As the case for ‘why‘ companies should be ‘purpose’ based and ‘what’ this requires of them is well documented[1], this note focusses on the ‘how‘ to do deliver a ‘purpose’ company. There is a paucity of codified best practice or business models as to ‘how‘ CEOs should actually go about delivering a purpose company that is also highly profitable.
To redress this, a core business process model is put forward to show how a CEO could deliver a purpose company. The business model is demonstrated by application in outline to a case study of a multinational corporation where the author was its CEO.
The ‘Why’
The ‘why’ CEOs should lead their companies with purpose is in response to a number of changing imperatives. The western capitalist system is under threat because of the growing disconnect between business and society due to global crises such as the environment and inequality. And, as a consequence, there is the increasing corporate[2] and investor[3] requirements of reporting business performance in terms of management intangibles; such as culture and purpose, engagement with employees, suppliers and customers, and making a positive contribution to society.
Moreover, from the commercial self-interests of a CEO, comprehensive literature reviews provide a substantial body of evidence that collectively point to ‘purpose’ companies out-performing their peers in financial returns[4].
The ‘What’
A consequence of the ‘why‘ has been the need to rethink the nature and purpose of a company. Profit is now seen as a derivative from the nature of ‘what’ a firm does: its purpose. A ‘purpose’ company has been defined as one that produces profitable solutions to the problems of people and planet, and not from producing problems for people and planet[5]. That is: it does ‘good’ and it does not do ‘bad’. This requires a paradigm shift from the primacy of shareholder value to the primacy of purpose. A purpose driven company has been characterised by the ‘what‘ it does. This can be seen, for example, in terms of the following five guiding principles[6];
- being a responsible and responsive employer;
- being honest and fair with customers and suppliers;
- being a guardian of the environment for future generations;
- being a good citizen; and
- having purpose which delivers long-term sustainable performance for the economy.
[1] Big Innovation Centre (2016). “The Purposeful Company“. Big innovation Centre. London.
A blueprint for better business (2017). “Five Principles of a Purpose Company”. A blueprint for better business. London.
Mayer, C (2018). “Prosperity: better business makes greater good”. Oxford University Press.
[2] UK Corporate Governance Code. December, 2017.
Section 172, UK Companies Act, 2006.
[3] Fink, L (2018).”Letter to CEOs”. BlackRock.
[4] Big Innovation Centre (2016). “The Purposeful Company“. Big innovation Centre. London.
A blueprint for better business (2017). “Purpose and Performance: The Benefits of Following the Five Principles of a Purpose Driven Business”. A blueprint for better business. London.
[5] Mayer, C (2018). “Prosperity: better business makes greater good”. Oxford University Press.
[6] A blueprint for better business (2017). “Five Principles of a Purpose Company”. A blueprint for better business. London.
The ‘How’
The challenge outstanding is one of ‘how’ to deliver a purpose-defined company.
Whilst recognising that there are other key considerations to take into account[7], it is the CEO who must deliver the purpose of the company through leading the actual execution of its strategy and the practicalities of its operations.
The proposition is that CEOs deliver bigger profits for their business and bigger benefits for society through leading and operating their purpose-driven company with heightened integrity.
The pre-requisite is the definition and successful implementation of a core business process model that ensures the required actions collectively and cumulatively deliver the company’s goal: its purpose. This is all about the modus operandi of how leaders, management and staff interact and their mind sets, which drive behaviour, performance and hence delivery. It must go beyond formal announcements and flow throughout the whole company[8]. It is about how to actually lead and operate a purpose company in practice. It calls for integrating purpose into the very fabric of the company; its governance, culture, commercial strategy, management and daily operations[9] through innovative leadership and management.
[7] Mayer, C (2018). “Prosperity: better business makes greater good”. Oxford University Press.
[8] A blueprint for better business (2017). “The purposeful company: Policy report – Blueprint statement“. A blueprint for better business. London.
Mayer, C (2018). “Prosperity: better business makes greater good”. Oxford University Press.
[9] “sustainablepurpose.com” (2019). Cambridge Institute of Sustainability Leadership Roundtable. Cambridge.
The model has six interrelated elements: stakeholders, vision, integrity/compliance, leadership, staff and feedback – all delivered with heightened integrity (see figure 1).
The business process model has been based predominantly on the author’s CEO experience of leading what became a purpose company; a mid-cap multinational corporation in the down – stream oil and gas sector. The company designed, manufactured, commissioned and serviced large scale combustion burners for a variety of generally noxious industry end-user customers. The CEO was appointed by the company’s new owners with the remit to grow the company and its profits.
Heightened integrity
At the core of the model is heightened integrity. Heightened integrity is defined as when company leaders and its people interact and operate with the highest levels of values.
Each of the six processes has to be delivered with heightened integrity, thereby ensuring that purpose courses throughout the company. This has to be highly proactive behaviour, not responsive. That is why it is termed ‘heightened’ integrity.
Stakeholders
In identifying and valuing the specific connection that matters, there is a large number of varied stakeholders. The one that matters is staff. It is the company’s people who deliver its performance; not its shareholders or other stakeholders. There is a symbiotic relationship between leaders and staff. Leadership directly influences staff performance and staff performance delivers and maintains a company’s purpose
For the case study company, much work was needed in terms of how it treated its people. It had a highly dysfunctional culture. There was little trust in management and staff turnover, for example, was significantly higher than its industry average.
Vision
When leaders set out an aspirational and motivational vision for staff, it has to go further. The vision must also meet a societal need. People generally do not turn up for work thinking, “I’m going to increase shareholder value today”. They want an emotional connection, self-worth, meaning and fulfilment from their work.
Previously, the company was a ‘dog’; drifting, under-invested and with declining profits in a growing market. With the new CEO, the company’s purpose was defined in terms of what its customers wanted: to produce market leading performance combustion burners for industrial applications which reduced emissions, increased fuel efficiency along with absolute safety; thereby serving a societal need. The newly formulated vision included being a world leader and doubling the size of the company within five years, with profits growing faster than revenue growth.
Integrity and Compliance
A compliance driven business is insufficient to deliver a company’s purpose; it has to go beyond the ‘not do bad’. There is a need to embody an integrity and compliance ethos in a company. Moreover, ethics (knowing what to do), competence (having the ability to do it) and accountability (people taking responsibility to do it) are necessary individually but are not sufficient. They have to be aligned collectively so that staff themselves take responsibility for what is acceptable and unacceptable behavior and ‘do good’.
Under the former management regime, whilst the level of technical compliance was high, there was an atmosphere of little trust with there often being secret ‘side deals’ between managers and board meetings were orchestrated by the then incumbent CEO. Overall, there was inconsistent moral fibre displayed by leaders in the company thereby providing a poor role model for its people.
Leadership
Leaders must ensure that their moral compass demonstrates the right tone from the top. Proclaimed values of leaders are not important to staff. What is important is employees’ perception of leaders. There is the need to not only set out what employees should not do, but also the need to encourage them to do good.
The impact on employees of how the CEO responded to compliance and integrity issues and situations became clearly evident. For example, when the CEO was seen to be reactive to a non-compliant issue, then the impact on staff was negligible. Staff would expect such action to be taken by the CEO when faced with an issue that evades the law. In contrast, when the CEO was seen to be proactive to an integrity issue, then the impact on staff was often very high. The CEO was seen to be taking and seen to be demonstrating the high moral ground in terms of what is acceptable and unacceptable behaviour.
Such an explicit demonstrable pattern of behaviour by the CEO established the culture of the company (ie ‘how things are done around here’) and hence how its people were expected to actually engage with their company.
Staff
Staff engagement and communication must be delivered in a fundamentally radical manner. Radical engagement and communication are delivered through interactive face to face communication being the norm. The company’s prior culture was completely different: there was micro-management; it was hierarchical; and, it had a blame culture and was risk adverse.
In terms of engaging staff, a core element of the company’s new comprehensive communication programme was the holding of open question and answer sessions at all staff events (e.g. workshops, staff business briefings, training sessions, staff satisfaction results). Two-way interaction between leaders and employees requires feedback from colleagues. This ensures staff have decoded the communication and the way it was intended and management receive contributions in return. It culminates in enlightened empowerment of staff by top management. Leaders give up power and staff make decisions and take actions with confidence. Consequently, in the company, there was considerable improvement in staff productivity levels. Revenue per employee increased by 11 percent and profit per employee by 67 percent over a seven – year period. Staff absenteeism fell below the company’s industry average and staff turnover was reduced to less than a third of its industry average within three years.
Feedback
Finally, there is the imperative of proactively closing the feedback loop between leaders and staff. Feedback is the critical success factor for the business process model. The feedback loop has to be independent of management and be transparent to all employees. This can only be achieved through having open-ended question and answer sessions between leaders and staff in communication sessions.
Typical questions that the CEO faced in open question and answer sessions ranged from “Given the dangers of working in Nigeria, are you going to force us to go?” to “You say we’re growing profitable, so why are you making redundancies?”. The acid test is the extent to which staff ask, and continue to ask, leaders challenging questions. As this became the norm, then management and staff had, and were seen to have, the same ‘north star’ for delivering the company’s purpose.
With successful implementation, the core business processes form the life blood of the company, with heightened integrity being the heart pumping the blood. They result in the delivery of the “five guiding principles” that characterise the ‘what‘ that is required of a purpose company.
Results: Company and Society
Through being led and operated with heightened integrity as a purpose-defined business, the case study company was transformed from a ‘dog’ to a world leader. It directly resulted in superior profitability for the company and also greater benefits for society of reduced depletion of natural resources and also a healthier environment.
The company now delivered long term sustainable performance in terms of financial, human, social, intellectual and natural capital returns[1] (see Figure 2).
[1] Mayer, C (2018). “Prosperity: better business makes the greater good“. Oxford University Press.
Figure 2: Case study returns: Financial, Human, Social, Intellectual and Natural Capital
- Financial capital: Substantial shareholder returns:
– Superior profitability:
-18% cagr EBITDA,
– revenue growing at 12% pa in a market growing at 7% pa
– High cash conversion: 85%
– Premium sale value: 20%.
Previously: Decreasing returns
- Human capital: Empowered:
– Staff: Meaningful work; high self-worth; fulfilled; emotionally committed
– Reduced mis-management and mal-administration
– Alignment of stakeholders to a common purpose agenda.
Previously: Dysfunctional culture
- Social capital: Greater market efficiency and allocation of resources:
– Stronger governance
– Reduced non-compliance
– Regulatory traction:
– No tax evasion
– No systemic tax avoidance
– No gaming of regimes
– Surpassing product requirements.
– Honest and fair treatment of suppliers and customers throughout its supply chain
– No corruption.
Previously: Declining social capital
- Intellectual capital: World leading technical performance of products at competitive prices:
– Emissions reduction
– Greater fuel efficiency
– Absolute safety.
Previously: Minimal
- Natural capital: Reduced depletion of natural resources and a healthier environment:
– Reduced emissions / pollution; cleaner air
– Greater fuel efficiency; reduced use of fossil fuels
– Greater safety; fewer polluting disasters.
Previously: Aided and abetted depletion.
Conclusion
Successful implementation of this core business process model (ie delivered through a company being led and operated with heightened integrity) ensures that the company’s purpose is achieved and sustained; whereby management and staff are fully aligned in actual delivery. Where they are not fully aligned with the company’s purpose, then its purpose will not be delivered nor sustained.
This results in bigger profits for the business and bigger benefits for society. Business thus becomes a force for good for society, thereby responding to and resolving some of the issues as to the ‘why’ companies should operate with purpose.
It now becomes in a CEO’s self-interest to lead and operate their company with purpose.
Alan Barlow
Formerly: CEO Hamworthy Combustion Group
February 2020
Previously: Director FTSE 100 energy group; partner PriceWaterhouseCoopers.
Trustee: Integrity Action.
Doctorate in economics, University of Oxford.
Author: “Profiting from Integrity”. (2018) Routledge.