Performance with purpose in corporate governance is an important concept that focuses on the idea that a corporation’s success should be measured not only by its financial performance but also by its positive impact on society and the environment. Company’s actions have a broad range of consequences. Therefore, it is important for a company to consider long-term sustainability of its business practices.
What is Performance with purpose?
Performance with purpose is a concept coined in 2006 by the former CEO of PepsiCo, Indra Nooyi. The concept sprung from the fact that contemporary capitalism has been under societal pressure. Nooyi saw a need for market leaders to help work towards a more sustainable world. With her work, Nooyi has become famous for changing corporate behavior and culture.
Sustainability has been defined as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Consumers nowadays illustrate a new demand and put pressure on the market. The mentality considering corporations’ environmental and social impact has drastically changed. Consumers hold corporations accountable for their sustainable footprints, which has been shown in social movements, activism, and cancel culture.
What Nooyi introduced with Performance with purpose is the wholesome consideration of all stakeholders and not only shareholders. Nooyi intrpduced the purpose of providing for a better future and thereby becoming good global corporate citizens. Performance with purpose is the notion that corporations make money in a way that doesn’t harm society. Hence it brings value to both consumers, but likewise for the company.
Nooyi started to take a full-front perspective on sustainability at PepsiCo. By looking at how to make their products healthier and investigate the equality within the organization. Nooyi explored how to reduce their co2 emissions, and if they could partner with any help-organizations.
Nooyi realized that focusing on the best of all stakeholders, it would give back to the shareholders in the long run. Not only would the consumer demand change over time, forcing PepsiCo to change its business strategies. But as new generations are critical to how and where they work, as well as the companies they work for, it would likewise change the future workforce.
Groundpillars for performance with purpose
Performance with purpose doesn’t solely come from new consumer demand. Legislation is one factor in how corporations need to run their businesses. Taxations, global standards for sustainability reporting, and the obligation for transparency are all influencing drivers. Other factors are also CSR and ESG which will be further explained.
What is CSR?
CSR stands for Corporate Social Responsibility and is a self-regulating management model. It described the impact of internal processes and activities to encompass global impact. CSR is something that consumers demand and many companies focus on. It builds accountability and brand value as the efforts are qualitative. CSR is executed through corporate culture and values and by brand management. Its main focus is to address stakeholder satisfaction. It can be used for good, but also to mislead by green-washing, pink-washing, and woke-washing for example.
An outstanding beacon working with a CSR focus is the company Patagonia. They are pledging all their profits to charity and organizations that are fighting climate change. Starbucks has also built a stronger CSR reputation by changing its plastic straws to paper.
What is ESG?
ESG stands for Environment, Social, and Governance. Just like CSR, it concerns sustainability, but from an external perspective. ESG is more than solely intentional – it is the tangible and practical plan to execute sustainability work. It is quantifying existing accountability in measurable assessments which indicate performance metrics. ESG is a framework designed to be embedded into an organization’s strategy to consider the needs and ways in which to generate value for all stakeholders. Furthermore, ESG reporting can be used by stakeholders to assess any sustainability-related risks and opportunities relevant to their organization. Today’s shareholders want to know more than just what you earn for them – they also want to know how you earn it!
Introduce Performance with purpose into the corporate culture
The board’s role in the process of building trust among employees, customers, investors, suppliers, and the people who are affected by the company’s operations should still be an oversight. Culture eats strategy for breakfast – an overworked, yet truthful, quote. Culture has the biggest impact on organizations and their activities. Meaning that the top of the company must set the tone for a culture in which purposeful practices can foster and the work of CSR and ESG is mirrored. Management has to execute the process, but setting corporate values and integrating them into strategy is a core function of the board. The board as a whole is approving the process and also affirming the belief that the best interests of the company are served when the company reflects in its actions the values of the community of people who create and sustain it.
In order to achieve Performance with purpose, the board and management need to evaluate the current performance of the business. Either through an analysis of the current situation, or an evaluation of the company management. This can improve understanding of the environment and provide solid insight into the work being carried out. The aim is to gain control over business needs, evaluate what works well today, and identify areas for improvement.
What can a situational analysis provide?
A situational analysis should be seen as a tool to help you understand what can affect an outcome. Situational analyses are important to calculate and assess priorities in your business to make good strategic choices for the future of your business. The analysis results are compiled into a clear overall picture that the company can use for future strategic decisions. There are several different types of current situation analysis; for example, a competitor analysis can minimize potential risks from competitors, while a market analysis can identify opportunities and alternative development work.
A situation analysis provides both general and in-depth insights into your company’s current situation. The analysis provides a solid mapping as a starting point for working with performance with purpose.
What can an evaluation of the board or management provide?
There are several benefits to conducting governance evaluations. For example, evaluations can help to ensure that the board is composed of individuals with the right skills and expertise to oversee the company’s operations. Evaluations can also help to identify any potential conflicts of interest and ensure that the board is acting in the best interests of the company and its stakeholders. A board that consists of the wrong individuals will fail to unify on a purpose.
Additionally, governance evaluations can help to foster a culture of continuous improvement within the company. By regularly reviewing and assessing the board’s performance, a company can identify areas for improvement and set goals for the future. All this will lead to the board of directors finding its purpose and thus boost the performance of the board and also of the company.
In conclusion, achieving performance with purpose unites the board of directors on a common goal that will benefit the company in the long run. Conducting governance evaluations is an essential part of achieving performance with purpose in corporate governance. By regularly reviewing and assessing the board’s performance, a company can gain valuable insights, identify areas for improvement, and set goals for the future. This helps ensure that the company is meeting its purpose and achieving its goals.
How can we help?
The first steps towards ‘Performance with purpose’ within your company, starts by developing an understanding of your current situation. This can be done through a situational analysis or a digital evaluation of company management. Read more about our board evaluations and management team evaluations. If you have more questions or would like to conduct a governance evaluation, feel free to contact us!