The purpose backlash and why it’s important28 March 2019

Check out social media, flick on the radio or read a business publication and you will find new evidence every day that the global apocalypse is coming, whether it’s the disappearance of insects, or the melting of the glaciers. It’s basically all terrifying.

Companies that can articulate what they are doing to help mitigate the long list of threats to our very existence: climate change, plastic and food waste, poverty, etc. are quietening their activist shareholders and cheering us all up in the process.

As part of this effort to line up on the side of the hopeful, many more businesses are finding and communicating their ‘corporate purpose’ which seems to be motivated by 3 main objectives:

  • Build brand loyalty among customers
  • Attract and retain talent – particularly ‘millennials’
  • And post ‘that’ BlackRock letter from Larry Fink; keep activist investors happy

But it’s not always easy to summon up a ‘purpose’ that people are going to buy into if you haven’t ever got beyond ‘market share’ or some other financial measure. Let’s face it, most businesses in this tricky global economy (and in the Brexit plagued UK) deserve a parade for simply staying afloat.

This would not be so bad except for the fact that there is a cohort of entrepreneurs globally founding companies that have purpose baked into their core business models. Everyone has their favourite examples, some of mine are TOMS (a pair of shoes donated for every pair purchased),  ToastAle (beer made from bread waste), InspiraFarms (off-grid cold chain) and Global Parametrics (insurance inclusion for poor rural farmers) –  I could go on to list many amazing companies innovating in areas such as renewable energy, sustainable food sources, sustainable farming, I’m sure you get the picture.

The issue here is that anyone who cares about the plight of the planet and our species survival (not to put too fine a point on it), naturally wants to spend their days working for an organisation that is part of the solution, not adding to the problem.

So there really is an ungainly tussle going on for the brightest and most engaged new workers.  Alongside this pressure is the knowledge that customers, business or consumer, also naturally want to reward ‘good’ companies with their patronage. And if that wasn’t enough, the largest asset owners are choosing investment managers based on their ESG credentials – basically how well they pay attention to Environmental, Social and Governance impacts.

Movements like B Corp are approaching a tipping point with a globally understood process for identifying ‘good’ companies through a detailed certification system. Now that some of the biggest (and coolest) companies are on board (Danone, Natura, Patagonia etc.), the sceptics are coming around. Or are they?

Anand Giridharadas, author of the book, Winners Take All  sets out a useful challenge to the notion of corporate do-gooding that also helps separate the different ways companies approach the issue.

His thinking is that corporate philanthropy and purpose are often more about the optics than any real systemic change to the way companies have always behaved to their various stakeholders. His pushback is that rather than ‘purpose’ as an afterthought, (supporting youth initiatives for example), if companies paid their lowest paid workers more, or eschewed zero hours contracts, families would be better placed to look after their dependents without corporate philanthropy.

His is not a lone voice. At the World Economic Forum in January, Dutch Historian, Rutger Bregman departed from the expected script on a TIME panel, noting how people in Davos talked about sustainability but flew there in 150 private jets and raised issues on participation, justice, equality and transparency, but “nobody raises the issue of tax avoidance and the rich not paying their share.”

Speaking truth to power is an essential part of advising on corporate purpose. It’s not OK to exploit one stakeholder group, like squeezing suppliers for 90-day payment terms, and then making a big song and dance about a campaign to support entrepreneurs. That amounts to robbing from Peter to make a very public self-serving gesture to Paul. It’s also going to end in tears because the very people that companies are seeking to impress (the bright young things and loyal customers) will pretty quickly catch a whiff of this reputational disconnect and opt out.

The corporate conscience realm of CSR (corporate social responsibility) and corporate philanthropy
(giving some of the profits back to good causes) – are gradually yielding to a more holistic practice given a label in financial circles of ESG – a way of measuring the positive impacts that are created by the business.

Perhaps unsurprisingly, when ESG standards translate into financial incentives, more senior executives start to sit up and take notice. In September last year, the FT reported that Danone was the first multi-national corporation to tie its risk rating to its cost of capital. Global ratings agencies (like Moody’s and Standard & Poor’s) are now accepting B Corp certification as due diligence of a high standard of ESG performance, acknowledging that it will lead to a business being genuinely more sustainable in the long term. As a result, the piece noted a €2bn Positive Incentive Loan (PIL) issued by Danone in February 2018 attracted a discount – or put more simply, Danone was rewarded for its B Corp commitments by paying less for its credit.

The last word on purpose has to go to the SDGs – the UN’s Sustainable Development Goals, which have helped create a consistent global framework for action. What’s important about movements like B Corp and the SDGs is that they are galvanising business leaders and entrepreneurs around the stuff that’s really important. In the midst of all these efforts to contribute positively, it is important to look for signs that companies are balanced in their commitments and not jumping on a purpose bandwagon. But a note of caution, choose wisely – we don’t have enough time to sit back and see how this plays out, there’s just too much at stake.

Narda Shirley is Founder & MD of London and Nairobi based Gong Communications and a B Corp Ambassador.

This article was first published by the IPRA https://www.ipra.org/news/itle/itl-312-corporate-purpose-why-the-backlash-is-important/