How Investors See Culture and Purpose as Keys to Profit

Making the connection between long-term strategy, purpose, and culture
How Investors See Culture and Purpose as Keys to Profit
Publ. date 19 Apr 2019
As over a quarter of assets under management across the globe are now being invested according to ESG principles, companies are well advised to maximize their ESG performance. However, straight-forward short-term improvement interventions will fall flat when your company is lacking a culture of sustainability that advances performance over the long-term. Investors are understanding this more and more, and are looking to understand what your company is doing to foster and cultivate a corporate culture that is aligned with the company’s strategy and purpose.

Downloads

Investors are moving beyond the black-and-white ESG indicators to understand how companies are driving purpose and culture within their organizations as a driver for operational direction and excellence. They are increasingly acknowledging that many firms fail to successfully implement their sustainability strategies, not because they lack the desire, the willingness or even the belief in the impact of sustainability on their businesses, but because they fail to identify proper objectives for their efforts. Setting a clear and meaningful purpose can help an organization to coalesce various efforts and goodwill and gives a shared sense of direction.

The Bob’s Burger’s workshop (refer to the download above) can help you in the process of getting to a purpose. It helps teams to start the change towards sustainability-based purpose by disconnecting them from their day-to-day business. Starting from the business model of McDonald’s, teams are challenged to come up with a new burger shop concept that inspires them to think differently about the why, the what and the how of their own company.

The inherent link between culture, strategy and profits

The investor’s interest in the topic is clearly demonstrated by the world’s largest asset manager BlackRock, whose chairman Larry Fink has for several years already has been a vocal advocate for purpose. In his now infamous 2018 annual letter to CEOs, Fink very clearly proclaimed that companies must serve a social purpose and that without a sense of purpose, no company can achieve its full potential.

In the 2019 edition of his CEO letter, appropriately entitled ‘Purpose & Profit’, Fink goes on to emphasize this message by stating that companies that truly understand and express their purpose, function with the focus and strategic discipline that drive long-term profitability. He ends by explaining that his firm actively seeks to understand how a company’s purpose informs its strategy and culture to underpin sustainable financial performance.

In order to do this, BlackRock’s Investment Stewardship team has outlined its approach to engagement on long-term strategy, purpose, and culture. The document underlines the necessity of compatibility between strategy and company culture. More concretely, the asset manager explains its engagement process on the topic. Acknowledging the nuance of strategy, purpose, and culture, BlackRock prefers to discuss these topics in person with the company’s management. Specific aspects in the conversation might be how the compatibility of the company’s culture, purpose, and strategy is being assessed, how employees are involved in shaping them, and how the executive management deals with balancing long-term focus and short-term pressures.

That being said, it is advised that companies do talk about their strategy, purpose, and culture in communication vehicles such as the chairman’s letter to shareholders, annual reports, at company’s investor days, and even through public filings such as 10-Ks or proxy statements. Finally, the firm underlines once more that strategy, purpose, and culture are important value drivers and shareholders need to understand them to assess a company’s performance and opportunities.

Working on purpose and culture?

If your company is working on shaping and articulating its purpose, the Bob’s Burgers workshop tools are available as a free download. If you are looking for specific guidance or support in the area of company purpose, please Jan van der Kaaij, Managing Partner, at jan@finchandbeak.com or +34 6 82 04 83 01 to learn how Finch & Beak could help.

About Nikkie Vinke

Multidisciplinary advisor in ESG benchmarking, sustainability strategy development and execution. | nikkie@finchandbeak.com

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