Principia Advisory

Bridging the gap between purpose statements and reality

9th June 2022

A clear purpose statement can make a business stand out from its competition – but what makes a statement become more than just words? Principia’s Kinanya Pijl shares her advice on how to put purpose statements into practice.

 

Purpose statements don’t come much clearer than that of Dutch ethical chocolate company Tony’s Chocolonely, which states: “Together we’ll make chocolate 100 per cent slave-free. Not just our chocolate, all chocolate worldwide”.

Yet the brand is equally as clear about the limits of its success in this mission. Its latest Annual Fair Report admits that it has found examples of child labour in its supply chain – but explains how highlighting this is a key step towards prevention.

Although the annual report includes a financial statement, it primarily assesses business performance through the lens of the company’s purpose statements and vision for the future. It sets out the issues the organization has faced, what it achieved, and where it did not succeed.

Many organizations have similar purpose statements – but how many can say they are this honest about how they work in practice?

A central vision or empty words?

In the past decade, the idea that companies must demonstrate they serve a purpose beyond profit has gone mainstream. A purpose statement typically sets out a concrete objective as to how an organization will deliver profitable solutions to issues facing people and planet.

But so often, these well-thought through statements remain underutilised in the day-to-day decision-making processes within the company.

Through our work at Principia, we’ve found multiple instances where employees report discrepancies between corporate policy and observable practices on the frontline. When this happens, staff lose confidence in the relevance of their company’s core values – especially if they know these values tend to be overridden by market pressures or overlooked in commercial decisions.

At best, these discrepancies make corporate purpose statements appear like little more than a marketing exercise. At worst, they can tarnish reputations, such as when an organization is accused of hypocrisy or of hiding issues behind positive ‘spin’.

Purpose statements can also quickly lose their transformative potential when friction between a company’s core values is left unaddressed. For example, while many businesses express their commitment to creating value for clients, caring for employee well-being and delivering excellent results for shareholders, they often fail to address the inevitable tensions between these conflicting positions.

An ethics-based approach to purpose

Companies often find value and purpose statements are not specific enough to enable them to manage friction between interests or to highlight where trade-offs have to be made, unintended consequences may occur, and externalities need to be considered. For example, purpose statements alone are unlikely to be enough to help a pharmaceutical manufacturer make tough decisions about how to balance the conflicting interests of investors and patients in need, especially when a medicine is both in demand and in short supply.

Instead, a business needs a more fine-grained ethical decision-making framework to provide a structured way of navigating complex situations. This framework should have guiding principles to act as guardrails, and set out a shared language and agreed set of concepts for decision-making.

Some companies may prefer to agree non-negotiable minimum standards for all decision making, for example: “Our projects have no significant negative impact and no risks of significant harm”. These can be complemented by gold standards that set out best practices which align with the organization’s principles.

However, as friction is inevitable in all decision-making, such a framework must be complemented by a culture of deliberation where difficult conversations are encouraged.

Many companies provide training on their purpose, values and ethics in onboarding but few of them create space for deliberating grey areas in their day-to-day operations. Yet doing the ‘right thing’ is a capability that must be developed and trained – and which requires regular practice.

One way to nudge teams to practice ethical deliberation is to ask colleagues to bring an ‘ethical issue’ with them to weekly team meetings. This not only creates space for debate, but helps raise awareness of how our daily actions interplay with moral choices, encouraging us to re-examine old habits and to apply an ethics lens to our everyday work.

Embrace friction – and talk about it

In both internal and external communications, many companies run away from friction instead of towards it.

It is tempting to gloss over any difficulties and present an overly positive picture of corporate success. But complexities and vulnerabilities are both inevitable and expected in business. When adverse impacts are polished away, so is meaningful reflection and scrutiny – and purpose statements quickly lose their power.

Purpose-centric reporting – like that of Tony’s Chocolonely – is a step forward as it nurtures a culture of honest engagement and accountability. And in today’s world, where one in three consumers believe businesses should be doing more to address societal issues, this can only serve to boost a brand’s reputation.

 

Unsure where to start with implementing an ethics-based approach in your organization? Principia uses the latest academic research and proven practical insights on organizational ethics in order to support businesses and complex organizations to tackle some of their most pressing challenges.

Contact: Rob Hayward (rob@principia-advisory.com)

About the Author: Kinanya Pijl is a Senior Associate at Principia and Assistant Professor in Law at the University of Amsterdam. She specialises in sustainable finance and international responsible business conduct, and teaches company law, contract law and financial law at the University of Amsterdam. Kinanya aims to use her academic insights to help companies transform the way they do business.