How to navigate purpose and profit: Advice for CEOs

10 Nov 2022

How to navigate purpose and profit: Advice for CEOs

Texas recently banned local and state government entities from holding stakes in 10 financial companies and nearly 350 investment funds. Their reason: those companies and investment funds were ‘boycotting’ the oil and natural gas industry.

Greater cohorts of consumers now only buy goods from responsible companies. Increasing numbers of shareholders and fund managers only invest in companies with clear ESG directives, and candidates now prioritize purpose in their job decisions as highly as salary and benefits. Given this cultural shift, it would be easy to believe the alignment of purpose with profit is just a matter of time before it becomes ubiquitous.

But what happens when the purpose you’re driving towards to meet the values of one group, alienates another? Rather than double down on their climate position, some of the blacklisted firms responded by stating they did invest in energy companies, straddling both camps and committing to neither at the same time. Is this a viable response in an age where purpose is valued so highly, by so many?

How purpose is driving a new leadership mindset

Purpose has become a fundamental part of remuneration packages. However,  unlike other aspects of remuneration, the driver is non-financial, therefore, more CEOs need to operate differently to simply achieve a profit.

Increasingly, we are seeing organizations led by those who take a holistic view of their business, encompassing their customers, employees, and shareholders. Often, they believe a multi-stakeholder model is the best model for achieving long-term success.

Those who believe in building purpose into their organizations don’t view it as mutually exclusive from making a profit. They view the two as linked, seeing purpose as a strong influence in driving employee motivation, attracting more customers, and meeting the demands of shareholders.

These types of leaders are often more empathetic, utilizing inclusive decision-making rather than a command and control approach, and actively engaging with every level of their organization.

Richard Walker, managing director of Iceland Foods, is a strong proponent of leading with purpose and approaches it from a company-wide perspective. He admits many of the most positive initiatives Iceland took to help customers during the Covid-19 crisis were ideas submitted by store colleagues rather than dreamt up in head office.

How to navigate conflicting stakeholder groups

It’s one thing to lead with purpose and embed that within the mission of the organization, but it is a wholly different challenge when that purpose plays against the beliefs of a proportion of your customer base. Navigating this as a leader ultimately comes down to your own beliefs.

It is clear that those leaders with a core belief set, whose values reflect their corporate identity, are better able to integrate them into the organization and address conflicting interest groups, and manage tensions and trade-offs. 

Being honest and demonstrating a desire to reflect, explore, and discuss how social issues relate to the core of an organization is a strong first step in navigating conflicting groups. Although, there is no simple input/output equation, which makes it hard to address purpose in the context of conflicting ideologies.

Leaders we talk to consider the relationships among their social and environmental impact, their strategy, and their purpose, with the aim of creating alignment. Doing so can lead to hard-to-reverse choices about where and how to compete that make up the core of a company strategy. The resulting friction is uncomfortable, but also extremely valuable. Encouraging this on an ongoing basis by building purpose-linked questions into a key strategy, budgeting, and capital investment is effective for managing trade-offs when they crop up.

Engage a wide range of stakeholders early as a key input into this process. By interviewing external stakeholders, including investors, organizations can understand their posture and process related to purpose.

Such engagement brings out new perspectives, mitigates risk, and can avoid the sort of surprises the investment companies faced in Texas.

Creating a definitive alignment between purpose and value can also help in guiding the ship through the difficulties of different views. Defining the organization’s ability to create value and drive progress across ESG themes may alienate some stakeholders but it is also likely to strengthen relationships with those that mean the most to the company’s ability to create value. Strong purpose generates top-line growth by creating more loyal customers, fosters trust, and preserves specific customers at a time when most feel disappointed with corporate stances on social issues.

Why should I risk alienating some stakeholder groups?

On the face of it, this question seems like a no-brainer. Most companies want to sell to as many customers and raise as much money from as many investors as possible. So why would they risk alienating any of them?

It is evident from the companies we speak to, those that take a strong stance on social issues tend to perform better in the long run.

Purpose can make an organization more receptive of shifting external expectations, policy directions, and industry standards—thereby helping them to identify risk it would otherwise miss. Particularly when crises strike (Covid-19 being one example), pre-existing alignment between profit and a company’s reason for being enables a values-driven response compelling to stakeholders. These ‘trusted’ brands bounce back faster after economic shocks, like the pandemic.

There is no clear-cut approach to navigating this issue and having a purpose will lead to difficult decisions, particularly as the Western world becomes more internally divided in its beliefs. But making these difficult decisions is what separates good CEOs from great CEOs. By extension, it’s what separates good companies from great ones.

For more advice and guidance for CEOs contact the author, Mark Freebairnget in touch with us here or your local Odgers Berndtson contact.

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