Working Notes of a Practising Neo-Generalist (#29) — Thoughts on purpose-driven leadership (part 1)

Wheatfield with Crows, 1890, by Vincent van Gogh; oil on canvas, 50.5 cm x 103 cm. Courtesy of the Van Gogh Museum, Amsterdam / Vincent van Gogh Foundation.

It has been fashionable in recent years for business leaders to talk about the need to adopt a ‘purpose.’ And although the meaning of the word itself is seldom clarified, it is probably best described as ‘an abiding intention to achieve a long-term goal that is both meaningful and makes a positive mark on the world.’

In this first instalment of a 2-part series, I explore some of the critiques on purpose and purpose-driven leadership. I don’t aim for completeness. Far from it. But hopefully, these meandering thoughts will lead to some reflective thinking. In the second part, I will dig deeper into how business leaders and organisations can move beyond the ‘bumper sticker.’

And, in the words of Marcus Aurelius, “If anyone can refute me — show me I’m making a mistake or looking at things from the wrong perspective — I’ll gladly change” (Meditations, Book 6.21).

“The purpose of a business […] is not to make a profit, full stop. It is to make a profit so that the business can do something more or better. That ‘something’ becomes the real justification for the business.”

— Charles Handy in What’s a Business For? (Harvard Business Review, December 2002)

It was the late American economist Milton Friedman who said, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.” Over time, this idea has become the principal habit of most corporate leaders in the Western world, particularly so after the publication of Friedman’s article The Social Responsibility of Business Is to Increase Its Profits in The New York Times Magazine in 1970.

In recent years, however, business leaders are increasingly feeling pressure to rethink the role of business in society. There is a growing widespread realisation that the myopic focus on creating shareholder value, which was seen as a clear and simple measure of performance for everyday decision-making in the organisation as articulated by M.C. Jensen and W.H. Meckling and in their foundational article Theory of the Firm (Journal of Financial Economics, 1976), is flawed in the same way as seeing your net worth as the single measure of happiness. Steve Denning referred to it as ‘institutionalized selfishness.’ “It encourages managers, boards of directors, shareholders and institutional investors to look after their own interests at the expense of everyone else. Should we be surprised when ugly economic, financial and moral consequences ensue, on a vast economy-wide scale?,” Denning wrote in Forbes.

Today, even investors like Blackrock CEO Larry Fink are pressing companies to focus on their purpose and how they contribute to society. Unfortunately, Fink doesn’t explain what purpose is, but we know what it is not: words you see on a wall when you enter company headquarters, mission statements posted on websites or grandiose speeches by CEOs. Research has shown those to be cheap talk that is unrelated to real outcomes in the organisation. “Lloyds Banking Group, for example, defines its purpose as ‘helping Britain prosper,’ which didn’t prevent mis-selling but apparently does encompass everything from digital skills training for charities to tackling domestic abuse,” as Margaret Heffernan points out in her recent book Uncharted: How to Map the Future Together.

Whether or not feeling the pressure, in 2019, the former Siemens CEO Joe Kaeser told LinkedIn’s Editor in Chief Daniel Roth that “a company that does not serve society, in a way, should not exist” [1]. That same year, 181 business leaders, representing 30 per cent of the U.S. market’s capitalisation, signed the Business Roundtable Statement asserting that the purpose of all companies was to “promote an economy that serves all Americans.” Like Fink’s annual letter to CEOs, the statement challenged business leaders to articulate their purpose and their means of fulfilling it. “Each of our stakeholders is essential,” it read, and “[w]e commit to deliver value to all of them, for the future success of our companies, our communities and our country.” This may have been a departure from the Friedman orthodoxy, but not as profoundly as some seem to think. For example, the statement acknowledged that “the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.” In other words: business still knows best how to protect people and allocate resources. Also, many economists rushed to demonstrate that serving a broader purpose was great for growth and profits too. In other words, there was no need for shareholders to worry; they could continue to have their cake and eat it.

As for the immediate criticism, much of it wasn’t from those who disagreed with its goals — to be honest, they weren’t exactly radical, given that the commitments reflect much of the corporate sustainability agenda that has been decades in the making — but rather those concerned how the commitments would be translated into action, how progress would be measured and how companies would be held accountable. With good reason as sustainable business still lacks universal definitions, metrics and accountability. There are, of course, Environmental, Social and Governance metrics (ESG), sustainability ratings and corporate rankings, and the pursuit of those can help move companies further faster, but not all companies strive to achieve high scores and rankings, probably because no one, internally or externally, is demanding that they do. And companies can fare well in these rankings even if they, say, extract oil or hire workers at minimum wages without benefits. Many succumb to the temptation of greenwashing by appearing more environmentally and socially responsible than they actually are. The fast fashion industry is a telling example of this, with “the root of the problem, overproduction, [being] dismissed in favour of green myth-making and continued profit,” as Julian Epp notes in Greenwashing Fashion.

At the same time, social norms are changing and expectations from employees and customers are rising fast. But they aren’t the only ones putting pressure on governments and increasingly also on businesses. For example, on 26 May 2021, the Dutch environmental organisation Milieudefensie (Friends of the Earth Netherlands) won a climate lawsuit against Shell. According to a Dutch court, the Anglo-Dutch company has a responsibility to reduce its CO2 emissions by 45% by 2030, in line with the Paris climate agreement. This verdict can have major consequences and Shell’s conviction can catalyse new lawsuits against other companies with high CO2 emissions, both in the Netherlands and abroad. In response, former Shell CEO Jeroen van der Veer told the press that the court’s verdict had taken him by surprise and that he couldn’t see how it would support the ‘energy transition.’ In his opinion, the court had taken what should be the government’s role. Interestingly, several, mostly liberal and right-wing politicians stated the opposite: that the court had stepped into Shell’s board room. With business leaders and politicians pointing the finger at each other, it can’t come as a surprise that citizens and pressure groups take legal climate action to hold both companies and government to account (in a case brought by the Urgenda Foundation, the Dutch Supreme Court in 2019 ordered the state to slash CO2 emissions by at least 25 percent of 1990 levels by the end of 2020). When it comes to tackling the climate crisis, we all have a duty to act now. Besides, it isn’t up to business leaders to determine who their stakeholders are and who aren’t. In today’s intertwined world, we are all stakeholders, including future generations. Not to mention climate itself, as also Auden Schendler argues in The Climate-Equity Connection.

What this shows is that businesses around the world are confronted with enormous, thorny challenges, of which climate change and growing inequality are two examples. These so-called ‘wicked problems’ require collective and collaborative systemic efforts that go far beyond the influence and ‘ownership’ of a single company and even industry. They also extend much further than the maximum five or ten-year outlook normally found in corporations. In his book The Good Ancestor: A Radical Prescription for Long-Term Thinking, the public philosopher Roman Krznaric proposes “the current length of a long human lifespan, taking us beyond the ego boundary of our own mortality so we begin to imagine futures that we can influence yet not participate in ourselves.”

But what these thorny challenges also make plain as day is how unfit-for-purpose our current shareholder-obsessed system actually is. The switch to ‘stakeholder capitalism’ is hardly a guarantee that corporations will act responsibly, as Shell and other fossil fuel giants repeatedly demonstrate. Even Friedman believed that business leaders are rarely qualified to determine the best public use for corporate funds.

Today, evermore companies look towards the United Nations Sustainable Development Goals (SDGs). Together, these 17 goals are a “blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity, and peace and justice.” They “are something very real to us and absolutely present in our day-to-day business,” Siemens states. This became apparent in 2015 when the German multinational was the first global industrial company to commit towards a net zero-carbon footprint by 2030.

Siemens, like so many other companies, is committed to ‘doing good.’ But the influential thinker and author of Winners Take All: The Elite Charade of Changing the World, Anand Giridharadas, believes that companies should do ‘no harm’ instead. In a panel discussion with former Unilever CEO Paul Polman, Giridharadas argued that “elite do-gooding” is how the winners of capitalism maintain the status quo while continuing to cause some of the very same problems their social initiatives ostensibly try to solve. But Polman made his case for keeping business in the picture, arguing that there is too much at stake and too many governments unwilling or unable to shoulder the world’s problems alone; an argument that also Kaeser made in his interview with LinkedIn in 2019. Regardless of who is right or wrong, both perspectives — ‘doing good’ and ‘doing no harm’ — lead to completely different choices and business outcomes.

Since then, Polman has cofounded, along with EY’s Valerie Keller and Jeff Seabright, Unilever’s chief sustainability officer, Imagine, a foundation and corporation that campaigns for global sustainable development goals and is aligned to Polman’s vision that business and the private sector have a critical role to play in creating meaningful change. In an interview with The New York Times, he said, “We need to reinvent capitalism, to move financial markets to the longer term. CEOs are basically good people. There are no CEOs who want more unemployment, or more people going to bed hungry, or more air pollution. But then why collectively do we behave so miserably? It’s because we spend too much time on dealing with the impacts and not with the underlying causes.” To which he added, “We have to move the financial markets to the long term as systems change. We need to decarbonize this global economy if we want to keep it livable. We need to find an economic system that is more inclusive.”

So when nearly 200 top CEOs, including the leaders of Apple and JPMorgan Chase, recently came out with a new mission statement proclaiming that corporations should serve more than the bottom line, they may as well have been channelling Polman.

But according to the authors of a 2019 article in Harvard Business Review, Business as Usual Will Not Save the Planet, the companies that have actually taken the business challenges inherent in the SDGs seriously are rare exceptions. “For example, although 27 of the 50 largest U.S. companies explicitly claim to be working to advance an average of nine SDGs per company, hardly any are doing anything new or different in their core business activities to advance the goals. Very few are even doing anything different in their philanthropy or CSR efforts,” they write.

Besides, “[b]y taking a clear stand and seeking to live a higher-order purpose, organisations risk being scrutinised if they do not deliver on their promises — even for actions that date back in time,” Kenneth Mikkelsen writes in Purpose Parasites, an essay for the 2017 Global Peter Drucker Forum. If you don’t or can’t live up to your claims, “then the impact is worse than if you had never espoused those values, mission, or purpose in the first place,” Signe Spencer, a client research partner at the Korn Ferry Institute, says. “In the long run, or even the medium run, purpose washing is likely to backfire.”

All in all, it is fair to argue that, in general, companies aren’t making much progress. As for the Business Roundtable Statement, it was far less radical than it seemed. Most companies were already on a path to address many of society’s pressing social and environmental ills, albeit slowly, incrementally and often reluctantly. Others are leaning into purpose because they believe it resonates with consumers, employees and investors, not necessarily because they believe in it inherently within themselves. Besides, it wasn’t the first statement, as Henry Mintzberg points out. But above all, the 2019 statement (and many other purpose statements that came before and after it) provided a fig leaf, that enables CEOs to pursue business as usual. It is, as Tancredi Falconeri, the fictional 19th-century Italian aristocrat from Giuseppe Tomasi di Lampedusa’s novel The Leopard, said:

“If we want things to stay as they are, things will have to change.”

What the debate around corporate purpose and purpose-driven leadership most clearly voices is how business leaders struggle to understand and articulate their role in the larger world that they inhabit, and on which they depend.

In part 2, I will explore how to move beyond the ‘bumper sticker’ and become a purpose-driven organisation.

[1] Unfortunately, the link to Daniel Roth’s interview with Joe Kaeser has disappeared from LinkedIn.

Wheatfield with Crows, 1890, by Vincent van Gogh; oil on canvas, 50.5 cm x 103 cm. Courtesy of the Van Gogh Museum, Amsterdam / Vincent van Gogh Foundation.

More Working Notes can be found here, together with my weekly curation of tweets.

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