Day: March 9, 2022

I have advocated that compliance is uniquely situation to lead a corporate ESG effort. In a recent Harvard Business Review article entitled, What is the Purpose of your Purpose? authors Jonathan Knowles, Tom Hunsaker, Hannah Grove and Alison James looked into creating Purpose in an organization. Their article laid out a great road map for companies to identify “an authentic and motivating basis for alignment among key stakeholder groups” for the elusive concept of Purpose. I found their piece to be a great way to think about bringing ESG into your corporate purpose.
For the Chief Compliance Officer (CCO), determining an ESG strategy is fundamentally a business decision and must be anchored in your business strategy. This means “identifying the most authentic and motivating basis for alignment among the key stakeholder groups on which the success of the business depends.” Moreover, determining and then implementing such a strategy “sits at the intersection of four business agendas: (1) For marketing and sales, it can help win customers and enhance their loyalty. (2) For HR, it can attract, engage, and retain employees. (3) For governance and sustainability, it can enhance environmental, social, and governance performance. (4) For strategy and finance, it can guide how resources are allocated and risks are managed.” Maneuvering through these four agendas is critical.
The authors begin with the idea that there are three senses of purpose. They are competence, which they define as the function which your product or services serves in the marketplace; culture, which they define as the intent in which you run your business; and cause, which they define as the social good for which your organization aims. These three ‘senses’ operate in different manners which can be confusing. For the CCO, separating these three senses into different components can be an important exercise. Here the authors identify three key gaps in these three senses which every CCO must overcome.
The competence-cause gap. This is the lack of alignment between the nature of your business and your espoused cause, such as when the business your pushing is at odds with your stated goals. Next is the competence-culture gap which is when a company is valued by customers but treats its employee poorly, usually through overwork, low salaries and wages or tolerating a culture which is less than respectful. The final gap is the culture-cause gap where your organization has a clearly stated purpose but employee engagement on that purpose is low. Like having a great paper compliance program but then engaging in bribery and corruption. To remedy these weaknesses, the authors have developed a five-step approach to finding your corporate purpose. Once again these are an excellent way to help create and foster a ESG program.

1. Identify the types of interests and constituencies for your corporate ESG program. The authors identify four interests: (1) sales and marketing, (2) employees, (3) governance and sustainability, and (4) strategy and business valuation. As CCO, you need to work with all four interests to navigate a unified approach for all the internal and external constituencies who will need to buy into this approach. Your internal constituencies include employees, senior management, Board and shareholders. Your external constituencies could include potential shareholder, third parties such as suppliers, localities where you do business and customers.

2. The three senses of purpose. All three senses have their advantages. The authors note, “A competence-focused purpose presents a clear value proposition for both customers and employees. A culture-focused purpose creates internal alignment and collaboration with key partners. A cause-focused purpose aligns customers, employees, and communities around the societal benefits that the company generates.” Moreover, each will have overlap in your ESG agenda.

3. Link ESG strategy to purpose. What will be the biggest drivers for your organization into 2025 and beyond? Obviously, sales and growth are critical but what about talent acquisition and retention? Is it expansion through organic growth or through M&A? How about access to capital through PE financing, floating new shares or even bank financing? Whatever the purpose(s) is or are, the authors note that you should “develop a clear sense of the business objective that the purpose will support. How can it enhance the relevance and sustainability of your value proposition to customers and other stakeholders and strengthen the company’s relative advantage? This step typically produces a short list of three to five key ideas for defining your purpose in a way that aligns strongly with the strategy of the business.”

4. Get out of siloes. Here you need to be seen as moving past simple corporate self-interest. The authors list several questions you can ask to your working group. They include Is the usefulness of what we provide so self-evident that we need say nothing more?Does the nature of your business make it credible for us to assert that we are out to do good?Does our leaders’ behavior support the idea that we are in the business to make the world a better place, even if that is not our core focus? Do we deliver value to customers while also being an attractive employer, partner, and corporate citizen? Does how we do business create value for society in ways unusual for our industry? By asking and answering these questions it will help you to move past the self-interests of the groups you have identified as internal constituencies. 

5. Embed purpose in corporate behavior. Execution is where the rubber meets the road. As with all things corporate it starts with senior management who must set the tone, commitment and walk the walk. But the interesting insight from the authors note is that while senior management tends to view such efforts as a top down experience, “Most other stakeholders experience it from the bottom up—through their interactions with products and services, employees, physical locations, and communications…From a bottom-up perspective, it is more important that purpose increase the sense of authenticity, coherence, and engagement derived from the day-to-day experiences of customers, employees, partners, and the communities in which the company operates. The ultimate test of your purpose is whether it improves the way the business actually operates.”

The authors conclude that there are two additional elements which must be considered: pragmatism and authenticity. Both of these elements are directly in the wheelhouse of the CCO and compliance function. ESG can be powerful tool to speak to a variety of stakeholders in any organization. Using the approach to Purpose the authors have outlined, designed for a ESG program, can be a direct way for a CCO to move forward in the design, creation and implementation of what can well become a successful ESG program.