Putting Purpose Into Practice: The Board’s Role

Business nowadays do not aim solely to maximize returns of owners or shareholders but also of other stakeholders, taking into account environmental, social, and governance issues in accordance with the ESG principle to ensure business sustainability.   However, ESG inclusion into sustainability strategy usually do not succeed because lacking of connection with people within the organization.  In recent years, a new concept has been initiated for private organizations to set purpose in order to create organizational culture accordingly.  Why do top-tier corporate leaders care about purpose when most organizations already have Vision, Mission, and Value to adhere to? Will the existence of purpose duplicate them and how can it be used to create value for the organization and the society?

To summarize the definition of purpose, it is ‘Why the organization exists’.  As global institutional investors called for companies to set purposes while CEOs of 181 leading U.S. and European companies signed a joint statement committing to corporate purposes, this matter has turned into critical Board issue.  However, guideline in translating purpose has not been mentioned much in decision making and determination of organizational value and culture.  In 2020, Enacting Purpose Initiative (EPI), a collaborated efforts of leading academia and private sector organizations, launched a report for directors, executives, and investors that can be used as practical guideline and report of organizational purpose. 

The EPI emphasized on the clarification of differences between purpose - Why the organization exists- and other terms that could easily create confusion such as values, mission, and vision.

Purpose is the starting point of the company in operating its business – Why an organization exists?

Value reflects behaviors of people in the organization.  It usually is set in the forms of short words that can be easily memorized and easy to understand, reflecting desirable organizational behaviors.  -How an organization behave?

Mission tells what the organization do.  It is linked with organizational strategy and value.  In conclusion, the determination of mission is the narrative of what the organization can do to achieve its purpose – What the organization does?

Vision is set to explain desirable organizational targets.   It is the determination of success created from purpose.   In general, vision is usually set as big target and long-term goal. – Where the organization intends to have impact?

To help organization leaders govern purpose of the organization, the EPI has designed a practical guideline framework called SCORE to ensure the purpose materializes.  It indicates ways to put purpose into practice comprising:

1. SIMPLIFY – make the purpose easy to understand and motivative.  A good purpose must be comprehensible by employees, trading partners, and other stakeholders.  It should be set in a straight forward rather than vague and unclear manner and start with the core of the purpose – what pain point the organization will address?  A good purpose must ensure why the organization is suitable to tackle the issue.

2.  CONNECT – Once a clear and easy to understand purpose is set, the organization should connect the purpose with appropriate funding and other activities.  To ensure credible and practical purpose, all decisions must refer to the purpose.  The Board should also ensure that the purpose can be put into practical guideline that everyone in the organization can adhere and practice.  It should also ensure that the purpose connects and communicates with clients and trading partners along the supply chain.

3.  OWN - Purpose is originated by the Board and transmitted through the organizational structure and procedure to ensure it materialize.  Therefore, purpose should be recognized by all members of the organization from the Board to staffs in the production line.  Moreover, purpose should also be recognized by shareholders to make the organization credible.

4.  REWARD – The Board should set KPIs in accordance with the purpose by creating an evaluation system that accommodate behaviors supporting the purpose.  In general, KPIs are usually financial indicators but organizations should also recognize non-financial indicators to promote other stakeholders and reflect the effectiveness of purpose.

5.  EXEMPLIFY – This is the reiteration of organization leader’s role in communicating the purpose of the organization.  This role is meant to create common understanding of people in the organization, inspire, and engage with value creation.

Purpose is not mere marketing slogan or catching phrase to add more value to the organizations.  A determined purpose must be used as the core of organization.  This is the perfect time to review the organizational purpose.  After 2020, companies around the world are well aware of business uncertainties and difficulties in maintaining competitiveness in the capital market while embracing sustainability and value creation for the society.  Companies that have survived the crisis, this should be the time for revision and the Board has an essential role in leading the management to review and determine Purpose, Vision, Mission and Value of the organization.  It should also lay guideline in putting purpose into practice effectively while embedding and communicating with internal and external parties. 

Source: https://corpgov.law.harvard.edu/2020/09/02/enacting-purpose-within-the-modern-corporation/ 
https://www.forbes.com/sites/bobeccles/2020/08/20/putting-purpose-into-practice-the-enacting-purpose-initiative/?sh=78c787c0321e

Ruangfon Jaismut
Curriculum and Facilitators
Thai Institute of Directors