SPECIAL REPORT: PURPOSE
With the world in the grip of a pandemic, actions in the financial services sector will speak louder than words. CISI chair Michael Cole-Fontayn MCSI, who chaired the wholesale financial markets round table working group – see quotes from participants on pages 26 to 27 – says: “All stakeholders are judging every aspect of corporate behaviour in a heightened way during this pandemic and determining how companies are serving society.” Purposeful firms such as BlackRock, which contributed an essay in DP20/1 titled ‘Purpose: at the heart of profitability’, are issuing strong responses. BlackRock has committed US$50m of funding to global relief efforts, with a particular focus on communities where it operates, while hundreds of asset management companies have signed up to the Investor Statement on Coronavirus Response, an initiative by the Interfaith Center on Corporate Responsibility that aims to promote the need for businesses to adequately protect their workforces and communities.
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// STAKEHOLDERS ARE JUDGING EVERY ASPECT OF CORPORATE BEHAVIOUR IN A HEIGHTENED WAY DURING THIS PANDEMIC // Notably, the FCA has announced its intention to double down on its focus on purpose in its Business Plan 2020/21, which was published on 7 April 2020. Despite an inevitable revision of immediate priorities, the report makes it clear that work to address corporate culture will continue in the areas that the regulator classifies as key cultural drivers in organisations. The FCA says that it “will continue to focus on the four key culture drivers in firms – purpose, leadership, approach to rewarding and managing people, and governance – and their effectiveness in reducing the potential harm from firms’ business models and strategies.” Simon Culhane notes that many purposeful firms already have a model that will enable them to “weather disruptions such as those caused by the pandemic”. He continues: “Those firms that have previously focused entirely on profit will, by definition, have hitherto prioritised short-term gains. This is likely to have left them ill-equipped to deal with the longer-term challenges posed by the pandemic. By contrast, those firms with an established broader purpose aimed at benefiting all stakeholders – from their suppliers to their employees – will often be better placed to weather shocks and, crucially, to share value throughout the supply chain.”
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Purpose and corporate culture The idea of corporate purpose stems from the recognition that companies that enjoy long-term success are driven by more than simply generating profits for shareholders. There’s no single definition of what is meant by corporate purpose, and it’s easy to confuse with all those other high-minded company statements, such as mission, vision and values. Alex Edmans, professor of finance at London Business School and author of a new book, Grow the pie: how great companies deliver both purpose and profit, says: “The way I would define it is: how is the world a better place by your company being here?” Purpose is about the company’s core business – does it generate profit as a result of serving society? Jonathan Davidson, director of supervision – retail and authorisations at the FCA, says, “We would define purpose as ‘why you come to work’, the ultimate motivator.” In any case, purpose is taken as shorthand for ‘purpose beyond profit’, since nobody doubts that profits will always be a key driver, and any company needs to make a profit to survive (a point made in a previous CISI City View article on the topic – see cisi.org/purposeprofit). What the focus on purpose recognises is that making a profit is not, or should not be, the sole driving force in an organisation. For Mark Goyder, “the important bit is purpose beyond profit, the purpose that gives people who work for the business a sense of meaning, of adding human value.” Purpose beyond profit Jonathan explains why the FCA is choosing to place increased emphasis on purpose. “We did a lot of reflection and research on the main drivers of harm in firms,” he says. “Typically it’s either that they have a business model where there is a huge incentive to do something bad that gives poor outcomes – for example, making a lot of money by giving poor advice – or it is down to the culture and the behaviour of the individuals.” Culture within every financial firm broadly fits into one of three categories, he says: those where firms set out to make money at any cost; those that are compliant but still overwhelmingly profit-driven; and those that are purposeful in a more inclusive way towards other stakeholders. “We are saying it is good for you as a firm if you are purposeful,” Jonathan continues. “It will be healthy, profits will be sustainable, you won’t suddenly have some terrible regulatory
THE REVIEW JUNE 2020