Yesterday I suggested in an open letter that a good first step for the 181 companies whose CEO signed the Business Roundtable’s August 19, 2019 “Statement of the Purpose of a Corporation” to have their board of directors publish a company-specific, stakeholder inclusive “Statement of Purpose” for their particular company. I argued that this would be a good first step in responding to critics who doubt the sincerity of these CEOs.
Today, I am delighted to tell you about an initiative that I have been involved with over the course of the last nine months, and which I believe which will fill an important gap when it comes to the vital question of how purpose is governed. It is the “Enacting Purpose Initiative (EPI)” chaired by my Oxford colleague Rupert Younger, Director of the Oxford Center for Corporate Reputation, and co-chaired by another Oxford colleague, Professor Colin Mayer, and me. Oxford’s partners in the EPI are Berkeley Law School at the University of California, Berkeley; BrightHouse at the Boston Consulting Group; the British Academy; Federated Hermes EOS; and Wachtell, Lipton, Rosen & Katz.
To date some very good work has been done on the value of purpose and on the need to link this to the solving of the problems of people and planet. The intellectual foundation for this is Mayer’s book, “Prosperity: Better Business Makes the Greater Good”. He asks the question “What is purpose?” His answer is “Purpose is the reason for a company’s existence.
However, there has been little guidance for board directors, senior executives, and investors on how purpose should be best put into practice. Purpose needs to be enacted as an organizing principle, informing strategic decision-making and capital allocation, and drawing on the everyday values and culture to deliver the organization’s vision. Conceived in this way, purpose leads mission and strategy, rather than becoming a more tactical purpose as culture mechanism.
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The EPI aims to remedy this. We have developed a powerful and simple new framework for governing purpose within organisations called SCORE based on the following five elements:
· Simplify: Purpose needs to be simple and clear and easily understood by all of a company’s stakeholders.
· Connect: For purpose to be real it needs to be connected to strategy and capital allocation.
· Own: Ownership of purpose begins with the board and from there to senior management and all of the company’s employees.
· Reward: Compensation and other forms of reward for the board and senior executives must be based on how purpose is being accomplished, not simply financial metrics.
· Exemplify: Purpose and how it is being achieved must be exemplified in both quantitative and qualitative terms, with stories playing an important role.
Younger, who devised the SCORE Framework, says “This framework is designed to help boards and senior management govern purpose. Through SCORE, we set out a set of simple questions which will establish how purpose intent is being put into practice.”
To test this new framework, and to capture best practice and examples of where purpose is being put into practice, the EPI convened an initial (European) steering group consisting of 30 organizations from different sectors and geographies across Europe. Earlier this week, this group reported its findings in “ENACTING PURPOSE WITHIN THE MODERN CORPORATION: A Framework for Boards of Directors.” Also contributing to this framework is research by Oxford of 100 companies in a wide range of industries and more than 20 countries which is described more in a recent Harvard Business Review article, “The Board’s Role in Sustainability.”
The investor community of asset owners and asset managers has reacted well to the EPI and SCORE Framework. In an article yesterday in the Financial Times, “How to define corporate ‘purpose’ in a stakeholder-first era, by Andrew Edgecliffe-Johnson and Billy Nauman,
Anne Simpson, Interim Managing Investment Director, Board Governance & Sustainability, stated that, “We had an outpouring of good intentions and warm words and a proliferation of different measures . . . What we’ve been lacking is a governance framework.” Simon Fraser, Chair of the UK’s Investor Forum – an investor group representing £18.5tn in global AUM and whose investments account for one third of the FTSE All Share, offered that such a framework could help because companies often struggled to understand the difference between their mission, values and purpose. Similarly, Hans-Christoph Hirt, Executive Director, Head of Federated Hermes EOS, which focuses on corporate stewardship, observed that a framework is critical for shareholders to gauge how companies are defining their “purpose” and then how that impacts their decision-making process. This investor support is welcome, and paves the way for a more constructive and collaborative approach to the development of purposeful and profitable business activities.
The EPI’s research will continue, now with a focus on North America, where the Enacting Purpose Initiative and its strategic partners are inviting a similar group of diverse U.S. organizations to form a U.S. Steering Group. This group will meet over the fall and will produce a second insight report in early 2021. Beyond that, the intent is to deepen our insights into other regions of the world with additional reports from Asia, Africa, the Middle East, and Latin America.
In the meantime, for boards and executives who are sincere about purpose, the SCORE framework offers a structured way to assess the extent to which a company’s words about purpose are being matched by its deeds. Of course, there is a gap today, although the EPI Steering Group certainly sensed that profits from purpose—rather than profits as purpose—is fast becoming a thematic drumbeat within the corporate and investment community, most notably in Europe. This needs to happen at scale, and more globally, in order to deliver the more sustainable society that people across generations and geographies are now demanding. Mayer says that for this to happen, “Company boards must commit to purpose, working with senior management and engaging with shareholders and other stakeholders to put it into practice.”
EPI launched this week. The positive initial response from boards, senior managers, and investors to this our first report provides us with fresh impetus for our next steps. We look forward to working with those in the corporate and investment community in the U.S. over the next three months, and to the new insights that this deep engagement will produce.