[Student IDEAS] by Céline Viévard - Global BBA at ESSEC Business School

Is greed really good? Milton Friedman’s statement (1970) that profit maximization is the sole responsibility of companies has recently been up for debate. With the repeating tech titans’ data privacy scandals, a stark reality lays bare: people can come second to profit. In parallel to these giants' rise in influence, consumers are increasingly concerned regarding the societal impact of companies (Lewis, 2021) - they are now more than ever put under the microscope. Amidst the constant pursuit of “what’s next?”, a crucial question now arises: what is the purpose of driving this innovation?

Considering the fast nature of such an industry, are short-termism initiatives for profit maximization the most appropriate for survival? Is incorporating purpose going beyond their core mandate? Are profit maximization and purpose mutually exclusive? How could purpose be adopted in such a turbulent environment? 

The why of tech

But what even is purpose? Corporate purpose, once synonymous with Friedman’s shareholder primacy, now encompasses all stakeholders and involves broader societal considerations (Business Roundtable, 2019). This new definition aligns with the concept of the Triple Bottom Line (TBL), which emphasizes that a company's purpose should consider not just its financial performance (Profit), but also its social impact (People) and environmental impact (Planet). Delivered in the form of environmental, social and governance (ESG) initiatives, purpose is a company’s commitment to:

• Provide value to customers
• Invest in employees;
• Deal fairly and ethically with suppliers;
• Support communities;
• Generate long-term shareholder value.

Considering the range of stakeholders tech companies hold, with 91% of organizations undergoing digital transformation (Gartner, 2020) and over 5.35 million people globally using the Internet (DataReportal, 2024), purpose is a crucial force. On one hand, while 65% of employees feel their leaders overlook the societal impact of digital initiatives (Bannister et al., 2020), defining the ethical use and purpose of technology reduces risks like data privacy breaches, algorithmic biases, cybersecurity threats and others. On the other hand, as 68% of consumers believe companies need to drive positive social and environmental impact (Lewis, 2021), tech companies can leverage their resources to create value exceeding that of a product or service by contributing to causes for the communities they serve. 

While most tech companies have adopted a purpose, many fail in their design or application (Kennedy et al., 2022b). This incongruence, known as the purpose gap, reflects a lack of alignment between the stated purpose and the company’s strengths, stakeholders and activities. Bridging this gap, aligning business with broader societal concerns while preserving company identity, is a complex dance. Yet, an achievable one when the following moves were respected.

First, define purpose with all stakeholders

At the heart of the purpose gap lies a lack of communication. For purpose to truly echo within and outside an organization, all stakeholders need to identify with it. What better way to find a purpose that all stakeholders are aligned with than directly discussing it with them? 

Regarding top teams, many admit purpose is a subject they want to address but fear is not considered a top priority (Gast et al, 2020). The consequence? The Abilene Paradox, where silence is misinterpreted as agreement. The solution? Starting the dialogue. A way to ease into such a discussion is through an ‘ESG teardown’ - a strategic assessment of a company's existing ESG initiatives. This surfaces which key issues are being addressed and why - were they related to the key strength of the company? Or was it mimicking a competitor? You may also notice if there is an imbalance in the rigor of certain letters of ESG. Think of questioning whether ESG is reflected within operations - and if not, why? Completing this by evaluating your performance to your competitors will lay out a first draft of initiatives to introduce, keep, improve and remove.

Next are stakeholders - those who experience or perceive the company’s purpose. Their voices are crucial during its design and implementation. Employees, for example, face the dilemma between purpose and profit on a daily basis. For alignment, surveys like the Inclusion Index by Microsoft (McIntyre, 2023) alongside questioning what they value and where they find value in work is recommended. Assigning “purpose ambassadors" to champion employees’ desired purpose is also favorable. They could gather employee stories where your company truly lived its purpose, a powerful tool for later the integration phase. Such surveys can also be sent to consumers or investors to define what they seek in the company’s purpose and what they believe are its strengths and weaknesses.

With this range of potential purpose initiatives at hand comes the time to prioritize. The most suitable must match the company’s strengths: what unique value do you provide? How does it relate to purpose? How can it create value? They also need to generate stakeholder impact: what is the tangible impact? Metrics such as how much wage increases boost purchasing power or how much solar panels reduce greenhouse gases are examples. The long-term shareholder value must also be considered: what were the financial gains? Ideally, this should be in monetary terms like increased revenue or cost reduction. Some of these will not have monetized value, in that case, asking stakeholders to rank the initiatives or looking at what other organizations do may help guide your choice. Once selected, commit with a timeline and objectives for credibility but also to measure your success in the future.  

Then, integrate purpose

For purpose to be more than a marketing campaign, it needs to initiate change within the organization. 

There will be opportunities to go against your purpose, sometimes unknowingly. It’s important to keep in mind that nonmanagers are actually more likely than leaders to face this tension (Gast et al., 2020). Projecting possible scenarios of friction will help set a framework to guide them when the time comes. This can be done by making them test the purpose on their activities and communicate how it influences decisions and if there are any tensions. Through this feedback, you can refine your purpose statement and set a toolkit on how employees can demonstrate purpose daily.

It is important to set an ethical policy and culture reflecting your purpose. To do so, introducing and involving new key players like a chief ethical and humane officer as done by Salesforce (n.d.) or an AI and Ethics Research Committee like Microsoft (2018) has proven to be efficient. Such positions can assist in building a framework, ensuring its flexibility and monitoring or addressing any issues. Including non-financial stakeholders on the board can also help represent purpose during decision-making and embed such a culture. 

With all of this set, it’s important to share with all stakeholders how purpose is now a part of your organization. For impact, this needs to be more than just communicating plans, you need story-telling to inspire (London Business Forum, 2016). Sharing the stories collected by the purpose ambassadors on value creation through work or the feedback on how purpose has guided decision-making are examples. Sharing will not only assist in its adoption but also push employees and decision-makers to take accountability and acknowledge the impact they have.

Finally, measure your impact 

Although it will take years to truly impact society, it is essential to communicate goals, progress and setbacks. Not only does this push for accountability but will also highlight the quality of your impact and its returns, motivating all stakeholders.

There exists a wide range of reporting standards with varying levels of rigor for reference such as:

• The StakeHolder Capitalism Metrics by The World Economic Forum (2021) 
• The EU Non-financial Reporting Directive (European Commission, 2014) and Corporate Sustainability Reporting Directive (European Commission, 2023)
• The United Nations’ Sustainable Development Goals (n.d.)
• The Global Reporting Initiative framework (n.d.)

It is essential for the reporting to be adapted to your purpose and your initiatives. It may even be relevant to introduce new metrics to best measure your impact. Ask yourself: What data is crucial in understanding the performance of your impact? Have your current metrics given insight on how to improve your purpose? Is anything not being measured on your societal impact? Including metrics of the five dimensions of stakeholder impact may guide and ensure the completeness of your measures.

• Financial impact, improving your stakeholders' long-term financial well-being.
• Environmental impact, how your activities affect environmental health. 
• Health, improving the organizations’ and stakeholders’ health. 
• Capability-building, improving stakeholders’ abilities and skills.
• Satisfaction impact, improving your stakeholders’ experience with your company or its products and services.

By tracking these comprehensive impact metrics, companies gain valuable insights. These metrics not only guide decisions about which initiatives to maintain, improve, or discontinue but they can also be used to incentivize employees by linking their compensation to long-term value creation. This aligns with current trends, as research shows that linking compensation with purpose enhances stakeholder outcomes (Sutherland & Falk, 2021). Such a data-driven approach to purpose can ensure company efforts translate into real-world improvements for all stakeholders.

And repeat

The tech landscape is constantly evolving and the frameworks chosen today may be obsolete tomorrow. This is why the processes chosen need to be highly flexible to adapt to any potential changes. Through your measures you may also see there are still some inconsistencies and points of improvements on your purpose statement. Purpose is not just a subject you address once and never go back, it’s a daily matter. 

The Purpose Imperative: Beyond Profitability

Purpose is becoming not only a fruitful asset across all industries but its adoption requires resources, analysis and patience. Without respecting the careful steps for its implementation, there are high risks of falling in the purpose gap. Through a careful design process integrating all stakeholders, embedded within all operations and regular measurement and refining, purpose can shine within and without the organization's walls and set an example for other players across industries. As stakeholders progressively become focused on impact, with the rise of ethical consumerism and growing investor expectations regarding ESG principles, purpose could become the ultimate competitive edge, even trumping innovation.

Key takeaways

• Purpose is gaining an increasing amount of importance to all business stakeholders across all industries. 
• For purpose to be fruitful, it needs to be aligned with the company’s strengths, activities and stakeholders. This lack of alignment, the purpose gap, is the reason behind the failure of most purpose statements today. 
• The definition process of purpose within a company needs to include and be based on all stakeholders. 
• Purpose should translate into real-world changes through policies, additional expertise and communication.
• For accountability and improvement, purpose needs goals and monitoring through a set of chosen metrics.

References

[1] Friedman M. 1970. The social responsibility of business is to increase its profits. New York Times Magazine, September 13.

[2] Lewis, S. (2021, July 7). How to realize the full potential of ESG+. https://www.ey.com/en_fi/sustainability/realize-potential-esg-plus

[3] Business Roundtable. (2019). Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’. https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans

[4] Bannister, C. et al. (2020). Ethical tech. Making ethics a priority in today’s digital organization. Deloitte Insights. https://www2.deloitte.com/us/en/insights/topics/digital-transformation/make-ethical-technology-a-priority.html 

[5] Gartner (2020). Digitalisation Strategy for Business Transformation. https://www.gartner.co.uk/en/information-technology/insights/digitalization

[6] DataReportal, Meltwater, We Are Social. (2024). Number of internet and social media users worldwide as of January 2024 (in billions). Statista. Statista Inc.. Accessed: March 30, 2024. https://www-statista-com.essec.idm.oclc.org/statistics/617136/digital-population-worldwide/

[7] Kennedy, D. et al. (2022) Solving the tech industry’s purpose problem. https://www.bcg.com/publications/2019/solving-tech-industry-purpose-problem.

[8] Gast, A., Probst, N., & Simpson, B. (2020, December 3). Purpose, not platitudes: A personal challenge for top executives. McKinsey & Company. https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/purpose-not-platitudes-a-personal-challenge-for-top-executives

[9] McIntyre, L. (2023, November 2). Microsoft’s 2023 Diversity and Inclusion Report: A decade of transparency, commitment and progress - The Official Microsoft Blog. The Official Microsoft Blog. https://blogs.microsoft.com/blog/2023/11/01/microsofts-2023-diversity-and-inclusion-report-a-decade-of-transparency-commitment-and-progress/

[10] Salesforce (n.d). Ethical and humane use. https://www.salesforce.com/company/intentional-innovation/

[11] Microsoft News Center. (2018, March 29). Satya Nadella email to employees: Embracing our future: Intelligent Cloud and Intelligent Edge - Stories. Stories. https://news.microsoft.com/2018/03/29/satya-nadella-email-to-employees-embracing-our-future-intelligent-cloud-and-intelligent-edge/

[12] London Business Forum. (2016, March 11). David Pearl - Storytelling [Video]. YouTube. https://www.youtube.com/watch?v=4C0bbDAql_A

[13] World Economic Forum. Explore the metrics. (2021, September 20). https://www.weforum.org/stakeholdercapitalism/our-metrics/

[14] European Commission (2014). EU non-financial reporting directive (NFRD): Directive 2014/95/EU, European Commission, October 22, 2014, https://eur-lex.europa.eu/eli/dir/2014/95/oj. 

[15] European Commission (2023). Corporate sustainability reporting. Finance. https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en

[16] United Nations, Department of Economic and Social Affairs. (n.d.). THE 17 GOALS | Sustainable Development. (n.d.). https://sdgs.un.org/goals 

[17] Global Reporting Initiave. (n.d.) GRI - Standards. https://www.globalreporting.org/standards/

[18] Sutherland, S., & Falk, B. (2021, March 26). How a purpose-led strategy can help boards prioritize stakeholders. EY Finland. https://www.ey.com/en_fi/board-matters/how-a-purpose-led-strategy-can-help-boards-prioritize-stakeholders