Purpose can help companies improve stakeholder confidence

Experts discussed the importance of purpose at The Investor Forum’s 2021 annual webinar

Companies that focus on purpose have a more comprehensive understanding of value creation and sustainability, which can increase stakeholder confidence in business, according to The Investor Forum.

Focussing on purpose can help companies and investors bridge the gap between a narrow view of maximising shareholder value and a more holistic model of stakeholder capitalism.

Speaking at The Investor Forum’s 2021 annual webinar, its executive director Andy Griffiths said: “In reality, over the past few decades, society’s trust in business to make good decisions has been significantly eroded.

“Many companies and investors have taken short cuts in seeking to maximise shareholder value which have been to the detriment of other stakeholders and have not proven to be good proxies to create and sustain value.”

He added that a focus on purpose provides an opportunity to establish an effective link between the drivers of value, reputation and share price. A clear purpose is “much more” than a marketing statement because it offers an effective underpin for any assessment of long-term value creation, which can “connect the investment chain,” he said.

“Done well, purpose provides a touchstone for all stakeholders and a guide to how you might expect a company to behave – whether you are an employee, a customer, a citizen, a regulator or a shareholder,” said Griffiths.

This helps boards to frame their long-term strategies and allows investors to identify and support the creation of sustainable long-term value. Purpose-oriented companies have higher productivity and growth rates, along with a more satisfied workforce who stay longer with them.

The Covid-19 crisis has been a watershed moment for stewardship with many companies now having a clearer sense of purpose.

Throughout 2020, companies have worked together with investors to build resilience, and it is hoped this will restore confidence in business.

Helge Lund, chairman of the boards of Novo Nordisk and BP, said he believes the pandemic might help restore trust in business.

Lund said: “There is a big job to be done to better communicate what capitalism can do for the broader good, but events in 2020 enabled large companies to show how they can contribute on a broader scale.

“Indeed, the experience of the pandemic – in which companies and the public frequently came together to solve problems – might help to restore some trust in business. Purpose can focus minds, money and machinery on society’s big problems and turn them into opportunities.”

He said purpose must be embedded in the core business if the objective is to be sustained.

“If it is only marketing, [the objective] will disappear quickly,” he added.