OPINION – Corporate reporting and business purpose
Sustaining the performance potential
The efforts currently being made around the world to make corporate reporting more comprehensive and understandable are to be applauded, even if comprehensive and understandable could be seen as competing objectives. My objective is not to critique these efforts but to suggest that their effectiveness and impact might be judged against a different way of thinking. I suggest that reporting is about how an organisation is performing against its promises. The central promise of an organisation is its purpose – the why of its existence – and an accompanying promise is around how people are both impacted by, and invited to contribute to, fulfilment of that promise.
Living up to promises around purpose and people enhance performance. There are many studies now available to show that a purposeful company drives superior operational performance and this evidence base is growing. What I would like to explore is what might enable reporting to be an active part of sustaining this performance potential.
The purpose of business is … business?
A traditional mindset about business views the purpose of a “for profit” venture as being in service of maximising value for those that have put financial capital at risk. Imagine for a minute if the traditional view about business and people was not as correct as it is assumed to be? If there was an alternative view about the purpose of business and how people are motivated could we re-look at the type of promises that a business was making and from that re-think the role of reporting? This alternative model is where purpose and people prevail. Of course that alternative model should not be seen to be an inferior way to generate value.
Society taken as a whole has chosen to regulate business behaviour in relation to all stakeholders and not just shareholders. Some refer to these constraints on business behaviour as being their “licence to operate” and so it is clear that society has the right to regulate the behaviour of business. The risk with this licence to operate approach alone is that it can reinforce the notion of business as a nexus of contracts and the licence to operate is merely a financial transaction to be negotiated and costed into the business model. If we are to move away from this “financialisation” of business responsibilities we need to look at the relationship between business and society in a different way.
Business in society
Surely business is part of society and not apart from society and joined by contract. Its special status has been granted by society and it is a reasonable position to take that that status has been granted on the premise that business was meant to be a means to benefit society as a whole.
Evidence of a live debate about the role and expectations of business is in the emergence of discussion of alternatives, such as The B Corporation in a number of countries, and in the UK the public debate on the purpose of the corporation, backed by powerful analysis. At the same time, a re-examination of the human person based on the wisdom traditions including philosophy and faith and studies of human behaviour in fields as diverse as neuroscience, positive psychology and behaviourial economics have been turned into reflective but practical and actionable tools by independent actors such as Blueprint for Better Business (see infobox). So it is timely to explore an alternative that could re-shape our thinking about what promises a company should be making about purpose and people and what to look for in associated reporting.
An operating model guided by purpose
The operating model is a map that starts with the purpose and the needs of society that the organisation will help to address and the outcomes it seeks to produce (both social and financial). It then identifies the major resources that it requires and how they are sourced, the key relationships needed to collaborate to transform those resources into valuable goods and services, and the transformation activities that produce the value. Importantly the transformation activities include the building and sustaining of the key relationships that are at the heart of the operating model. Reporting on purpose, operating model and strength of relationships is transparency by design rather than by disclosure. Is this too fanciful? I would suggest that Unilever’s Sustainable Living Plan and Syngenta’s Good Growth Plan could be looked at with this lens and mindset.
An alternative view of the human person
Reporting can play an active rather than a passive role in sustaining performance if it becomes part of a dialogue with the key relationships identified in the operating model. This brings us from a mindset shift around an alternative view of the role and nature of business into the second part of the mindset shift, namely the view of the human person. The shareholder value maximisation model of the world has an assumption about the human person being in pursuit of maximum personal utility. And that assumption permeates a lot of the thinking about business and management. But what is even more alarming is that this thinking within business alters and normalises certain types of behaviour.
A more realistic view of the human person is that yes we are self-interested, not least as a defence mechanism, and that state is nurtured when we feel in fear or disrespected, but self-interest is an incomplete view. At the same time, as humans, we are seeking meaning in what we do, we want to be in relationships and to help co-create something beyond ourselves. In a business context it is possible to think of society as the entity beyond ourselves and beyond the business. Purpose enables each person to align themselves to that business venture and help it to prosper by being a customer, a supplier, an employee, a member of a local community, a member of society or an investor. Imagine the impact on a business if all of the key relationships were motivated towards the success of the enterprise. The innovation potential of committed suppliers, loyal customers and motivated employees. The enhanced relationships with customers when you recruit, develop and enthuse committed employees. The ability to grow when communities welcome your business and accept disruption for a long-term benefit and seek the skills to create a stable local workforce. The management of risks when employees call out behaviour inconsistent with the purpose and character of the organisation they care about. The view of regulators and governments when they see leadership and the workforce united in a purpose to serve society and building people of character and responsible decision making. The view of investors who see a commitment to the long-term, the management of risks, the excitement of innovation, responsible growth and fair allocations of profit.
Promises around purpose and people drive performance. Insightful reporting as part of a dialogue with people to describe how an operating model driven by relationships is performing contributes to sustaining that performance.
The article published here is written in Loughlin Hickey’s personal capacity and not in his official position.
About Blueprint for Better Business
Blueprint is a catalyst for change in business. It helps businesses realise their true long-term potential: to serve society, respect people, rediscover their purpose, and thereby earn a fair and sustainable return for investors. The Blueprint movement is a rich network of people and organisations that learn from each other, and includes NGOs, investors, consultants, coaches, think tanks and academics as well as business. Blueprint has developed a number of tools that act as a practical guide to making this a reality.
Blueprint Trust is an independent UK charity. It is not funded by business but by charitable foundations and individuals. Its work is not about compliance or regulation but about stimulating and energising a different way of thinking and behaving in business. www.blueprintforbusiness.org