burson-Marsteller. Moreover, a recent survey by Gallup shows that 88 percent of Millennials will choose to remain with a company chiefly if it has a clearly expressed purpose.

Purpose as a key concept is maturing at a time when we see improvements in how to assess the societal impact of companies. That this impact matters is evident in a couple of international governance milestones, seen from a high-level perspective:

  • The foundation of the UN Global Compact in 2000. The UNGC helps companies improve their financial, environmental and social performance and impact.  More than 9,000 companies have since signed up to its principles.
  • A few years ago, the role of business in society was further enshrined in the UN’s Sustainable Development Goals and through the separate adoption after six years of stakeholder consultation of the UN Guiding Principles on Business and Human Rights.
  • Governments around the world are working to implement new governance requirements for companies, helped by guidance from the Organization for Economic Cooperation and Development (OECD) and other global fora – and under the scrutiny of NGOs.

The theme of Business in Society and the pursuit of purpose is also increasingly reflected in how business media is ranking companies.

Fortune Magazine has a Change the World Ranking based on three criteria      

  • Measurable social impact: a company’s impact on specific societal problems;
  • Business results – the economic benefit the socially impactful initiative brings to the company
  • Degree of innovation – how innovative is the company’s effort compared to that of others in its sector; are others following its lead?

Such rankings are useful. Companies with a clear purpose will sail more assuredly in the choppy waters of global commerce. And rankings appeal to the competitive nature of business leaders.

I have a simple way of saying why purpose matters, since it helps a company live its values: You can’t hug a company, but you can embrace its values.  

But let’s look at the issue of Business in Society through a wider lens.

All of us with a close interest in CSR, shared value, sustainability or just plain old corporate decency – as civil society activists, academics, consultants, company representatives and government officials – have a constant need to examine and define the social role of business.

Each generation of corporate leaders, each new CEO, will generally feel a need to orient themselves and pose the “why we exist” question that purpose is the answer to.

But we see corporate leaders and their teams often struggle to fully grasp, put words around and act on the wider responsibilities of their businesses – even though it should be staring them in the face if they had a clearly articulated purpose.

No doubt, “purpose” is the best way for a company to answer the core question: “why we exist”, alongside its strategy and culture articulations, guidance, structures and processes.

This is important for two reasons: Business can be a mighty force for good, and knowing who you are is the foundation. And as Chief Communications Officers (CCOs), we can help change the world, one company at a time. Purpose is our core tool for this.

Two examples:

In ABB, our statement of purpose, coined in 2005, was “Power and Productivity for a Better World”. This statement was used as a tag line for more than 10 years. The elements for it were developed in a two-hour workshop with the top 80 leaders in the company. I then wrote the words.

In Shell, we created an internally oriented purpose statement as the core of a rebranding project. It occasionally made its way into speeches, but was never intended to be used in print. (Shell has never had a tagline). The purpose statement was “Powering Progress Together”.

The examples show how a company’s leaders might use “purpose” to define the business and to answer the core question: “why we exist”.  

How do we develop leaders for this new world of purpose and social impact?

Sadly, companies often miss opportunities to nurture what I call the SQ or “societal intelligence” during the early phase in the careers of up-and-coming leaders.

SQ should be stewarded along their whole career path, so that they learn to live in and with the world around us, over which we have little or no control. This should happen from their first job as, for example, plant manager, when they encounter external and internal stakeholders.

Fast-track executives too often grow up “protected” within their specialty, with a sprinkling of international assignments added. And it is often only when they become CEO that they MUST have a wider overview, and by then, forming of new habits is almost too late.

Such CEOs, and with them their companies, usually react in a crisis with denial. Think Tony Hayward and BP.

They usually fail to find the right tone – and the right actions – to manage the crisis, until they have been slapped around mightily by public opinion.

So, how does SQ fit in with IQ and EQ?

As I said, I assume that leaders run companies with three basic levers – strategy, culture and purpose.

This is how I see all this fit together. A company needs a smart, dynamic strategy in order to beat the competition. That’s where IQ comes in. Strategy is about what we do and how we do it. Secondly, companies need vibrant, authentic cultures based on shared values expressed through sound behaviors. That’s where EQ sits – it’s about who we are and what we stand for.

And to tie culture and strategy into an aspiring proposition that both motivates internally and opens doors externally, companies need a clearly articulated purpose that expresses our role in society. That’s about why we exist, our raison d’être. This is where SQ comes in.

What really matters for success is the combination of culture, strategy and purpose, IQ, EQ and SQ.

A company in tune with society will always fare better – that’s why SQ and purpose are so vitally important.

The CCO is probably the best steward of this recurrent process of defining and embedding purpose – and occasionally it would be our job to challenge the company’s stated purpose to start the process of re-examination.

This stewardship might be a more difficult task in the US compared to Europe. The US business community has only slowly let go of the 1970s mantra of Milton Friedman – that the “business of business is business”.

I can only guess why this is so. One factor is probably the immense pressure that Wall Street exerts on CEOs and their corporate boards. Wall Street regards anything except a focus on EPS (earnings per share) as suspect, naive or at least unproductive.  

The other difference between European business, where notions around the societal role of the enterprise have been embraced more readily, and the US, is quite simply the influence of lawyers in top-level decision-making.

A European CEO will take legal advice and then move on, often letting other input weigh more heavily. In the U.S., the corporate lawyers seem to have total veto power. And they use it.

It is clear that business performance is best measured on the triple bottom line. There are even tools now to assess how a company performs on that elusive third line: as a societal entity.

The GRI – the Global Reporting Initiative – is a multi-stakeholder institution which has produced solid indicators to record and report financial, environmental and societal performance. 

And the Corporate Human Rights Benchmark is providing even more granular tools to score performance and act as the foundation for feedback and learning.

What we all – across the business community – have in common is the growing challenge of populism, of xenophobia and of resurgent nationalism.

It has grown out of a backlash against globalization, one of the great forces in the world today.

Globalization has seen a lot of political terrain being ceded to global companies operating in a lightly regulated system, and economic forces have been unleashed that have created fierce new challenges like inequality.

The backlash, which I call tribalization - people forming strong bonds around, and acting on, religious beliefs, cultural identities and political convictions.

These increasing tensions make it even more important for business to know and act on its role in society.

Purpose – as a combination and expression of brand, mission, vision and values, i.e. the manifestation of corporate character – might just be the key we’re looking for.

Businesses can achieve their goals only by understanding how societies function.

Purpose is a natural way for business to connect better with society around it.