Perspectives on Purpose

Leading Voices on Building Brands and Businesses for the Twenty-First Century

Nina Montgomery, Nina Montgomery

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781351173544
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

Perspectives on Purpose brings together industry leaders to advocate for a more human-centered and socially-conscious future for businesses. Sharing stories from their work at companies like Ben & Jerry's, Sephora, Airbnb, Diageo, VF Corporation, and Hyatt, these authors demonstrate how weaving purpose into the profit-making core of business helps companies do good and do well.

Foreword by Jessica Alba and Christopher Gavigan, Co-founders of The Honest Company

Chapters by:

Jorge Aguilar (Prophet)

Tom Andrews (TJALeadership, SYPartners)

Maryam Banikarim (Hyatt, NBC Universal, Gannett, Univision)

Ila Byrne and Ryan Hunter (Diageo)

Corrie Conrad (Sephora)

Alexandra Dimiziani (TwentyFirstCenturyBrand, Airbnb)

Ambika Gautam Pai (Wolf & Wilhelmine)

Heidi Hackemer (And So We Hunt)

Sam Hornsby (TRIPTK)

Jonathan Jackson (Harvard University, Blavity)

Sam Liebeskind (Gin Lane, Wolff Olins)

Rob Michalak (Ben & Jerry's)

Thomas Ordahl (Landor)

Frank Oswald (Columbia University)

Sarah Potts (Thorn)

Matthew Quint (Columbia Business School)

Haley Rushing (The Purpose Institute)

Letitia Webster (VF Corporation)

Freya Williams (Futerra)

Perspectives on Purpose and its sister book, Perspectives on Impact, bring together leading voices from across sectors to discuss how we must adapt our organizations for the twenty-first century world. Perspectives on Purpose looks at the shifting role of the corporation in society through the lens of purpose; Perspectives on Impact focuses on the recalibration of social impact approaches to tackle complex humanitarian, social, and environmental challenges.

I
Framing thoughts on purpose

1
The business case for purpose

Friedman, Fink, and the battle for the soul of business

Freya Williams

Freya Williams has advised organizations including Unilever, the United Nations, REI, Target, VF Corporation and many others on how to convert sustainability and social purpose into competitive advantage for their business and brand. Co-founder of OgilvyEarth and former lead of Edelman’s Business + Social Purpose practice in New York, today Freya is the North American CEO of Futerra, the global sustainability change agency. Freya is best known for her work in making sustainability relevant to mainstream audiences. She captured many of her learnings in her 2015 book Green Giants: How Smart Companies Turn Sustainability into Billion-Dollar Businesses, which has been profiled in The Economist, Fortune, and Forbes. Her work has also been featured in The Financial Times, Newsweek and even The Onion. Freya lives in New York with her husband and kids.

* * *

I’m going to share two sets of corporate purpose statements with you.¹ As you read, I’d like you to guess which ones you think would be more likely to build business results. Okay, here we go:

1. To build shareholder value by delivering pharmaceutical and healthcare products, services, and solutions in innovative and cost-effective ways.
2. To maximize long-term stockholder value, while adhering to the laws of the jurisdictions in which we operate and at all times observing the highest ethical standards.
3. Create value for shareholders through the energy business.
4. To earn money for our shareholders and increase the value of their investment through growing the company, controlling assets, and properly structuring the balance sheet, and thereby, increasing EPS, cash flow, and return on invested capital.

Got those? Okay, now here’s the second set:

1. To create a better everyday life for the many people.
2. To bring inspiration and innovation to every athlete in the world. (If you have a body, you are an athlete).
3. To help expedite the move from a mine-and-burn hydrocarbon economy toward a solar electric economy.
4. To make sustainable living commonplace.

Which set of statements do you think is more likely to have driven business results? The first set, the one that envisions shareholder value as the primary, or indeed sole, focus of business? Or the second set, that see business as an engine to achieve positive social or environmental outcomes?

If you’re like the majority of business thinkers, you will easily pick the first set.

But you will be wrong.

Because this little quiz cuts to the heart of a battle being waged in real time in the global marketplace today – a battle for the soul of business. This battle is over no less a question than this: why does business exist? What is the purpose, not just of an individual business or brand, but of business as an institution?

An increasing number of fascinating enterprises are proving that business has so much more to offer than generating returns for shareholders. And in the process, they are proving out what I call the Purpose Paradox: the surprising fact that businesses that pursue a purpose beyond profit are more profitable than those that pursue profit alone.

This will strike many traditional business minds as touchy feely mumbo jumbo. I should know: I’ve spent the past twelve or so years of my career trying to persuade them otherwise. More often than not, I’ve been met with skepticism and a wry ‘Bambi, come in from the woods’ raise of the eyebrow. That’s why about five years ago I set out to quantify the business case in terms the business establishment might find more persuasive. The result was my book, Green Giants: How Smart Companies Turn Sustainability into Billion Dollar Businesses. I went for the billion dollar thing because there’s something about that billion. In the language of business it holds a certain mystique. As it should. Less than 0.00006 percent of businesses ever make it to the billion dollar mark. So I felt that if I could prove that sustainability, social responsibility, and purpose could drive a company to achieve those results, it might enable a new kind of conversation within the business community.

In the book, I catalogue nine companies that have built billion-dollar-plus businesses with sustainability or social good at their core and outline the six factors they share in common. One of the factors is a purpose beyond profit. Their higher purpose is a direct driver of their billion dollar success. The second set of purpose statements from the opening of this chapter are pulled from four of these Giants: (1) IKEA, (2) Nike, (3) Tesla, and (4) Unilever. These statements outline a purpose for the business beyond profit – and not just any purpose, but a social purpose, one that sees the business as part of society, with the potential to be a positive force in the world.

A word on the term ‘purpose.’ Often, the term functions as a catchall for anything that could be classified as good, whether a campaign marketing a cause, corporate philanthropy, a citizenship program, a CSR program, or notfor-profit branding. Purpose has become the latest business buzzword. One study shows that 88 percent of current business leaders and 90 percent of future leaders believe business should have a social purpose, while another study shows that 90 percent of business leaders understand the business importance of purpose.²

But what is this mythical purpose? Is it really any different from a vision or mission statement, things business leaders have been creating forever?

Since there’s no universally agreed upon definition of the term, here’s mine: purpose-driven business envisions business as a force for good, a force with the power to change the world around it and to deliver tangible improvement to human life and the environment. It doesn’t just deliver a rational or emotional benefit to an individual customer or consumer; it also contributes to the collective good. It delivers profit, as it delivers value to all of a company’s stakeholders – not just shareholders.

It’s not that these Giants don’t care about profit; on the contrary, they absolutely do. But they regard profit as an outcome of achieving their purpose, not as the reason they exist. And a mounting body of evidence suggests that this philosophy is part of what enables them to outperform their profit-oriented counterparts on multiple measures including – you guessed it – profitability (they also delivered for shareholders, with their share price on average outperforming a set of conventional comparison companies by 11.7 percent per year every year over five years).³

But it’s not just my nine study companies. In their book Built to Last, Jim Collins and Jerry Porras documented that organizations driven by purpose and values outperformed the market 15 to one and outperformed comparison companies six to one.⁴ More recently, a study by the consulting firm EY found that businesses that prioritize purpose outperform those that don’t across multiple measures including innovation and growth.⁵

So where did it all go wrong? Why are we so convinced that purpose and profit are fundamentally competing forces? The answer can be traced to 1970 when Nobel Prize-winning economist Milton Friedman published his seminal essay ‘The Social Responsibility of Business Is to Increase its Profits.’⁶ In it, he described people who advocate for the social responsibility of business as “Socialists.” Friedman’s essay declared that the exclusive purpose of business is to increase its returns to shareholders and that employees should engage exclusively “in activities designed to increase its profits.”⁷ It dismissed the notion that business has any other social responsibility as “a fundamentally subversive doctrine.”⁸

The publication of Friedman’s essay is regarded as the moment at which the belief that social responsibility and profit are competing agendas hardened into fact in the minds of the business community. His legacy casts a long shadow. Today, growing profits and maximizing shareholder returns are (erroneously) taught as the purpose of the corporation in almost every leading business and law school in America (and to a lesser degree in Europe and beyond). Surveys show that after completing an MBA, students are even more likely to see shareholder value as the most important goal of the corporation.⁹ This has become our dominant business ideology.

But what if Friedman was wrong?

Compare Friedman to the founder and CEO of one of my Green Giants, Ingvar Kamprad of IKEA. On December 20, 1976, about 30 years after he founded IKEA, Kamprad published The Testament of a Furniture Dealer. In the 14-page document, Kamprad committed his company’s purpose to paper: “To create a better everyday life for the many people by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”¹⁰

Peppered with language like “democratization,” “protest,” and “mortal sin,” and with exhortations to “contribute to the process of democratization,” the Testament reads more like a political manifesto crossed with a religious tome than a private sector strategy document. The word “responsibility” appears 18 times. In the Testament, Kamprad boasts proudly, “A well-known Swedish industrialist-politician has said that IKEA has meant more for the process of democratization than many political measures put together.”¹¹

Kamprad is very pro-profit; “profit is a wonderful word!” he writes.¹² But in his world-view, profit is not created for its own sake but rather to enable IKEA to better pursue its purpose. “A better everyday life for the many people! To achieve our aim, we must have resources,” writes Kamprad in the profit section of his Testament, which is titled “Profit gives us resources.”¹³

How has this ‘socialist’ philosophy served Kamprad? In 2012, he was estimated to be the richest person in Europe and the fifth richest in the world (this has since been revised to the 495th richest, according to an IKEA spokesperson, because Kamprad created two foundations that now own the company groups, Inter IKEA Group and the IKEA Group, and foundation statutes bar him and his family from benefiting from its funds).¹⁴ That must make him one of the most successful businessmen of all time. Take that, Professor Friedman.

Why purpose drives profits

With the philosophical piece out of the way, let’s turn to the practical side of purpose: why it drives profits. There are three key reasons why a social purpose drives profitability:

1. Purpose = plan
2. Motivated people
3. Loyal customers

Purpose = plan

The problem with a north star of ‘build profit’ is that it doesn’t tell you how you’re going to do it. It’s like me saying my purpose in life is to get really rich. Fine. But how am I going to get there?

Students of Jim Collins’ Good to Great are familiar with the Hedgehog Concept. Collins writes that ‘Good to Great’ companies have “a simple, crystalline concept that guides all their effort” and he identifies having a clear concept as one of the key factors that “drives business greatness.”¹⁵ The ‘Hedgehog’ terminology is derived from an essay by Isaiah Berlin who compared the hedgehog to the fox. “Foxes pursue many ends at the same time … never integrating their thinking into one overall concept or unifying vision. Hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything,” Collins explains.¹⁶

The purpose statements of Green Giants function as their Hedgehog Concepts. They provide the clarity of the single organizing idea, and this clarity of concept guides clarity of action.

Tesla has a lofty purpose, but Musk made the purpose practical by translating it into a deceptively simple plan, which he summed up in a 2006 blog post ‘The Secret Tesla Motors Master Plan’ as follows:¹⁷

1. Build sports car
2. Use that money to build an affordable car
3. Use that money to build an even more affordable car
4. While doing above, also provide zero emission electric power generation options

So far, barring several controversial delays, Tesla has stuck to the plan with uncanny discipline. Remember, this entry was posted over a decade ago, in 2006. In 2018, Tesla is in the midst of grappling with steps three and four (as I type, Tesla had just exceeded its self-defined goal of producing 5,000 units per week of mass-priced Model 3, a feat naysayers doubted it could pull off).¹⁸ Tesla checked the box on steps one and two (the Roadster, with a price of $100,000, was followed in 2012 by the Model S, starting at $62,400 – certainly a more ‘affordable car.’) At the time of writing, Tesla’s market cap was $5 billion greater than that of General Motors, despite selling many times fewer cars. It seems the plan is paying off.

IKEA is similar. The Testament of a Furniture Dealer captures IKEA’s purpose and outlines the strategy that flows from it. It’s all in there: the importance of low cost, the primacy of efficient design, the benefit that size brings to purchasing relationships, and the avoidance of waste – all packed into 14 pages, written almost 40 years ago. Even though IKEA has grown to a company with €34.1 billion in 2017 retail sales since the Testament was written, the document remains, quite recognizably, the operating system of the business.¹⁹ IKEA has stayed the course with its purpose and remained absolutely faithful to the master plan – even outliving its author.

A plan alone is, of course, not enough. You have to stick to it with the kind of focused discipline Tesla and IKEA have displayed.

“There is nothing mushy about [purpose] – it is pure strategy,” Harvard Business School Professor Hirotaka Takeuchi has said.²⁰ “Purpose is very idealistic, but at the same time very practical.”²¹

Motivated People

At an advertising awards dinner in 2014, actor Jerry Seinfeld gave a speech. “Spending your life trying to dupe innocent people out of hard-won earnings to buy useless, low-quality, misrepresented items and services is an excellent use of your energy,” he told the assembled representatives of the marketing industry, with only a hint of irony.²²

The quote got a ton of buzz among my Facebook friends, many of whom are in the advertising industry, in part because it cut a little too close to the bone. It’s the reason, back in 2006 when I was a brand planner at the agency, I asked the then-CEO of Ogilvy New York if I could build a sustainability practice. As I often say, I couldn’t go on selling people stuff they didn’t need for a living. I needed to...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Acknowledgements
• List of figures and boxes
• Foreword
• Introduction
• Part I: Framing thoughts on purpose
• Part II: Building purpose-led organizations, from the inside out
• Part III: Case studies on practicing purpose
• Conclusion
• Further reading
• Notes
• Index