Purposeful Business - who are we kidding? A question every GC should be asking

I like talking to lawyers. They care about words and their precise meaning. So do I. Last week I spent a day amongst lawyers who were nearly all General Counsel to major retail companies. I was asked to help lead a dialogue with them about business Purpose and Sustainability. 

So it was natural that I should ask them to say, with some examples, ‘How would you define a purposeful business?’

Some said that a purposeful business is simply ‘a business with values’. One said a purposeful business was one that would do no harm. Some talked about businesses that wanted to combine profitability with positive impact.

Discussions of purposeful business are everywhere, even creeping into the presentations listed company CEOs make to analysts and fund managers. From my conversations it seems to me that there are broadly three versions of Purposeful Business.  

At one extreme are those who look for companies to define their purpose entirely in terms of the wellbeing of society and the planet. This is how ‘purpose-driven logic’ is described in a recent paper by the Cambridge Institute for Sustainability leadership (CISL).

‘Here companies take accountability for delivering directly to the needs of the economy – i.e. long term wellbeing for all. The organisation moves away from self-serving to primarily other serving’

Note that in this view the company is no longer maximising returns to shareholders. It is prioritising wellbeing for all. It is quite hard to understand on what basis the company is attracting capital and hard to imagine that this is what the listed company CEOs mean when they describe their businesses as purposeful.

In the second version of Purposeful Business – unlike the first - the company and its shareholders are expected to be ultimately self-serving but,

‘Profit is not the purpose of a company, profit is the outcome of identifying and pursuing a purpose that benefits society…

Leaders in a company should put its purpose first and seek investors, employees, and other partners who are equally committed to pursue it and thereby achieve long-term, sustainable value. Investors and boards should recognise that making competitive returns for shareholders is essential to a company’s success – but is not its purpose.

In this view the role of business is to compete in the market economy to fulfil human wants and needs.  – a very different description, given that satisfying human wants and needs may stretch beyond human wellbeing to say, tobacco or gambling. This is the implicit definition that seems to be increasingly used by mainstream business leaders. 

I would offer a third view of Purposeful Business which I believe has much more chance of standing the test of time. This accepts most of this second, mainstream view, but places much more emphasis on the company life cycle and what happens to a purposeful company over time as it confronts a succession of financing challenges. In this stewardship view companies need owners who are dedicated to passing the enterprise on to the next generation in better condition and boards which ensure that the companies purpose and values are not sacrificed as the company grows and changes it form.  

Directors owe their duty to the company, not to shareholders or stakeholders. They have been entrusted by shareholders with responsibility to take care of the assets and activities so that , when they hand over their stewardship, the company is in the best possible condition.

In this view time and ownership and the mandate from current shareholders are all vital. The founder of a small enterprise needs to plan for a future in which their successors share their purpose and values, and designs the organisation’s future ownership accordingly.  What happens otherwise is that bright entrepreneurs start companies that meet the needs of society but then end up selling them to impersonal conglomerates or uncaring owners who do not share their purpose. Or visionary CEOs take reins determined to transform their business in a purposeful way, only to be deflected by activist shareholders or the pressures of market expectations. The purposeful companies which impress me are those which have taken care to align their ownership with their purpose, as Julian Richer and other business owners have done by introducing an element of employee ownership into the business. The story of Pukka Tea, first sold to Unilever and absorbed into Lipton’s Tea, but later bought by a private equity firm, is considered by many to be a cautionary tale.

I asked the group to name companies that were, in their view, examples of Purposeful business. I heard five names mentioned before the discussion moved on. Four of them are bright young, undoubtedly purposeful companies contributing to human wellbeing and the needs of the planet, The Bamboo Company, Nobody’s Child (a responsible women’s fashion brand ) and Aspiga (ethical and sustainable clothing) and Deliciously Ella – (plant based vegan foods).

The fifth company named was Apple. The person naming Apple explained how the company had evolved from its originally playful and disruptive origins into a sophisticated big market-led company with a focus on developing and exploiting technology. Apple had put achievements in technology first and saw profit as the reward not an end in itself: hence their nomination of Apple as a purposeful company.

All the other examples were niche companies set up to help to make the world a better place.   

I find this confusing. It cannot make sense to use the same language to describe these two companies.

Purposeful is in danger of becoming a lazy label, and lose credibility, as happened to earlier labels such as CSR, and risks happening to ESG.

As one sustainability activistist who worked in food retailing put it to me recently

‘I choose not be frustrated but who are we kidding when we talk “purpose”?’

So here’s my challenge to GC’s- in retail and elsewhere. If your company tries to  insist that it is purpose-led, or purposeful, how about asking your colleagues some tough questions.

Supposing your company is involved in producing or selling food. In the UK 10% of five year olds and 25% of ten year-olds are officially obese. What is your company doing to help reverse this?  Do you know what proportion of your current food sales are unhealthy? If not, a quick look at the Biteback website will tell.

Here you will read that

The majority of the biggest food and drink manufacturers – seven out of ten to be exact – are reliant on selling unhealthy products in the UK. This is at a time when nearly one in three children face an increased risk of food related illnesses in their futures.

How about an urgent plan to reduce that proportion over the next few years? Are you becoming a convincing part of urgently-needed solutions to obesity, climate, bio-diversity and inequality?  If not, get your board to forget the word Purposeful.

Mark Goyder is the Founder of Tomorrow’s Company. He is the co-author of Entrusted: Stewardship for Responsible Wealth Creation and Senior Advisor to the Board Intelligence Think Tank.