Recent Analysis finds that 2 components are critical for successful Corporate Purpose projects.
The study analysed 429 companies, carried out proprietary research among more than 450,000 employees, and their findings are fascinating.
Here are just three of their most significant conclusions:
- A strong sense of Corporate Purpose does not lead to any improvement in Financial Performance on its own
Companies with a strong Corporate Purpose were judged by their employees’ agreement with statements such as “My work has special meaning; this is not just a job”; “I feel good about the way we contribute to the community” and “I’m proud to tell others I work here”.
Although such companies generated a strong sense of purpose among their employees, and created a workforce that was motivated and engaged, the study found that such companies “weren’t correlated with firm financial performance in either direction”.
In short, strong Corporate Purpose on its own has no significant effect on a Company’s Financial Performance.
But when Corporate Purpose is combined with one other critical Corporate quality, the effect is transformational.
- When Corporate Purpose is combined with Management Clarity, however, it significantly improves both Financial Performance and Stock Returns
In companies where strong Corporate Purpose was combined with Clarity of Management Leadership, there was a significant financial impact.
Management clarity was measured by employee comments like: “Management makes its expectations clear” and “Management has a clear view of where the organisation is going”.
The report finds that Companies which combine these two dimensions – Corporate Purpose plus Management Clarity – “exhibit superior accounting and stock market performance”.
In fact, the report found that “a portfolio of high ‘Purpose-Clarity’ firms earn significant positive risk-adjusted stock returns in the future, up to 7.6% annually”.
But it is not simply the combination of Corporate Purpose and Management Clarity that drives this dramatic change.
There is one more critical ingredient that drives Corporate Performance.
- ‘Middle Management Engagement’ is the most critical influence in the successful conversion of Corporate Purpose into superior Financial and Stock Performance
Not surprisingly, the research found that “the more senior the employee, the stronger is the perceived purpose of the organisation”, because most senior employees are more involved in the development of Corporate Purpose – and are often incentivised according to its principles.
More significantly, however, the research also found that “it is solely the middle managers and salaried professionals that drive the relation between high ‘Purpose-Clarity’ organisations and financial performance.”
This is because middle management drive the day-to-day decision-making that enables Corporate Purpose to be put into Corporate Practice.
Or, as George Serafeim, one of the authors of the report summarised – middle managers can become:
“Managers who buy into the vision of the company and can make daily decisions that guide the firm in the right direction.”
They convert Management Clarity and Corporate Purpose into day-to-day decision-making:
“This clarity enables the translation of purpose from an abstract idea to specific actions that employees have confidence will be recognised (and rewarded) by their superiors”.
Like many similar analyses, we see that grand statements of Corporate Purpose are worthless without real Employee Engagement translated into daily actions.
Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock.