Can we measure corporate purpose?

Can corporate purpose be measured?

A new principles-based standard outlining the best practices of purpose-driven organisations aims to help companies establish and evaluate their corporate purpose. Why is this necessary and will it bring an end to ambiguity?

Fifty-three years since American economist Milton Friedman argued that the only social responsibility of business was to maximise shareholder returns, profit no longer dominates corporate purpose.   

From creating a more equal society to protecting the needs of the planet, almost two-thirds of companies have a written purpose beyond profit. Just 7% of Fortune 500 CEOs think social goals are a distraction to profit making. While the need for corporate purpose is widely accepted, lingering questions on how to implement it and what it means are the stumbling blocks.  

The most widely accepted definition of corporate purpose came in 2019. Colin Mayer, former Dean of Oxford University’s Saïd Business School defined it as ‘producing profitable solutions to the world’s problems and not to profit from causing or exploiting problems’. But ambiguity over its meaning and evaluation lingered on.  

Clearly stating the worldviews, principles and behaviours of Purpose-driven Organisations helps organisations think about their actions holistically.

Ben Kellard, Director of Business Strategy, Cambridge Institute for Sustainability Leadership (CISL)

A standard to define and evaluate corporate purpose

That’s why in 2022, a collaboration of corporate chiefs, government representatives, academics and trade groups from the UK sought to create a blueprint for corporations to transition to a truly Purpose-driven Organisation (PDO). The result was a new business standard: PAS 808:2022

“There is a widespread consensus that the role of business in society is broken but there wasn’t a consensus of what to transition to,” says Ben Kellard, Director of Business Strategy at the Cambridge Institute for Sustainability Leadership (CISL), a member of the steering group for the British Standards Institute (BSI) principle-based standard. 

“If you’re a busy business leader, you don’t have time to read the numerous views on what makes a robust purpose, assimilate all the information, then analyse what it means for your company and put it into practice. This standard tries to solve this problem by showing you clearly what good looks like from the start, crucially combining sustainability with corporate purpose.” 

PAS 808:2022 states that business exists specifically to make the most optimal contribution possible to the long-term well-being of all people and the planet. In particular, the standard looks at how PDOs can achieve positive outcomes from their business activities by specifying actions and ethical methods (to achieve these outcomes) to have a clear idea of what problems they can solve and how. 

“Most companies just think about the intermediate ends, such as financial or manufactured capital, not the foundational means like natural capital or the ultimate ends of how the product or service actually delivers wellbeing,” says Kellard, “but clearly stating the worldviews, principles and behaviours of Purpose-driven Organisations helps organisations think about their actions holistically. For example, if a newspaper company relies on paper to print on, the standard will help it protect its dependence on wood pulp and forestry.”

Purpose is about ensuring the core way a company makes money is through growing the pie – creating value for wider society.

Professor Alex Edmans, Author, Grow the Pie: How Great Companies Deliver Both Purpose and Profit

Becoming genuinely purpose-driven

The need for precise definitions and easy-to-template guidance not only helps companies operationalise sustainability but also allows them to avoid pernicious attempts at purpose washing.  

“Purpose is about ensuring the core way a company makes money is through growing the pie – creating value for wider society,” says  Professor Alex Edmans, author of Grow the Pie: How Great Companies Deliver Both Purpose and Profit. “Purpose-washing involves making money through splitting the pie – having a core business that involves taking from customers, workers, or the environment, and then engaging in CSR activities (such as charitable donations) to give some of the pie back.”

Integrating purpose with a company’s core business, rather than setting up an ancillary CSR arm, is essential to avoiding purpose-washing and having a positive impact in the long term. 

“If companies have two strategies - one for commercial and one for sustainable - they will eventually end up in conflict with each other when they should have one aligned strategy from the outset,” says Kellard. 

Purpose leads to profit

From improving business performance and employee retention to reducing long-term liability and risks, the pursuit of corporate purpose can serve both shareholder and societal interests at the same time. It can even open up new opportunities for companies willing and able to pivot their core competence towards unmet needs. But companies still fall into traps if they are too wedded to short-term profit maximisation to see the big picture. 

“Businesses often don’t look at how future trends, such as inequality and climate change, will affect them in the end,” says Kellard. 

As corporate purpose is a continuous journey with no finishing line, the PAS 808:2022 standard recommends companies regularly assess, measure, and report against the purpose. Companies must also understand if the purpose has been achieved in the intended way and, if not, inform of changes in approach. In this way, corporate actions will not only lead to the long-term wellbeing of the planet but enhance long-term profit too. 

As Edmans notes, “Purpose is not ‘woke’; it’s good business.” What would Milton Friedman think?

Written by
Beetle Holloway
Contributing Writer at Spoon Agency