Does Purpose Influence Corporate Performance?

It has been long argued that the primary role of top management is not to set strategy, but instead to instil a common sense of purpose (Bartlett and Ghoshal, 1993). Increasingly this idea has found support as public conversation about purpose, between 1995 and 2016, has increased five-fold (Oxford University and Ernst and Young, 2016).

Many business leaders now have spoken about purpose in business. Richard Branson, CEO of Virgin Group has said, “It’s always been my objective to create businesses with a defined Purpose beyond just making money… our newest investment in OneWeb is also very much a Purpose-driven business, looking to create the world’s largest constellation of satellites to bring connectivity and communications to billions who don't have access to the web.” Similarly, Paul Polman, CEO of Unilever, has supported the importance of purpose in business, “We have committed to help provide good hygiene, safe drinking water and better sanitation for the millions of people around the world who are still denied these basic human rights… It is about opportunity and aligning our purpose in business with this opportunity."

An organization’s purpose is not a formal announcement, but depends on the employees believing in and acting to promote that purpose. In a new research paper we construct a measure of corporate purpose within a sample of US companies based on approximately 500,000 survey responses of worker perceptions about their employers. We find that organizations where employees perceive their work to have a strong meaning and contribute to the community and society and at the same time are clear about their job responsibilities and expectations outperform their competitors. We call those organizations High Purpose High Clarity.

We also find that middle management seems to be key in this relationship. The positive relation with future financial performance is driven by middle managers holding those beliefs. Given that middle management connects top level management vision with ground level implementation we view this as evidence on the importance of building implicit and relational contracts and trust inside organizations.

The paper can be freely downloaded here