What is a Purpose-Driven Business?
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Descriptions of economic recovery post Covid-19 have centred around projections of ‘building back better’ and ‘building back stronger’. We believe that vital to these visions of recovery, and an important part of a recovery that has a lasting positive impact, will be the increased adoption of purpose-driven business models.
However, before diving into discussions about how to make purpose the norm, and what reforms need to happen to support the purpose-driven ecosystem in the future, it is worth clarifying the meaning of the term “purpose-driven”.
One of the widely used definitions of purpose-driven business is that of Professor Colin Mayer, in his work with the British Academy on the Future of the Corporation:
“A purpose-driven business produces profitable solutions to the problems of people and planet, and does not profit from producing problems for people or planet.” - Professor Colin Mayer
This is a helpful academic definition, and it is useful to explore it in more detail.
A purpose-driven business exists to benefit society while operating a profitable model
A purpose-driven business is one that, instead of existing only to maximise profits, exists to benefit society. It sees profit as one vital outcome of its business activity but not its sole reason for existing. In pursuing its purpose, it consciously balances the needs of stakeholders, including shareholders but not at the automatic expense of others.
It is worth noting that businesses focused on maximising profits can, and often do, operate responsibly and deliver some benefits to society, for example through creating jobs, paying taxes, and running “corporate social responsibility” initiatives.
The key difference between purpose-driven and purely profit-driven businesses is that because a purpose-driven company is focused on and orientated around benefiting society through its core business activities, they are often more likely to have a positive social and environmental impact. They are also proven to frequently generate more sustainable long term returns to investors as well.
Purposes can vary hugely
It is up to the company to determine its purpose. It may be something that has an impact on a global scale, such as ILI Group who are “facilitating the transition to renewable energy by delivering clean, long-term, large-scale energy storage in the UK and beyond.” Equally, it may be something local such as Anglian Water whose purpose is to “bring environmental and social prosperity to the region we serve through our commitment to Love Every Drop”.
Moreover, while it is considered good practice to specifically spell out a clear purpose for the organisation and stakeholders to rally around, for some the purpose can simply be to generally benefit society.
It is a company’s stakeholders, whether they are investors, consumers, employees, suppliers or others, who ultimately judge whether the purpose is something that endears them to that company or not. This is supported by purpose-driven companies reporting on their impact on people and the planet in an accessible way.
Purpose is embedded in a company’s DNA
Being purpose-driven is not about having a flashy purpose statement. It is not a marketing campaign. It must go deeper, with the purpose being authentic, inspiring and rooted into the DNA of the company, such that it affects how they treat the people they engage with such as their employees, customers and suppliers.
As such, it must be embedded in their business model, governance and reporting, as set out in our paper What is a purpose-driven business? (see the illustrations below)
How can you spot a purpose-driven company?
Purpose-driven companies are mainstream, profitable companies
Far from being niche, a purpose-driven approach to business is increasingly widespread. Half of business leaders now seek to operate in this way, rather than pursuing the maximisation of profit (The case for purpose driven business - ReGenerate 2020).
They are also profitable companies. As set out in Professor Mayer’s definition, they seek “profitable solutions”, not just “solutions”. They are unique in their ability to combine social and environmental impact with the capital that is necessary to innovate and scale. This is possible because they have identified market-based solutions to the problems of people and the planet. In fact, a growing evidence base shows that purpose-driven businesses are often more commercially successful than their more profit-focused counterparts, as people want to invest in, work for and buy from them.
This also creates an important distinction between purpose-driven businesses, and charities and the majority of social enterprises, who are a crucial part of the system that exists to solve society’s biggest challenges. Purpose-driven businesses are complementary, bringing further social and environmental impact in areas where profitable, market-based solutions can be found. There is some overlap between purpose-driven businesses and both social enterprises and profit-driven businesses, as it is essentially a new categorisation that is emerging between them, such that a company that has previously been operating as a social enterprise or profit-driven business, could easily be described as a purpose-driven business if it exists to benefit society while operating a profitable model, see the table below.
The different ways organisations are structured
See our paper What is purpose-driven business? for more information.