In response, pioneering companies are defining why they exist, beyond serving shareholders. A growing number are adopting a social purpose to contribute to a better world.

However, they are gravely at risk of failing to implement it.

Enter the Corporate Knights social purpose ranking, the first of its kind in the world. By shedding light on purpose leaders and laggards, it hopes to head off “purpose-washing” (where purpose statements aremore of a marketing mantra than raison d’être). Instead, our report hopes to create an implementation roadmap for authentic businesses and leaders.

I collaborated with Corporate Knights in studying pioneering social purpose companies to determine the state of play among companies operating in Canada, including private, domestic companies and public, global companies. We began by looking at nearly 200 companies and found that only 17% had adopted a purpose that went beyond creating value for shareholders and customers to expressly creating value for society – if they had a publicly expressed purpose at all.

For each of the 34 companies that made it into the rating, we applied eight governance and implementation criteria: in addition to assessing whether their corporate values embodied their purpose, we evaluated their strategy, incentives, CEO and executive performance objectives, formalized governance responsibilities for the board and CEO, and disclosures. We found that all 34 are on the pathway to embedding their purpose into their business by demonstrating some or several of these practices. That’s the good news. The bad news is that many are at risk of only paying lip service to their purpose by not implementing the purpose fundamentals.

Among the leaders, Unilever, the fast-moving consumer goods company and long-time sustainable business darling, has had more than 10 years to get it right. A decade ago, it adopted its social purpose: to “makes sustainable living commonplace.”

Today, its business strategy includes:

• develop our portfolio into high-growth spaces (e.g., plant-based foods);
• win with our brands as a force for good, powered by purpose and innovation (e.g., improve people’s health, confidence and well-being);
• and build a purpose-led, future-fit organization and growth culture (e.g., be a beacon for values-based leadership).

Unilever’s 2020 annual report reveals progress on its purpose. Among its reported metrics, the company has helped 1.3 billion people improve their health and hygiene since 2010. Plus, the company has a number of clear purpose targets, for example:

• €1-billion annual sales from plant-based meat and dairy alternatives by 2027;
• double the number of products that deliver positive nutrition by 2025;
• and everyone who directly provides goods and services to Unilever will earn at least a living wage or income by 2030.

These are some of the practices that earned Unilever a “gold” rating in the Corporate Knights social purpose rating system.

Half of the companies we studied in detail revealed exemplary practices on the path to purpose. Yet these success stories were not without complication. Most of the companies failed to embed purpose responsibilities in the role of the board and CEO. This puzzled us; we expected that once a purpose was adopted as the firm’s reason for being, the board and CEO would have formal responsibility for oversight and execution of the purpose, respectively.

34 of 197 firms we evaluated were on the path to embedding purpose into their businesses. The bad news: many are at risk of only paying lip service to that purpose.

We also found several sample companies conflating social purpose with their corporate social responsibility or ESG (environment, social, governance) program. This would be expected among companies whose purpose was to improve broad social, environmental and economic conditions in their communities and markets. However, a number of companies mixed up having ESG goals with having a purpose. Over time, stakeholders – including shareholders, employees and customers – will perceive this purpose “say–do” gap and doubt its authenticity.

The rating also revealed a social purpose transition pathway. It validated that a social purpose is not “once and done,” but a continuous path of improvement. Whether public or private, global or domestic, companies that authentically adopt a societal purpose as the reason they exist embark on a journey, transitioning not only their own operations but those around them to become a force for good. Fortunately, the early evidence is that pursuing a purpose that benefits stakeholders and broader society is not only purposeful but profitable. According to one Harvard Business School study, firms exhibiting both high purpose and management clarity have systematically higher stock market performance.

The purpose governance playbook revealed by this investigation sets the rules of the game. We are in the early innings of purpose and the bases are loaded. By following the social purpose transition pathway re-ealed by these pioneers, businesses around the world can reap the benefits of purpose, foster stakeholder trust, and help build a sustainable future.

Read the full report here.

Coro Strandberg is the president of Strandberg Consulting and lead advisor to the United Way Social Purpose Institute.

The post Are corporations serving their purpose? appeared first on Corporate Knights.

The global spread of COVID-19 is deeply affecting each of us. It’s taking a devastating toll on lives, businesses and communities. It’s upending how companies operate and is shattering supply chains around the world. Yet, even during this time of upheaval, there are companies mobilizing in unprecedented ways to protect lives and to defeat the disease. We are witnessing inspiring leadership, with so many companies – large and small – stepping up to help their communities and pivoting their businesses to supply essential products and to provide humanitarian relief.

Leading the way are social purpose businesses that have already defined an aspirational societal reason for being and that aim to create value for all stakeholders. They protect their employees, minimizing job loss and providing paid sick leave. And they go beyond simply donating to charity by redeploying their assets to address the most urgent needs. Whether small firms or multinational corporations, purpose-driven businesses are reimagining their role in the time of COVID.

How social purpose-driven companies have responded to COVID-19

Unilever, the global consumer-goods company, launched a sweeping Sustainable Living Plan in 2010 with the aim of improving the health and well-being of more than one billion people by 2020. It’s now leveraging its social purpose “to make sustainable living commonplace” by donating $155 million worth of soap, sanitizer, bleach and food to help protect people’s lives around the globe. It’s also providing $775 million of cash flow relief for early payments to its small suppliers and extending credit to small-scale retail customers to help them manage and protect jobs. According to its CEO, Alan Jope, “Our strong cash flow and balance sheet mean that we can, and we should, give this support.”

Google’s corporate mission “to organize the world’s information and make it universally accessible and useful” drives its global response. It’s providing a total of US$800 million to support small- and medium-sized businesses, the World Health Organization, governments and health workers. Nearly US$600 million of that comes in the form of ad grants and credits. It has established a US$200 million investment fund for non-profits and financial institutions to help provide small businesses with access to capital. It’s also making available US$20 million in Google Cloud credits for researchers to leverage Google’s computing resources to study potential therapies and vaccines to combat the virus. Its employees are bringing engineering, supply chain and healthcare expertise to facilitate increased production of ventilators, working with equipment manufacturers, distributors and government in this effort.

3M – with a mission “to improve lives” – established a unique partnership with Ford Motor Company to build respirators, including a new design that uses existing parts from both companies, such as the Ford F-150 truck’s cooled seating and 3M’s HEPA filters to increase efficiency and scalability. 3M has doubled its global output of N95 masks and is producing 100 million respirators per month.

HP Inc., whose purpose is “to create technology that makes life better for everyone, everywhere,” is mobilizing its 3D printing teams, technology, experience and production capacity to create 3D printing parts to help contain COVID-19. HP’s 3D R&D centers are collaborating with manufacturing partners around the world to increase production of face masks and shields, hands-free door openers, respirator parts and more. “HP and our digital manufacturing partners are working non-stop in the battle against this unprecedented virus. We are collaborating across borders and industries to identify the parts most in need, validate the designs, and begin 3D printing them,” said Enrique Lores, President and CEO, HP Inc.  Through its HP Foundation, the company also donated $1 million to direct COVID relief.

SAP, the European multinational software corporation, is leading through its purpose “to help the world run better and improve people’s lives” in its COVID response. It recently launched the SAP Purpose Network Live, a virtual platform that provides a space that brings together change-making companies, startups, government agencies, non-profits and consumers to co-innovate COVID solutions together. Through pro-bono consulting, SAP employees are also hosting webinars for non-profits on remote work and coaching social enterprises on business continuity. It set up a €3 million Emergency Fund to support the World Health Organization, the Centre for Disease Control and others working on the front lines. Recognizing the massive COVID disruptions impacting global supply chains, the company is offering free access to its SAP Ariba Discovery service so buyers can post immediate sourcing needs and suppliers can respond with their offerings.

With a mission “to raise the good in food,” the Canadian packaged meats and protein company Maple Leaf Foods donated $500,000 in financial and food contributions to food security organizations. It’s using its scale and reach to launch a matching campaign to raise an additional $2 million to support emergency food relief efforts. Maple Leaf has also contributed $2.5 million to the Canadian Frontline Healthcare Professionals Protection Fund, established by hospital foundations to provide support for frontline healthcare workers. As well, it’s contributing its food-safety know-how to others seeking to create pathogen-free environments.

Web Express, a Coquitlam, BC-based printing company, is pivoting its business to offer online publication services within a new Community Hub enabling ethnic media, industry publications, community centres, readers and advertisers to connect with one another. The Hub will be offered free for a time starting with ethnic community newspapers hit hardest by the pandemic, so they can continue their operations virtually – a matter of survival for small publications.

Traction on Demand, a purpose-led software company based in Burnaby, BC, partnered with Thrive Health, Salesforce and the BC government to create a new, life-saving healthcare app that has been deployed in almost 40 hospitals so far. The app, known as Traction Thrive, helps view, track and allocate critical healthcare personnel, personal protective equipment and ventilator availability in real time. Traction on Demand has since made the application available globally, at no cost, as a contribution to the global fight against COVID-19.

Hemlock Printers, a North American purpose-driven printing company also based in Burnaby, is printing Public Health Agency of Canada COVID-19 workplace posters for businesses and non-profits free of charge. Hemlock’s social purpose partner, Novex Delivery Solutions, is donating the “no-contact” carbon-neutral delivery of those posters. Hemlock is also printing floor decals (to indicate proper space apart while physical distancing), plexiglass shields and other signage products that protect employees and customers.

Within days of BC’s COVID shutdown, Community Savings Credit Union, a purpose-based regional financial institution headquartered in Surrey, BC, offered a range of services for people facing financial difficulty. Financial hardship services include an interest-free line of credit, postponement of loan and mortgage payment and service fees, and early redemption of non-redeemable term deposits so customers can gain quick access to needed funds. Its CEO, Mike Schilling, says, “We could do all this so quickly precisely because we are a purpose-driven organization.”

By focusing on their purpose, rather than on their bottom line, these businesses could make clear and quick decisions when they were needed. Purpose-led companies have a beacon they can turn to when steering through turbulence.

However, the bottom line will eventually benefit too, as pointed out by Larry Fink of BlackRock in his recent annual letter to shareholders. As the CEO of the world’s largest asset manager (with an estimated US$6 trillion in assets) says, “Companies with a strong sense of purpose and a long-term approach will be better able to navigate this crisis and its aftermath.”

As we head deeper into the COVID storm, and as our collective instincts rally, more and more companies will become humanitarian businesses. The time is ripe for all business leaders to reboot their companies along social purpose lines – or risk becoming irrelevant in the future marketplace. The rapid purpose pivots of these 10 leader companies shine a light on what’s possible. These and many other pivots are listed in this “COVID-19 Social Response Checklist for Business” we developed to help business leaders identify their unique COVID social response.

Let’s build a new future together. Now is not the time to be on the sidelines. We can envision the economy and society we want to live in in the post-pandemic era and make it happen. These purpose-driven businesses are showing us how.

Coro Strandberg is president of Strandberg Consulting and Mary Ellen Schaafsma is director of the Social Purpose Institute. Strandberg and Schaafsma partnered to create the Social Purpose Institute at the United Way of the Lower Mainland (SPI) in 2018. The SPI is creating a social purpose business movement in Canada and beyond and offers services that help business leaders, company boards, investors, industry associations and chambers of commerce advance social purpose in business.

The post Covid Knights: Corporate social purpose in the time of COVID-19 appeared first on Corporate Knights.

What do they have in common? Both believe executives should be rewarded for driving environmental, social and governance (ESG) performance that protects and creates long-term shareholder value.

The good news is that more companies are listening and acting. Unfortunately, outcomes have been mixed.

Globally, investment research firm Sustainalytics found that 16 per cent of large publicly traded companies considered ESG performance in setting executive compensation in 2012, up from 13 per cent two years earlier. In Canada, according to my own research on sustainable pay, that number is much higher, with nearly 60 per cent of companies listed on the TSX 60 providing incentives to executives who hit non-financial performance targets in 2012.

According to Corporate Knights’ Best 50 ranking, that number rocketed to 80 per cent this year (up from 56 per cent in 2010). This points to the obvious conclusion that sustainable pay incentives are becoming increasingly important in corporate Canada.

But underlying these metrics is a less compelling story.

In “Sustainable Pay,” a study I published in March 2013, it was found that only 13 per cent of the TSX 60 companies formally set annual sustainability targets for executive performance. And none of the TSX companies (and few global companies) include ESG performance in their long-term incentive plans.

Boards and their compensation committees are not setting pre-determined performance hurdles for executives to achieve, and they are overlooking the value that sustainability risk and opportunity management can bring to the corporate bottom line over time.

Also, they are failing to grasp the significance of sustainability impacts on their company or resulting from their company, as well as how sustainability will be critical to creating or protecting value over the medium term. Instead, it appears companies are largely treating sustainability performance as an after-the-fact bonus for chief executives – just another way to pay executive teams.

Another observation, particularly in Canada, is that sustainability performance metrics tied to executive pay are primarily directed at compliance, risk mitigation and value protection – not value creation. Top metrics were focused on safety and spill prevention. Few considered the opportunity side of the sustainability equation related to innovation, new products and markets, cost savings or customer acquisition. On the other hand, some global best practices see companies rewarding executives for achieving green product growth targets.

Arguably, the Canadian TSX 60 results reflect an overweighting to the extractives sector, which is necessarily concerned with compliance and risk mitigation. But how are boards rewarding proactive investments in social licence to operate and in stakeholder relations? Forward-thinking measures such as these might realize greater long-term benefits for companies and shareholders alike.

Finally, where metrics exist at all, they are nearly always backward looking. I came across few examples of forward-looking (leading) measures that assure boards their managers are placing careful investments to generate future performance results.

What explains this? We know there is a lack of agreed upon guidance for executive sustainability compensation. We also know that “pay for performance” – whether financial or non-financial performance – is a recent governance trend. The most popular performance indicators continue to be profit and executive performance goals for short-term incentives and total shareholder return for long-term incentives.

Finally, it’s clear that peer normalization plays a very strong role in determining executive compensation. The practice of engaging compensation advisors to benchmark comparable companies results in copycat pay packages.

In my experience advising companies on sustainable compensation practices, I tend to come across the following limitations or constraints:

• The human resource managers who advise board compensation committees lack experience in setting sustainable pay metrics and are not familiar with the qualities of a good sustainable pay metric;

• Companies have not identified the ESG risks or opportunities material to their performance and thus lack an understanding of how sustainability practices can enhance shareholder value protection and creation;

• As the typical corporate strategy does not include relevant sustainability performance targets, ESG is not properly positioned in the corporate balanced scorecard and thus is usually sidelined by the compensation committee.

• Boards lack an understanding of stakeholder expectations and how sustainability mega-forces will affect their company, sector, value chain and region. They are ill equipped to determine top sustainability metrics that will enhance corporate prospects going forward.

So what does the future hold?

Sustainability think tanks like Corporate Knights will continue to rank companies on their sustainable pay practices, putting pressure on company boards to enhance their ESG compensation programs. With capital markets increasingly looking for rigorous ESG value protection and creation goals, expect more compensation packages to have clear, quantified and stretching ESG targets.

At the same time, global standards and guidelines on ESG pay will emerge and compel continuous improvement. ESG pay will then join excessive pay, referred to as quantum by investors, and equitable pay (vertical pay ratios) to create a triumvirate of non-financial pay issues for boards and their advisors to address.

In other words, expect sustainable pay to be on board agendas for many years to come.

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A management trend of the past decade, corporate social responsibility (CSR) is moving increasingly into boardrooms as the strategic value of considering social and environmental factors in business becomes better understood. Stakeholder relations, customer preferences, declining resources, carbon pricing, government regulation, and other business issues under the rubric of CSR will surface as key corporate priorities.

Take NIKE, for example. Its brand came under attack in the 90s for human rights issues in its supply chain, sending a wake-up call to the board of directors. They realized they had not been overseeing critical social and environmental practices of their suppliers. They had recruited a female director with a background in global women’s rights and she made CSR a special interest, sponsoring discussions on the global supply chain, worker interests, and the environment. The board established a CSR committee to devote time to strategic social and environmental issues and began to see CSR not as a risk management exercise, but an innovation driver. The committee made recommendations to the board regarding labour and environmental practices, community affairs, and diversity. The board included non-financial metrics in executive bonuses and now considers social and environmental performance as part of overall business performance—and part of their overall fiduciary responsibility.

This foretells the next tectonic shift in corporate governance reform. The 90s witnessed isolated tremors affecting individual companies like NIKE. The damage to corporate reputation arising from governance failures at Enron and Worldcom in the 2000s triggered a massive overhaul of corporate governance practices through government and securities reform on a global scale. The recent collapse of Lehman Brothers and Bear Sterns has only accelerated this trend.

Increasingly, boards are looking for guidance and insight into their CSR role. The NIKE CSR governance approach provides some insights: gender diversity on the board; recruitment of sustainability-savvy directors; a board-level CSR committee; engaged and active directorships; incorporation of non-financial metrics into executive compensation; and integration of sustainability into overall business strategy.

But we can do better than this. I analyzed the board’s role in CSR / sustainability for the Conference Board of Canada in 2008 by interviewing directors of CSR-oriented firms in Canada and abroad and CSR governance thought leaders around the world. The research revealed a CSR template for company boards, which has evolved to become a set of CSR Governance Guidelines, produced in collaboration with Canadian Business for Social Responsibility—guidelines to help boards of directors integrate CSR into their governance mandate.

The main conclusions of the 2008 research are that some boards adopt a CSR governance mandate because of the business case, and others because it is “the right thing to do.” Boards need to define and commit to CSR, and understand its business value, in order to move forward constructively. Once this has been achieved, common steps include communicating the board’s commitment to management and staff to “set the tone at the top,” building CSR into risk management and the business strategy, and reporting to stakeholders on environmental and social progress. Boards should also recruit directors with CSR competencies, train directors on CSR trends in the industry, recruit CSR-aligned CEOs, and further incorporate CSR into the firm’s executive compensation incentives.

The research also discerned three types of board CSR cultures: stakeholder-centric boards which take stakeholder views and priorities into account in business strategy and decision-making; integrative boards which focus on integrating CSR throughout the business; and system-change-oriented boards which perceive the firm and its products and services as instruments of social change. CSR-oriented directors and thought leaders debate over whether boards should directly engage with stakeholders to receive unfiltered input, or whether this should remain a management responsibility.

The guidelines leave room for the board to tailor its approach to its unique priorities. That said, there is more evidence than ever of the merits—and fiduciary responsibility—of the board bringing CSR into its deliberations to inform business strategy and culture. NIKE learned its lesson and is profiting from it. So should others. Just do it.

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