In the second quarter of 2020, we have seen a global pandemic, historic rise in unemployment, and protests that began in the US have spread around the world. It is an understatement to call this a time of uncertainty! Is this any time to be talking about purpose? Purpose may be a luxury we cannot afford during a global crisis. Or it may be exactly what we need.
STOCKHOLDER TO STAKEHOLDER
The Business Roundtable startled many in August 2019 when it redefined the purpose of the corporation, moving away from shareholder primacy and toward promoting an economy that serves all stakeholders. Is this aspirational vision truly the future of corporations? For Eren Rosenfeld, Chief Human Capital Officer at Russell Reynolds and former Global Head of Talent Development at BlackRock, “I think the answer is yes. We’re seeing more and more companies turning toward this vision of sustainability. But there is a ‘rhetoric-reality’ gap. Over 90 percent of CEOs think their future success will be defined in some measure by how sustainable they are, but less than half are actually acting on it. Our new research with the UN Global Compact lays out exactly what it means to be a sustainable leader – what their key qualities are and how businesses can embed sustainability into their DNA”
Linda Hyman, Executive Vice President of Global Human Resources at Korn Ferry observes, “We're heading in that direction, although I don't know if it's a shift away from serving shareholders. I think it is a shift toward including more stakeholders. It's appealing to the broader constituency.”
David Wongso, Managing Partner, TRANSEARCH Indonesia says, "Indonesia is predicted to become the world's 5th largest economy in term of GDP with the largest e-commerce and number of unicorns in ASEAN. Indonesia has 56% social media users out of 265 million citizens in 2019, and the number keeps growing."
He says, "This workforce are mainly millennials, a generation who is purpose-driven, looking for meaning and social impact in work. Thus, it is very important for CEOs in Indonesia to lead not only maximizing shareholder value but also caring for the community, making a positive social impact, and being a good corporate citizen."
Over time, shareholder primacy has led to corporations maximizing profit, sometimes at the expense of the health of the company or the interests of employees, communities, and other stakeholders. Dharma Chandran is a Partner at Boyden Executive Search and draws upon his experience in the C-Suite and as a board member.
Speaking of the shift, he says, “I think it reflects the dawning of a realization that if we continue running corporations the way we are, with a very short-term, quarterly earnings kind of focus—and even less than quarterly earnings given the way the market and computerized algorithms react to short-term news and short-term movements—it's not sustainable.”
It is very important for CEOs in Indonesia to lead not only maximizing shareholder value but also caring for the community, making a positive social impact, and being a good corporate citizen.
Chandran views the Business Roundtable statement and the movement it inspires as organizations "trying to find some way to express how companies should be run for all parts of the ecosystem. And in particular, more broadly than shareholders."
AESC research shows that nearly 89% of clients globally agree with the Business Roundtable sentiment on “the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”
FROM THE PURPOSE OF A CORPORATION TO PURPOSE IN A CORPORATION
Social norms are changing. Customers, employees, even investors are looking for companies whose values align with their own, and purpose is the ultimate expression of values. It is the “why” of an organization. It can drive engagement, productivity, innovation, and collaboration. It can be the glue that holds teams together and cements the loyalty of customers, clients and communities.
Leading with purpose often necessitates leading change. For example, a company that has traditionally been short-term profit oriented cannot shift to a more stakeholder focused, long-term purpose with words alone. Chandran explains, “Corporate culture is still aligned to a short-term profit purpose in almost every company. So, if you just come up with a really snappy-sounding purpose, that does galvanize and motivate people to say, ‘Hey, this is a great company!’ But then you have to change the culture. Purpose is taking over organizations today, but I think in the majority of them there's a misconception, not malicious, just a misconception that once you've addressed your ‘purpose’ the job is done. And my view is the purpose is the tip of the iceberg. Once you address purpose, you need to address culture. Because culture is what will help you fulfill your purpose.”
The organizations which successfully make that transition are reaping the benefits. A November 2019 survey of executives conducted by Korn Ferry found "the vast majority of the respondents we interviewed, over 95%, agree that there is a long-term benefit to companies that make a strong commitment to purpose-driven leadership,” according to Hyman. “That result signals that more and more executives are thinking about the role that purpose can play in driving the organization's long-term performance." She describes "about 390 responses to an online executive survey in which we asked a number of questions about understanding and embracing mission and purpose; does it increase productivity? Is there a long-term financial benefit? What's the main reason you would choose to work for one organization over another? And clearly, the responses indicated that to a great extent purpose and purpose-driven leadership helps drive performance."
From Chandran’s perspective, “As society has gotten wealthier and more comfortable, we've started to look at whether this is all sustainable, and that's what's driving purpose.” He says implementing changes to a culture that was pursuing a short-term, profit-oriented purpose to something that's more holistic “can still have profit as one of its core tenets, but has other elements as well, which helps that profitability to be perhaps a little lower in the short term, but more sustainable across a longer-term horizon.”
Who can do that? "Very exceptional human beings," Chandran says. “There's not too many of them around.”
FROM COMMAND & CONTROL TO PURPOSE-DRIVEN LEADERSHIP
Hyman recalls the impact of purpose-driven leadership in the wake of the global financial crisis from 2009-10. "We probably lost half our revenue in 15 days. It was a terrible time. I remember our CEO came into those senior leadership meetings, every single one during that time period, and never once opened with our financials, which was extraordinary. Everybody else was opening with financials, every client, every organization. And instead, our CEO talked about our purpose, what we were trying to achieve, how we were trying to help other organizations get through what they were going through, how we were trying to help them redesign their organization structures or improve their results in a very difficult time. That made such a difference in that team and how we banded together. Everybody took pay cuts, everybody put their shoulder to the wheel to drive forward what our organization became. Our CEO always talked about accelerating out of the curve, so that when this was over, we were going to come out of it even better than we went into it.”
Purpose-driven leaders, according to Rosenfeld, have a unique leadership profile that differentiates them from other CEOs. “One quality we’ve found is important is this idea of multi-level systems thinking. It’s about an ecosystem orientation that accounts for the larger business, societal and environmental systems around them—and includes a wide range of stakeholders in decision making,” she says. “They also use a long-term horizon, so they're thinking about long-term value creation. It's not the quarter-to-quarter mindset, which is probably what we saw in the past. When others think of profitable growth, they're the kind of people who are thinking about their legacy. They're thinking about brand and reputation, and that means they're either creating a new market or they're using disruptive innovation to revolutionize an existing one. They tend to be practical and develop laser-like focus to separate the signal from the noise.”
Purpose-driven leaders are also very inclusive. Think about where innovation comes from. It’s a diverse and inclusive culture where people feel safe, where they can share.
In addition, Rosenfeld says, “Purpose-driven leaders are also very inclusive. Think about where innovation comes from. It’s a diverse and inclusive culture where people feel safe, where they can share.”
In AESC’s recent research, clients globally rank ‘more innovative’ as the second top element they wish they could change in their organizations. Yet, they are likely not prioritizing diversity and inclusion enough, which is a top ingredient for innovative organizations
Consider that the typical experience profile for a CEO is to have run another division with a P&L, or to have served as the CFO. Chandran says, “There are exceptions, people who come up through marketing or technology, especially if it's a technology company, but by and large the primary routes are being a CFO or running a business unit.” Chandran says, “They tend to be mainly men, the people from which to recruit, and traditionally they have had one mindset, which is make more money. And the average CEO tenure is somewhat around four and a half years, which means you have people who focus on a short-term horizon. It's not hard to figure out how we got to where we are."
“I think we've known for a while that leaders who score high on self-awareness actually tend to drive greater performance in their organizations,” Hyman says. “So now when you expand that self-awareness to their own purpose and values, they communicate with much more authenticity, and that gets people committed to what they ask of their constituents. So greater self-awareness, authenticity, the ability to communicate to broader and more diverse audiences all come into play because they're trying to make sure that everyone in their universe understands the message and what they're trying to accomplish, which tends to rally people.”
Purpose-driven leadership is not the exclusive purview of the CEO and the C-Suite —Boards have a role in ensuring that companies reward the behavior they want to see. To illustrate what Boards can do to reinforce purpose and culture, Chandran describes an Australian company. "They give the CEO a higher than market salary. Obviously if he doesn't perform, he loses his job. He's giving up a highly paid salary. That's one motivation, but it's a base salary. So he earns it for turning up. And then he's got long-term incentives that are quite long-term in duration, such that his total reward can be more than competitors who pay a short-term and long-term incentive.” The incentives, he says, are “truly long-term, with a high proportion of stock. So the combination of equity-based and long-term incentives make that CEO aligned to, say, a Vanguard shareholder.”
Chandran adds, "How many companies in the ASX Hundred are doing that? I think maybe two or three, max. But how many companies have a purpose on their placard? Probably 80 out of a hundred. Because everybody is asking them at the investor conference, ‘Hey, what's your purpose?’ Everybody has a purpose. Until you align the culture to that purpose, then how will you able to achieve your purpose?”
FROM DEPLOYMENT TO ENGAGEMENT
Before flat organizational structures and open offices gained traction, companies moved through more than 100 years of evolving org charts with various matrixes of reporting relationships. Historically, employees were widely perceived as resources to be deployed. Rosenfeld explains the evolution in employer-employee relationships as moving from “To,” to “For,” to “With.” Beginning with what most Baby Boomer and Gen X workers experienced, Rosenfeld says, “We grew up as cogs in the machine of the organization—having things done to us. When I started work in the early nineties, they said jump. I said, how high? I didn't ask why. I didn't ask how long I'd be jumping, should I be jumping? I wanted to make sure I was jumping the way they wanted me to jump, and I jumped as much as I could. And I trusted that that was going to lead to something. Nobody asked me if I wanted to jump, how I like jumping. Then, in the late nineties and the aughts, we started talking about doing things for people: servant leadership, where I am in service of the team. We are now living in the with era. And “with” is tricky. “With” means I don't do things to you or for you, I do them with you. I don't assume what motivates you, I ask you what motivates you. So today, engagement starts with inquiry and empathy.”
Rosenfeld says engagement is complicated. “A fundamental part of building strong engagement is helping people find the glass slipper that fits them, specifically. It takes a lot more time up front. But it’s necessary to create a space where we’re driving strategy efficiently, without friction.”
What is engagement, after all? Hyman explains, “Historically we've thought of engagement as people feeling satisfied or happy at work, but it really means people are so engaged by the purpose of what they're doing that they're willing to go above and beyond; they're putting discretionary energy into what they do. We talk a lot about exceeding potential. And it's interesting because people ask, how can you exceed potential? But so often people don't know their potential. There's an old saying, argue for your limitations and they'll be yours. People can go well beyond their potential when something really lights them up and excites them and engages them. Purpose is how you release that; that's the magic.”
Historically we’ve thought of engagement as people feeling satisfied or happy at work, but it really means people are so engaged by the purpose of what they’re doing that they’re willing to go above and beyond.
How can organizations make that kind of magic? For Chandran, “Engagement comes down to how you recruit people, how you develop people, how you motivate them, how you manage and measure their performance over what horizons, and how you reward them. How do you engage with them? Is it top down, control-oriented or is it more collaborative? Do you make employees compete with each other in your performance management system or do you reward team performance? It's all those elements.”
Wongso says. "A strong and inspiring purpose motivates employees to stay, to persevere, to go the extra mile. It becomes the “why of work” that attracts and retains because they are engaged with the vision, programs, social impact or the kind of ecosystem the business is in. They are proud of the product or service, and that makes them stay."
"Proud talent likes to share their working life, their products and workplace with their friends on social media. But, he warns, "When they are unhappy, the story can go viral."
Rosenfeld illustrates the shift from top-down thinking to collaboration. “We used to do training where the expertise was in the front of the room. That hadn’t changed from Aristotle until now; but those days are over. We're starting to see there is tons of wisdom in the room, and the sum is much greater than each of the parts. That’s impacting how we have discussions, how we motivate, and how we engage with employees.”
Engagement is deeply personal, and still it can be measured. "Many companies take engagement surveys to understand at any point in time how their employees are perceiving their strategy, their environment, their resources,” Hyman says. “There are lots of different ways that companies are measuring engagement." She adds, "We did a series of pulse surveys a few years ago. And in our relatively small organization, at the time about 7,500 people, we had over 17,000 comments. It was fabulous to hear from people around the world and some in their native languages about ideas, support, and suggestions. Hearing from your organization real time about what they value is just irreplaceable."
The sense of purpose that drives engagement may come more easily to those who save lives or build world-changing innovations. What about everyone else? Hyman says, "It comes down to understanding who you are ultimately serving and how." For example, she says, "You may be on the factory floor putting together car parts, but somebody is going to drive that car, and if your part fails and something happens, there's an end game. It's having a line of sight, no matter what your role is in the organization."
Hyman describes, "People-pulling powers" identified in the 2019 Korn Ferry survey of executives. "Respondents agreed that purpose attracts talent, but it engages employees. And it especially engages the younger generation who are very much driven by purpose." Hyman says, "almost a hundred percent of respondents said that purpose engages and retains talent; it's a way of attracting talent, and it really does retain top talent. The newer demographics to the working world are much more inclined to change employers if they don't find what they're looking for or they don't feel motivated, if they don't feel engaged, or they don't feel listened to. And trying to make sure that you can retain the best people clearly makes financial sense."
COMPETITION TO COLLABORATION
Purpose is changing the way people relate to each other in the workplace. From breaking down silos and working in teams, the way we work together is evolving. For examples of two disparate models, Chandran looks to ancient Greece. “There were two dominant societies: Athens and Sparta. Sparta held to a competition mindset. A young man, when he came of age, had to go out into the wilderness for a winter and survive on his own. If he made it back alive, then he would be accepted. The Athenians, also a very powerful society, represented a collaborative mindset, where everybody had a vote.” He says, “There are many ways to succeed.”
Competition versus collaboration is illustrated by how organizations evaluate employees. “Performance ratings come from a competition mindset,” Chandran says. “No one was a better hero of this than Jack Welch at GE because he culled the bottom 10% every year. He actually ranked people and caused them to compete with each other. That is one model, and it worked.”
Purpose and a collaborative culture speak to the sustainability of leaders in an organization, according to Rosenfeld. “The people on my team all have strengths that are complementary, and we all know the roles we're playing. And when we align around purpose, we move from being a marching band to a jazz quartet—where we’re comfortable flexing our creative muscles and making innovative decisions. When I think about what it means for an organization to lead with purpose, it's about alignment, empowerment, and then retooling our managers and leaders to have that long-term mindset, make decisions based on the multi-level ecosystem and incorporating all stakeholders, and disruptive innovation.”
Many companies aspire to be more collaborative. According to AESC research, “clients globally rank ‘collaboration’ as the top ingredient they wish they could change in their organizations.” Rosenfeld says, "I have no interest in playing poker, and I don't want a team playing poker.” Because collaborative teams don’t hide their cards from each other.
For Rosenfeld, “everyone's cards on the table means each team member is contributing fully. And to do that, you have to have an abundance mentality. You have to have a sense of belonging. You have to trust that if we throw all our cards on the table, we will have a royal flush. It used to be the boss collected everybody's cards and told you where the flush was.”
For Hyman, “If teams can unleash their collective intelligence, that gets you into the whole concept of conscious inclusion. It's pretty clear that when you have diverse teams who come together and share their knowledge, their insights, and their creativity, they achieve way more than those that don't. And when you're focusing that on a single purpose, that's organizational Nirvana.”
FROM PLUNDERER TO PARTNER
Chandran looks back at the way countries (and companies) conducted themselves over time. “For centuries, invading your neighbor was the way you secured resources and expanded your culture. Right up until 70 years ago, that would be the normal way to advance your country, which is what led Japan and Germany to do what they did. But they weren't the first; they were simply the last. WWII was so devastating that we formed the United Nations and said that's not the way we want to conduct ourselves as countries. The countries that conduct themselves that way today are seen as aberrant and rogue, they're not seen as the norm.”
Chandran sees businesses facing a similar evolution. “In economic war, it was seen as the norm to compete ruthlessly, trying to make the competition go out of business. Some startups have not made any profit at all and do not have a business model capable of doing so in almost any circumstances because what they charge customers is completely unsustainable, and all they are doing is driving established companies out of business by leveraging their superior balance sheets built by avaricious investors seeking returns—we have seen examples of this approach in personal transportation, serviced office space and a few other sectors” he says. “Now, companies are going through an evolution.”
Jim McKelvey, co-founder of Square writes in the Harvard Business Review, “I hear pitches every month from startups wishing to destroy the economics of some existing industry. Hidden— frequently well hidden— inside these pitches is the implication that the invisible hand of the economy will reallocate resources so that we will all be better off and enjoy a more efficient world after the carnage. It doesn’t always happen that way.” McKelvey argues that some the most successful entrepreneurs like Square, Southwest Airlines, and IKEA, set out to meet a need, not destroy. He writes, “Is disruption bad? Not by itself. But disruption has also never been the focus of good entrepreneurs. The focus of the entrepreneur should be the people who cannot get paid, or travel, or furnish their home. The entrepreneurs that succeed, and rise to the top of their industries set out to build, not destroy. If disruption occurs, it is merely a side effect.” (Harvard Business Review, “Good Entrepreneurs Don’t Set Out to Disrupt,” HBR May 8, 2020)
That’s not to say that companies aren’t (and shouldn’t be) fighting for market share, intellectual property and competitive advantage. But with the transparency afforded by the digital age, employees, customers and even investors may not have the stomach for corporate bloodlust, and companies are increasingly expected to play a role in solving the world’s complex problems. For example, the 2020 Edelman Trust Barometer reveals that 56% of those in developed markets believe capitalism in its current form is doing more harm than good. And yet, Edelman’s study also shows that business is now the most trusted institution, which is directly linked to a broader sense of organizational purpose—serving society and shareholders.
In the midst of a global crisis, private business is working in partnership and earning trust and good will. The United Nations’ Access to COVID-19 Tools Accelerator (ACT) effort is driving a collaborative initiative to develop diagnostics, treatments, and vaccines. The Technology Partnership and Dyson joined together to design a new ventilator in only ten days. Google and Apple are working together to develop a contact-tracing system. Companies worldwide are retooling to provide critical supplies and equipment. Private sector partners are joining forces to deploy urgently needed resources and drive the development of treatments and vaccines.
PURPOSE DRIVES PROGRESS
Saving lives and communities from disease and economic collapse is a noble purpose, and both organizations and individuals worldwide are stepping up in unprecedented measure. “Purpose motivates people to go beyond, to release that discretionary energy that they might not put into their job if they were not engaged by purpose,” Hyman says. Even outside of a crisis, “It's really about being willing to put in that extra energy, take that extra step to resolve a client's issue or help a colleague to succeed, which only makes all of us better. That's exactly the role that purpose plays in an engaged culture. It releases the energy we need to do even more than we thought possible.”
Rosenfeld looks at purpose as “the North star for where we're going as a group of people.” For companies, she says, “That is a loftier purpose than just revenue and growth. In terms of how we develop leaders, that's where you're starting to see the change. The heart of a high-performing team is that we are focused on the same outcome and purpose – both the goal for today and the loftier one. And it helps us separate the signal from the noise. It helps us prioritize. It makes us more agile. We can be aligned; we can work on things in parallel and know it will all come together because we are all in service of this purpose.”
Shared purpose connects people in critical ways. Hyman describes a personal experience from a few years ago. "I was at a business meeting when I started misspeaking. There were about eight people in the room, and two of my colleagues noticed that something was wrong. They called 9-1-1 when it would have been easy not to say anything or to minimize it. I was having a stroke, and they quite literally saved my life. That's what purpose does. It can drive people to care about one another and apply their discretionary energy, in this case for my benefit."
Engagement comes down to how you recruit people, how you develop people, how you motivate them, how you manage and measure their performance over what horizons, and how you reward them.
Will the crisis and the economic aftermath push companies and individuals to retreat into old, short-term and self-focused habits? Will skittish investors demand a return to profit above all else? Will record unemployment lead job seekers to be less interested in the values of a potential employer?
It may not come to that. Financial Times Investment Correspondent Attracta Mooney wrote, “The devastating impact of coronavirus has already shifted THE conversation between investors, the public and companies. In April, Legal & General Investment Management, the UK’s largest asset manager, urged companies to treat staff and suppliers well, warning that those who failed to do so would be held to account.” (Financial Times, “Coronavirus forces investor rethink on social issues.” April 30, 2020)
Chandran reflects on the role of purpose in the current crisis. "I think the main impact of COVID-19 on purposeful leadership is it has served as an even more stark reminder that businesses operate in ecosystems. Not only are all stakeholders vital beyond just shareholders—customers, suppliers, employees—but certain participants in these ecosystems previously not considered as critical, including first responders, frontline workers, and teachers, in certain circumstances and situations like pandemics, can rise in prominence. So, we ignore these participants in our ecosystem at our peril and heighten the risk that the ecosystem may not be sustainable." He adds, "It is impossible to predict what will come of idealistic concepts such as purpose in the midst of a global health and economic crisis."
Rosenfeld adds, “The recent unrest and reactions to racial injustice raise important questions for corporations across the globe. Those that step up and take actions to improve diversity, equality and inclusion in the workplace and their communities, will no doubt see greater longer-term success and impact in their work. With this in mind we are already identifying steps both internally and in our work with clients and in communities in which we operate to address racial inequality and improve the way the world is led.”
Wongso asks, "While organizations are recovering from the bruise and shock of seeing how business went down and peers were retrenched, how will CEOs engage purposeful leadership to emerge stronger?"
Hyman is hopeful. “Sometimes out of chaos come great new beginnings.”