Purpose and Profit Are Not Mutually Exclusive

30/09/2020

In a recent column, The Times’ Financial Editor Patrick Hosking asks a key question: “Greed may be dead, but who says the new corporate creed is any better?”

His argument is a simple one: gone are the days of shareholder primacy when narrow profit maximization was the be-all and end-all for company directors. Or, as Gordon Gekko famously put it in the 1987 film Wall Street: ‘Greed…is good.’

“Bosses are now having to navigate a much more difficult landscape,” Hosking rightly observes. “Purpose is the new watchword.” He’s also right to note that as companies embrace stakeholder capitalism – where the interests of employees and suppliers, and issues such as diversity and the environment,  are as paramount as those of shareholders – they face a number of challenges.

Perhaps the biggest of these is how modern-day managers balance the myriad interests of these multiple stakeholders. But adding to this complexity is the role of investors – and it’s here that the debate gets complicated.

Yes it’s true, as Hosking argues, that the criteria institutional shareholders use to judge investee companies are anything but simple, transparent or consistent.

That said, their increased focus on investments in companies based on environmental, social and governance (ESG) and corporate and social responsibility (CSR) factors has proved popular and commercially successful. Total inflows into responsible investment funds accounted for more than half of net £1.6bn of new client money in the UK in July.

But to dismiss all this as “no more than a fabulous marketing wheeze” is a bit unfair – even if, as Hosking says, some fund managers privately admit as much. In fact, institutional investors have been highly instrumental in moving ‘purpose’ higher up the corporate agenda.

More and more of them are using their considerable clout as owners to encourage and ensure better policies and outcomes, not just for the companies they invest in, but for the communities they serve and the wider environment.

And it’s not just shareholders who are leading the charge. Increasingly, other stakeholders are weighing in, too.

We know from our own Brands in Motion research that 74% of consumers expect brands to take a stand on important societal issues such as Black Lives Matter and climate change, at both global and local levels. 

Brands, in turn, need to live up to their purpose, both in what they say and what they do. Those who don’t ‘walk the talk’ will be called out and their reputation diminished. But as with any pendulum swing, a balance needs to be struck. Profit and purpose are not polar opposites.

As a former chief executive of the Co-op, the UK’s largest consumer co-operative with nearly five million active members, was fond of saying: “There’s no point being the most ethical company in the corporate graveyard.”

‘Greed,’ or at least the pursuit of making a fair profit, and ‘creed’ can go hand in hand.

 By Patrick Tooher, Director at WE Communications