For a CEO, having the courage to admit that you can lift the stock price in the short-term but she or he won't do it because it will affect the business adversely in the long-term is remarkable. While many business leaders make such claims behind close doors saying this in public is a whole different story. Paul Polman of Unilever just did exactly that showing once again what business leadership could look like in the journey towards a more sustainable and inclusive capitalism.
Way too many companies fall in a vicious cycle of short-term pressures taking action that destroy long-term value and further increase short-term pressures. Perhaps the best way to resist such short-term pressures and stay the course to business excellence is a strong corporate purpose that is widely understood and shared by employees of an organization. Purpose-driven organizations are less likely to engage in activities that lift stock prices in the short-term damaging the long-term competitiveness of the organization by adversely affecting employees, customers, local communities or the environment. Indeed, research has now found that organizations that exhibit a strong sense of purpose along with great clarity about job expectations and means to achieve success outperform their competitors. Some design principles when it comes to corporate purpose can be found here.
Of course, for employees and other stakeholders to put value on a firm's purpose authenticity and signaling credibly the purpose of an organizations is key. New research has found that organizations adopt different ways to do so.
- Some companies choose to signal the authenticity of their purpose by adopting integrated guidance and reporting, ceasing quarterly earnings guidance, and aligning incentive structures with long-term societal impact.
- Other companies choose to become B Corps and use the measurement and certification mechanism provided by B Lab to signal the authenticity of their purpose.
- Some companies choose to adopt alternative legal forms that require directors to consider the company’s purpose in each decision they make.
No one solution fits all. Business leaders should carefully weigh the benefits (i.e. credibility of the signal) and the costs (i.e. uncertainty introduced by the signal) in choosing how to signal the organizational purpose.