At first glance, Purpose Statements are a great thing. They serve to articulate a company’s reason for being, beyond maximising profits for investors. But these seemingly innocuous positive statements are a double-edged sword, carrying the potential to enable megalomaniac tendencies, fanatic tunnel-vision and purpose-washing.
Now, I don’t mean to demonise the Purpose Statement. If we take a quick detour into how Purpose Statements came to be, we’ll see they are but one step in the history of how we define a company’s Identity. And they’ve been a good step. But this certainly shouldn’t be the end of the story.
This article traces the trajectory of the Purpose Statement, and carries us forward to what comes next: the Guiding Question.
The Rise of Purpose Statements
Before Purpose Statements became the rage, Mission Statements were the main tool used to define a company.
Take, for example, Barnes & Noble’s “Our mission is to operate the best specialty retail business in America, regardless of the product we sell”. Mission Statements were used – and sometimes still are – to describe the core business, followed by a statement of the company’s ambition to win, lead, or be the best in their field.
Then, in the last decade, Purpose Statements quickly moved from a fringe practice into the mainstream, displacing Mission Statements at the core. A combination of trends fueled this transformation:
- The rate of change in society accelerated and with it, the speed at which companies needed to change their business.
- The rise of social media and websites like Glassdoor increased transparency on company practices.
- A new generation of activists and journalists exposed shady businesses practices, putting corporations under pressure to create a more positive narrative or face regulation.
- A new generation of ecologically and socially conscious consumers started voting with their dollars, and put further pressure on companies to have a positive impact.
- A host of psychology researchers and consultants popularised the idea that a meaningful and ambitious purpose was key to attracting and retaining talent, and increasing productivity for the growing proportion of knowledge workers.
These factors fueled the need for businesses to become a force for good, or at least, to portray themselves as such. And so the idea of existing for a Purpose – and one other than shareholder profit – took hold like wildfire. Purpose Statements proved to be the ideal tool to communicate and encapsulate this new worldview.
The rise of Purpose Statements was a major improvement on the era of Mission Statements.
The Shortfalls of Purpose Statements
Yet, for all their merits, Purpose Statements are not flawless. They’ve enabled the pendulum to swing in the opposite direction, from dull and narrow-minded to overly idealistic. 3M, for example, states that they exist “to improve every life through innovative giving in education, community and the environment.” It sounds lovely. So lovely one might mistake this publicly traded corporation for a charity.
As this kind of idealism becomes expected, we’re seeing an influx of Purpose Statements that are:
- Retrofitted “Lipstick on the Pig” situations: The intent being to frame what a company has always done as ‘purposeful’, rather than digging deep to surface the company’s real potential to serve society, and then designing the business to pull it off.
- Falsely altruistic: Purpose Statements seldom acknowledge the fact that the business was created – at least partially – to make the founders money.
- A mixed bag for society: Purpose Statements systematically ignore the negative consequences the pursuit of purpose can create for other stakeholders. At their worst, Purpose Statements encourage tunnel vision.
Behavioural Science shows the hidden danger of Purpose Statements
If the above sound overly cynical, consider this insight from the research carried out by Alex Pentland – one of the leading behavioural scientists at MIT.
The researchers gathered volunteers, gave them a dice, told them they would receive a dollar for every point they scored. The participants just had to follow three simple steps:
- Pick top or bottom (this is the side of the dice that will give you your points)
- Roll the dice on the table
- Once it stops, disclose whether you’d chosen top or bottom, and get paid $1 for every point on that side.
As you might have gathered, this creates a perfect opportunity for cheating. Participants can easily lie and pick whichever side lands on the highest number rather than their original choice. And indeed most volunteers proved to be “luckier than average”.
The researchers then repeated the experiment with the participants connected to a lie detector. And sure enough, a significant number of lies were picked up.
Having established these base conditions, the researchers made one further change: they told the participants that instead of receiving the money themselves, it would be donated to a charity of their choice. In this third condition, the participants still came out luckier than average, yet the lie detector couldn’t spot any anomalous tension.
Curious, right? When we believe we’re acting for a good cause, we don’t feel conflicted about bending the rules.
Taking this insight back to our exploration of Purpose Statements, it becomes easier to understand how unethical behaviour can flourish in purpose-led companies.
But perhaps the best example lies in a leaked memo by Facebook’s executive, Andrew Bosworth, “The ugly truth is that we believe in connecting people so deeply that anything that allows us to connect more people more often is *de facto* good.” Their purpose of ‘connecting people’ has served as an alibi to justify, “All the subtle language that helps people stay searchable by friends. All of the work we do to bring more communication in. The work we will likely have to do in China some day. All of it.”
Facebook is far from an isolated case. WeWork, Theranos, On Taste, and thousands of less known companies have fallen prey to the same trope. It’s a fine line that separates the purpose-driven organisation from the cult.
And when we don’t walk the talk?
On the opposite end of the spectrum, many Purpose Statements disengage the team and create a culture of hypocrisy. This happens when the Purpose Statement portrays pro-social or even altruistic priorities, and yet management’s criteria are based on market share and profit. For the employees, the cultural signal is clear: what we do around here is say one thing, and do another. And how can you trust a system like that? When these incoherences can no longer be ignored, Purpose Statements become symbols of management bullshit.
Reinventing Purpose Statements
Look, maybe I do want to demonise the Purpose Statement after all, but there is no need to throw the baby out with the bathwater. There are two qualities we need to keep:
- Aligning and motivating the team around the company’s raison d’etre.
- Encouraging companies to go beyond making a profit for investors.
What if – with a few tweeks – we could keep these positives and mitigate or eliminate the negatives?
If a Purpose Statement is meant to explain the reason why a company exists, let’s start by being honest about that. Why do companies exist, really?
It must be for someone’s benefit, right? So answering the question of Why? begins with answering the question, For whom?
Does a company exist for its investors? Or for its customers? Is it for the founders and employees? Or is it for the benefit of society at large?
We know that a company wouldn’t exist without the contribution of each and every one of its stakeholders. Without workers dedicating their time, investors committing their funds, customers giving their trust, a country providing basic services and infrastructure, and the natural resources from the land, a company would not be.
The issue is that this diversity of stakeholders comes with a diversity of needs, which means that a company serves a variety of purposes. Each group engages with the organisation for their own reasons. And no altruistic one-liner is going to make them forget that. We need to take a multi-stakeholder perspective.
When you care for all stakeholders, the business thrives
The book Firms of Endearment followed a group of companies with a multi-stakeholder approach and compared them with the purpose-led companies from Jim Collins’ Good to Great. Over five years, the multi-stakeholder companies outperformed the purpose-led companies’ share price growth by 77% – 128%. And on a 10 year horizon, the difference had skyrocketed to 331% – 1028%. It turns out that paying attention to the needs of multiple stakeholders is not just good business, it’s great business!
Even if it’s just for the benefit of the shareholders, we need to let go of the simplistic notion that companies exist for a single purpose, and acknowledge that the success of an organisation depends on satisfying multiple priorities. And a great place to start is letting go of Purpose Statements to leverage a tool designed to both provide focus and acknowledge the complexity of our times: The Guiding Question.
The Anatomy of the Guiding Question
A Guiding Question frames both the Who and the Why of an organisation. It asks “how might we satisfy these needs of these stakeholders AND those needs of those stakeholders?” And in doing so replaces naive idealism with a more pragmatic concern for the impact a company can have on its ecosystem.
A Guiding Question encourages a company to contribute to society at large by highlighting the diversity of needs and priorities of its stakeholders. And in revealing these multiple purposes, nudges the stakeholders as a collective to create answers that can serve them all.
And it frames these priorities as a question, because as the world changes and you learn and evolve, the answers will evolve too.
For a high growth venture like Deliveroo, a Guiding Question would look something like:
‘How can we bring great food directly to customers as fast as possible, provide good working conditions for our drivers and employees, AND make at least 10x profit for our shareholders?’
Instead of their current statements: “Deliveroo is on a mission to transform the way customers eat.” and “Our aim is to bring great food direct to customers as fast as possible, in less than 30 minutes.”
Another example, from a family business and social enterprise called QUANTA, is:
“How can we provide holistic health to our customers, stable jobs and a supportive environment to our employees, steady returns for our shareholders, and an example of eco-social responsibility to our local community?”
The move from Purpose Statement to Guiding Question is a relatively small change on the surface, but underneath is a fundamental shift in worldview: business success depends on serving multiple stakeholders, not one purpose. And embracing this change leads to fundamentally better outcomes for all.