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Why companies need a purpose – and why it can lead to success

“What are we in business to achieve?”, company management might ask at a board meeting, usually rhetorically. Rewind the clock 20 or 30 years and the most common answer to this question might well have been to deliver value to a company’s shareholders.

Today, the answer they would receive – and the one many shareholders would expect – has probably changed. Not only do we recognise that there can be more to a company’s purpose than simply focusing on profits, but that there should be.

This is not just necessarily for the benefit of society, but also for investors. If a company is to thrive in the long term, it needs a clear purpose. Importantly, it also needs to achieve it.

What does it mean to be purposeful?

In the same way that earning money often isn’t motivation enough for us to thrive in our careers, the pursuit of profit alone is unlikely to lead to sustainable success for any company.

Purpose can come in many forms. While some companies may seek to transform lives around the world, others may have more humble aspirations. For instance, one company might be committed to finding a cure for cancer, while another might be developing longer-lasting batteries or delivering financial services to its customers.

Whatever a company’s purpose, to quote academic Alex Edmans of London Business School, it should answer the following question: “How is the world a better place by your company being here?”

A clearly defined purpose can be a motivating force for staff to propel the company forward to success. It should also be a point of focus for leadership in establishing and pursuing business objectives. It makes sense for the profits generated by this success to be primarily used to support the pursuit of that purpose.

For workers and management to share a common sense of mission, they need to believe in it. A company’s purpose must therefore be in its DNA, enshrined as part of its raison d’être. The growing cohort of “Certified B Corporations” take this one step further and embed their responsibilities to stakeholders in their companies’ constitutions.

There is growing recognition of this in the broader corporate sphere. In August 2019, chief executives from 181 of the largest US companies signed up to a new ‘Statement on the Purpose of the Corporation’ . It acknowledged that companies share a fundamental commitment to all their stakeholders – including customers, employees, suppliers – and supporting communities and the environment, as they look to create long-term value for their own shareholders.

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