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Beyond maximising shareholder value

Beyond maximising shareholder value

Shareholder value has been the corporate mantra for decades, but the tide is changing and purpose-driven businesses are outperforming the competition.

6 minute read

25th Apr 2018

In a system that says shareholder value as the only marker of success, you’re winning. Share price is on the up, bonuses paid out and targets smashed. Most importantly, you’ve got happy shareholders.

Then the cycle starts again. And this time, the are higher targets, leaner budgets and the share price trend shows a plateau. How do you top last year’s performance? Welcome to the cyclical nature of growth, profit, more growth and more profit.

How do businesses keep up the act of outperforming themselves year in and year out? Emergent research shows that higher purpose can lead to good results. According to the Global Leadership Forecast 2018 report, purpose-driven companies outperform the rest of the market by a huge 42%. Engagement levels are 12% higher. Employees are 14% more likely to stay in post and the overall culture tends to be more positive.

Shareholder value rises with purpose

Developing a clear sense of purpose that is shared across the board internally and at all levels of operation is vital if businesses are to thrive. Particularly when the competition is global, the speed of information is unprecedented and the demand for transparency is on the rise. So, what exactly is a “purpose-driven” company anyway? And where did the concept spring from in the first place?

Purpose-driven companies outperform the rest of the market by a huge 42%

The EY Beacon Institute defines them as organisations with an aspirational reason for being. That is, beyond creating shareholder value in the short-term. Purpose-driven companies endeavour to make a positive impact both the globally and locally.

Rather than simply chasing shareholder value for short-term gain, “purpose-driven” businesses aim to provide a long-term benefit to society. They do this in terms of the products and services they offer. They also understand that the important role their people play in creating success and will nurture and develop their talent. This nurture and development will often extend to the communities they operate in.

Arguably, the first time such ideas were clearly articulated was in The Purpose Economy by Aaron Hurst CEO and co-founder of Imperative, a website intended to help individuals connect with their purpose. The book acted as a catalyst for the emerging ‘purpose’ movement. It also helped to pull a confluence of forces together in a coherent way.

One such force is the internet and the impact it has delivered in terms of militating for transparency. Information is so readily available and transmitted around the globe so quickly, it is impossible for companies to hide their activities. This goes for the good and the bad.

As a result, companies are increasingly held to account. They must demonstrate that they are true to their convictions, rather than simply paying lip service. This situation requires that they commit to a set of values and beliefs in a way that seems to have gone out of fashion in recent years.

Forces Coalescing

Another change broker has been the emergence of the younger generation in predominantly G7 nations. The great majority will never earn as much as their parents. Further more, in many instances, they are unlikely own a flat or a house. The knock-on effect has been a transformation of attitudes to work. Young people are clear they do not wish to buy into the same “factory mentality” as previous generations have. Because their perception of the division between work and life differs from past generations, they are looking to do something more meaningful than just earning a wage.

But added to this mix are also some older impetuses. On the one hand, there is the concept of corporate social responsibility, which has been around since the 1960s. It’s a set of values that aims to ensure that organisations conduct business in an ethical way. On the other, the Great Place to Work Institute, which first introduced its ‘Best Workplaces’ awards in 1997, has been helping to change how companies relate to, and treat, their staff ever since.

Young people are looking to do something more meaningful than just earning a wage.

Some of the elements of ‘purpose’ have been around for some time. However, it is only now that they are coalescing together to create something new. As for how many purpose-beyond-profit companies are out on the market, in reality, it is still early days. But, a handful are starting to take this approach as a more sustainable way of doing business.

Nonetheless, there are still lots of blue chip firms keen to talk about the positive impact they make, despite the large amount of boilerplating that goes on. It’s still a challenge to truly live their convictions. Because to do the idea of ‘purpose’ justice, there has to be an holistic approach to embedding it at every level of the organisation.

Being genuine and authentic

Someone outside of a company cannot tell a business what its purpose is or should be. This realisation has to come from within, and it must be genuine and authentic. Simply tacking a motivational quote to the wall is not enough. Purpose is a way of being that must be lived by every individual across all aspects of the business every day.

Finding ways, or even just fresh approaches, to articulating your purpose is also a must.

For those HR professionals keen to start down this path, however, a key secret to success is getting senior leaders on board. Winning the debate involves making an appropriate business case based on tried and tested statistics such as those laid out in the Global Leadership Forecast 2108 report.

Taking an honest look

But it also entails being honest with yourself about where your company truly is in its journey to uncover its true purpose. This involves showing a willingness to confront the uncomfortable truths. But it’s also a chance to share the positive. Finding ways, or even just fresh approaches, to articulating your purpose is also a must. This means taking the leadership team on a journey of discovery to express what the organisation’s purpose really is. We are not talking generic ‘we would like to make the world a better place’ stuff here, but rather focusing on the specifics of what you are doing now.

Another thing to bear in mind is how vital it is to speak from the heart. Aim to express yourself so others instinctively understand why they should care. It is about telling stories so people don’t get bogged down in the facts and statistics. It is about motivating employees to act because they buy into the same shared values.

But most of all, purpose is something that you can’t bolt on or ever say ‘job done’ about. You have to live it with every tiny step you take day-after-day until it becomes second nature and everyone trusts in the reality they see around them. So don’t fake it, don’t force it. Let it happen naturally.