‘The New Purpose Governance Framework’ is the first comprehensive set of purpose-governance guidelines in the world, which charts the path for boards to up their game in approving and governing their organization’s purpose.
Most boards operate on a 50-year-old definition of corporate governance in which the singular purpose of the firm is profit generation for shareholders. But that is changing — and we’re calling on boards everywhere to put their organizations and humanity on a sustainable path by adopting best practices in “purpose governance.” Not doing so will imperil their organizations — and society.
What is purpose governance?
As set out in the world’s first Purpose Governance Playbook, it is governance of an organization’s purpose — particularly one that transcends organizational self-interest. As defined by the United Way’s Social Purpose Institute, a social purpose company is a force for good and a force for growth. Social purpose companies align their strategic goals with society’s. [Note: A social purpose could focus on environmental or social topics; but either way, it goes beyond a profit, product or customer purpose.]
Three drivers of purpose governance are moving up the day of reckoning where having and governing a societal purpose will be the hallmark of good governance and a well-run board:
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The world’s largest investors give us two iconic examples.
Three years ago Larry Fink, CEO of BlackRock — the world’s largest investment firm with over US$9 trillion in assets under management — told the CEOs of companies he invests in:
“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. ... Society is demanding that companies, both public and private, serve a social purpose.”
This year, investor advisory services firm Morrow Sodali issued its Institutional Investor Survey summarizing the governance views of 40 institutional asset managers with collective assets of USD 29 trillion. They found that “statements of company purpose are considered to be one of the driving forces behind creating sustainable long-term value.” A significant majority of asset managers (85 percent) agree that boards should have and disclose an organizational purpose — and if they don’t, investors will be knocking at their door to insist that one exists and is public.
Governance Professionals of Canada (GPC), which offers governance training to its members, is getting ahead of these demands. It educates governance professionals about purpose governance through its conferences and in its corporate governance designation program. To identify and celebrate best practices in purpose governance, GPC offers a Sustainability, ESG and Purpose Governance award. It also publishes resources on purpose governance — most recently this summary of a purpose governance discussion. Report highlights include:
The pre-eminent role of the board is to have oversight of the organization’s purpose and to make sure it is future-fit.
Good governance is being redefined to include board purpose oversight.
Directors College — which offers director training, and where I am a faculty member — also includes purpose governance in its Chartered Director Program.
The International Organization for Standardization (ISO) is also in the game. This fall, it released a global governance blueprint (ISO 37000) that puts purpose at the centre of governance: “It provides principles and key aspects of practices to guide governing bodies and governing groups on how to meet their responsibilities so that the organizations they govern can fulfil their purpose.” [emphasis added]
The British Standards Institution, the UK’s national standards body, is developing a Sustainable Purpose Standard — destined to become a global purpose governance standard. When released in 2022, it will provide guidance to governing bodies and executive managers on what a sustainable purpose is, how a sustainable purpose organization approaches decisions, and how it acts.
And in Canada, Rotman Business School's Peter Dey and Sarah Kaplan issued a seminal report on the topic: 360° Governance: Where are the Directors in a World in Crisis? In it, Dey — an executive-in-residence at Rotman — and Kaplan, a professor of strategic management, argue that the world we live in makes demands on boards of directors that existing governance standards are not equipped to address. Their updated guidelines emphasize the need for a corporate purpose and a deep understanding of all stakeholders.
Fortunately, Canadian companies are moving in this direction. Research I have conducted reveals that 15 percent of TSX60 companies have a purpose. That’s a good step; but here are the big questions: Are they implementing that purpose, and what is the board’s role in stewarding it?
New Purpose Governance Framework
“The New Purpose Governance Framework: Your Board Roadmap for Developing and Governing a Corporate Purpose,” which I developed in collaboration with the Social Purpose Institute, is designed to answer those questions. It is the first comprehensive set of purpose-governance guidelines in the world, and charts the path for boards to up their game in approving and governing their organization’s purpose.
It lays out five steps boards and governance professionals can follow in developing, codifying or refreshing the purpose; and 21 steps boards can take to ensure the purpose is consistently, effectively and authentically executed. While written from the perspective of corporate directors, CEOs and management have a central role to play — and as such, the roadmap is also a guide for executive teams.
With this roadmap, and the emergence of standards raising the bar for governance around the world, boards and their management teams now have the guidance they need to quickly pivot their organizations to become a force for good. Boards that do will govern organizations that make a better world, not just better things.