Corporate governance experts call for authentic purpose in business

The IESE Center for Corporate Governance’s conference on the purpose revolution in business wrapped up on Friday after three days of debate on the link between corporate purpose and governance and the best practices for both.

A trio of business leaders concluded the event, co-hosted by the European Corporate Governance Institute, by discussing the need to reemphasize the importance of the individual within a corporation and an organization’s ethical responsibility to the society surrounding it.

An Existential Need 

“When we talk about purpose, we’re talking about something that’s existential,” said José Viñals (Chairman, Standard Chartered) in the final session, which tackled how boards of directors can deal with corporate purpose. “This is about making organizations more human.”

Baroness Denise Kingsmill (NED, Inditex and IAG) struck a similar chord. “It’s from the relationship with human capital that the upholding of corporate purpose takes place,” said the businessperson and member of the U.K. House of Lords.

“I think the next 10 years will be about acting, not about talking,” said Juvencio Maeztu (Deputy CEO and CFO of Ingka-IKEA). Action is needed, he added, given the grave challenges currently facing the planet. “Building financial resilience is a precondition of creating sustainability.”

While the conference’s six sessions included plenty of debate between prominent academics and executives regarding purpose and how to authentically pursue it, there was broad consensus that the coronavirus pandemic and, especially, climate change were the key catalysts behind the current drive to do good while also doing well.

“The overwhelming reason why we have to bring ethics back into the picture is climate change,” said Patrick Bolton (Professor, Columbia). “This is the biggest challenge that awaits us in the 21st century,”  “What climate change and the pandemic teach us is that nature matters. And we have to take it seriously.”

While the climate change crisis predates the pandemic, several speakers drew links between the two. “The COVID-19 crisis is just a symptom of our shortcomings,” said Paul Polman (Founder, Imagine and Former CEO, Unilever). “We cannot have healthy people on an unhealthy planet.”

Beware Inauthenticity 

Despite agreement on the need for corporate purpose in the face of contemporary social and environmental calamities, several speakers warned of the dangers of cheap talk, greenwashing and rushed, misguided action in response to public uproar amplified by social media.

“I’m worried about the court of public opinion being too extreme or too biased,” said Nobel Laureate Bengt Holmström (Professor, MIT), who also questioned how many companies would actually reduce shareholder benefits in order to do social good.

Colin Mayer (Professor, Oxford) offered a franker appraisal of phony purpose, beginning the conference by saying, “In many cases, corporate purpose statements are not just verbiage, but might also be described as twaddle.”

Yet his similarly blunt definition of authentic purpose as “not profiting by doing producing problems for the people of the planet” imagined an effective path forward.

Another recurring theme of the event was the connection between a fully formed purpose and better financial performance.

“It’s not an either/or between purpose and profits,” said Rebecca Henderson (Professor, Harvard Business School) toward the end of the conference. “It’s a dynamic process.”