Is your board stewarding your company’s purpose? Probably not.
Research by Corporate Knights shows that board mandates as reflected in their charters fail to set out the board’s role in oversight of the company’s purpose. While there are exceptions, this purpose governance gap creates risk for companies and society alike. It intimates that companies are rudderless, and that society will be put off its ambition for a sustainable future.
Last year, I collaborated with Corporate Knights in the world’s first rating of social purpose companies, “The Social Purpose Transition Pathway: Helping Companies Move from ‘Say’ to ‘Do.’” The study found most board mandates described the board’s oversight of strategy, culture, risk and financial performance but not the company’s purpose — the meaningful reason it exists.
Investors demanding change on purpose
Investors already are beginning to demand information on the companies they invest in.
An early mover in this area is BlackRock, the world’s largest asset manager. It includes board oversight of the company’s purpose in its 2023 corporate engagement priorities as follows: “We […]look for the board to have a clearly defined role in advising on and overseeing executive leadership’s approach to the company’s strategy, purpose and culture.”
BlackRock describes a well-defined purpose as “the reason a company exists and the role they play in society and across their value chain.” It suggests that these companies are more likely to have a strong sense of direction that better position them to compete, navigate short-term challenges and achieve long-term growth.
New standards for purpose
A second driver propelling boards to up their purpose oversight game is the emergence of guidelines and standards for boards and governance professionals, the latest being a new report I recently authored called “Purpose and Stakeholder Governance Best Practices: Literature Review and Guidance on the Board’s Role in Purpose and Stakeholder Oversight.”
In this report, I chronicle a set of principles across the literature on the role of the board in oversight and stewardship of the corporate purpose. This shows an important emerging consensus on the board purpose governance imperative.
The main point that surfaces from the research is that it is difficult for directors to fulfill their fiduciary responsibility without knowing the purpose of the corporation. Those interested in developments in board purpose fiduciary responsibility might like to check out a recent report published by the David Suzuki Foundation, a leading Canadian environmental organization: “Bringing Corporate Purpose into the Mainstream: Directions for Canadian Law.” Written by two legal academics, it calls for changes to the Canada Business Corporations Act requiring companies to have and disclose a purpose — preferably a social purpose — and progress on it.
Companies leading the way on purpose
Some companies already are emerging as leaders in purpose governance. Unilever’s governance model, for example, centers on its purpose, as noted in its “Governance of Unilever” policy updated in March. It begins with “The Fundamentals: Unilever has a simple but clear purpose: to make sustainable living commonplace. We want to help create a world where everyone can live well within the natural limits of the planet. […] Our purpose is supported by our vision: to deliver winning performance by being the global leader in sustainable business, with a strategy to ensure that our purpose-led and future-fit business model drives superior performance, delivering long-term sustainable growth for the benefit of all our stakeholders.”
Notably, when recruiting directors to its board, Unilever considers if they have experience in purposeful business and sustainability. According to the company, seven of its independent corporate directors demonstrate this competency — a likely factor in Unilever’s global reputation as a leader in purposeful business.
To see if your board faces a purpose governance gap, check out its terms of reference and look for a duty to provide oversight of the company’s purpose. If it’s not there, your company faces the risk that the board is not steering the organization toward fulfilment of its purpose.
By following the steps in the guide I mentioned earlier, and by studying the practices of Unilever and other profiled organizations, you can close the purpose governance gap for good.