By Ron Carucci Garry Ridge, Harvard Business Review
Company purpose has mainstreamed its way into management vernacular, and with plenty of good reason. Evidence from across industry sectors has proven that genuinely purpose-driven organizations outperform their non-purpose-driven competitors on critical metrics. For example, brands that have a clear commitment to improving their customers’ quality of life outperform the stock market by 120%, and over the last decade, purpose-driven brands have seen their valuation skyrocket by 175%. In one study of 28 companies over a 17-year period, purpose-driven companies grew by 1,681% in comparison with the S&P 500 average of 118% over the same span. Even more compellingly, 77% of consumers feel a stronger connection to purpose-driven companies over traditional companies, and 66% of consumers would switch from a product they typically buy to a new product from a purpose-driven company.
So where does the journey toward such inspired performance begin? Not surprisingly, at the top. An effective, aligned, and committed executive team — the governance mechanism that shapes the story of an organization unlike any other team — is central to shaping and sustaining impactful corporate purpose. And here’s why.
Contexis, a London-based B-Corp research consultancy, in partnership with Cambridge University, employs the Contexis Index to measure corporate purpose and its impact. Having surveyed more than 100,000 employees across 26 countries, the data reveals key factors that determine the degree to which an organization has activated purpose among its employees. Factors like the following indicate the degree to which purpose has meaningful impact on performance:
- Clarity. Are employees clear on the company’s purpose?
- Alignment. Is management living the purpose?
- Ownership. Do employees feel emotional ownership of the organization?
- Trust. Do employees feel emotionally safe to freely act upon purpose?
According to Contexis CEO John Rosling:
Where we see organizations with a clearly understood and authentic purpose, we see remarkable levels of clarity of strategy and objectives, remarkable velocity of decision making, and exceptional adaptability. Put another way, on average in organizations, people who feel connected to a clear purpose have at least 30% more clarity and adaptability than average peers.
In a post-pandemic workplace where talent retention and productivity have become top executive priorities, clearly purposeful organizations come out on top once again. Rosling continues:
Leadership teams that activate purpose in their culture result in a net gain in productive employee behaviors of between 25 and 40%, and a similar uplift in retention. Coming out of the pandemic, we typically see turnover intentions of around 40% among those least connected to purpose, and rarely more than 2% among those connected to organizational purpose.
But the real benefits of that clarity cannot be achieved in a culture of fear or blame. Leaders must create a culture of radical trust, in which people not only understand and believe in the purpose the company serves, but also feel safe to act on it for the good of the organization. From that combination of clarity and trust comes exceptional innovation and growth.
If you’re part of a leadership team, here’s how you can authentically activate purpose within your company.
Align on strategy-driven purpose and resist bandwagonism.
For all the reasons noted above, it’s easy for leaders to want to jump on the purpose train to cash in. But it turns out the world has quickly learned to see right through “purpose-washing” whereby leaders work hard to create the appearance of purpose. Marketers are pulling every lever they can to put halos over their brands and companies, spinning a narrative of goodwill. Employees and consumers aren’t buying it, though. One study of corporate purpose shows that while 84% of consumers consider trust when purchasing, only 34% actually trust the brands they buy from, and 53% believe companies purpose-wash.
Leadership teams must craft a purpose so unique to your organization and aligned with its strategy that it compels people to act and perform in positive ways. At WD-40 Company, where Garry was CEO for 25 years, the company purpose is “To create positive, lasting memories solving problems in factories, homes, and workshops around the world.” Their aim was to create a strong sense of belonging within the culture. This was born from the fact that the brand was already creating lasting memories, as the company would repeatedly hear from customers, “I remember when I fixed my bike with my dad” and other similar stories.
The purpose is unique to WD-40 Company because of the strong tribal culture of belonging they’ve worked to create over the years, which has led to outstanding performance. Integral to WD-40 Company’s strategic aim was to provide unique, high-value solutions that instilled confidence. Such solutions are best created in an environment where people feel trusted and in whom confidence is placed.
Manage expectations of competing stakeholders.
No group of people in an organization faces the (often conflicting) demands of numerous stakeholders more than the executive team. Customers, shareholders, the board of directors, suppliers, communities, government and regulatory bodies, and, of course, employees deliver an endless spate of demands. Meeting some of them often requires disappointing others. Managing expectations is key to ensuring that you don’t lose credibility entirely, especially in tough moments.
A strong, clear purpose defines what a company stands for. It should reduce churn of relitigated decisions and recurring problems and increase decision speed. Even when decisions don’t go as some stakeholders might want, if there’s clarity behind decisions and you can trace them back to the company’s purpose, people can handle the disappointment. When you can’t answer “Why was that the decision?,” people get severely frustrated. Your purpose should easily answer the “why.”
Manage consequences for non-adherence.
A company’s identity statements, such as its purpose and values, must be held as sacrosanct. The moment it becomes a volunteer program, employees assume you don’t really mean it. Ron’s 15-year longitudinal study of more than 3,200 leaders revealed that companies whose actions don’t match their words are three times more likely to have people be dishonest, because the say-do gap broadcasts to employees, “Around here, we say one thing but do another.”
For purpose to have material meaning, there have to be consequences for those whose behaviors contradict or don’t align with the purpose. Leaders must be brave enough to confront toxins that might be corrupting a company purpose. You need to either coach someone to redirect their behavior, or you have to remove them. Leadership teams need to see the culture their purpose creates as more important than any single individual’s contribution.
For example, when Garry first began his leadership journey as CEO, he declared his expectations for how leaders were to develop and invest in others. He told the organization that if an employee had to be fired because of a failure to develop them, he would remove the senior-most leader in that department and “share them with our competitor.” He was tested early on when he learned that an employee had been let go. He first went to that employee’s direct supervisor and asked to see the development plan for them and found it didn’t exist. He kept his promise by then going to the highest person in that division, several levels above that supervisor and the fired employee, and removing them. While this might sound unduly harsh, when you commit to purposeful principles, it’s vital that people understand that you’re serious. How you treat violations of the principles you claim are sacrosanct will quickly signal to people how resolute you are about their importance. Garry made the expectations clear and resourced leaders to meet them accordingly. When failure occurred, he simply followed through with the consequences he told people to expect.
Make and communicate tough trade-offs.
There are always hard trade-offs to make when investing in near- and long-term purpose initiatives. Being truly purpose driven is a long game, and saying no to even great ideas is key to allowing purpose to endure. Being transparent and clear about how and why those trade-offs are made is key to maintaining credibility with employees.
Many executives fear disappointing people and dole out too many “yeses” as a result, diluting the company’s focus and resources with too many priorities and unclear commitment to real purpose. For example, one of WD-40 Company’s core commitments is to never use any ingredients that cause cancer in their formulas, as cancer is the farthest thing from a positive lasting memory. So, if someone in the supply-chain organization were presented with an opportunity to significantly reduce costs by using a cancer-causing ingredient, the answer would be an easy and definite no, despite any opportunity for increased profitability or shareholder gains.
Be bold in the aspirations you set.
To shape a purpose that inspires people’s best work and audacious ideas isn’t easy. To get past sloganeering to an aspiration that molds the trajectory of your company takes courage. Having a purpose isn’t the same has having a purpose statement. You live a purpose; you recite a purpose statement. Boldness doesn’t mean you have to set out to save the planet or change the world. Purpose has to be authentic to who you are as an organization, your industry, and how you serve all of your stakeholders.
The work Hubert Joly did during his time as CEO of Best Buy is a wonderful example. The company’s purpose to “enrich lives through technology” permeated everything the organization did, including establishing technology centers in underserved communities.
At WD-40 Company, “creating positive lasting memories” allows people to come to work every day and contribute to something bigger than themselves, learn new things, and be unleashed by a compelling set of values. The idea is that they go home happy, and happy people contribute to happy communities. That’s a bold aspiration. As Tiago D’Amico, general manager for Latin America and Caribbean put it, “[O]ur culture provides a positive and reinforcing environment where I experience safety and belonging. It inspires me to serve and contribute to a common good. Our values serve as framework where I feel empowered to take action and learn. It spurs growth and behaviors that have a positive impact on my family and community.”
. . .
To shape an enduring purpose that sets a company apart both competitively and as an employer, leadership teams must pave the way. To be sure, the work is hard. But to attract the best talent and keep the most satisfied customers, serving an authentic purpose is becoming table stakes. When people talk about your organization years from now, will your purpose be central to the stories they tell?