21 Mar Corporate purpose definition: what is it all about?
Many people talk about it, often with long explanations and flowery words. But in a nutshell what exactly is a corporate purpose? Corporate purpose does not lend itself to a standard definition. However, the common corporate purpose definitions are largely similar, at best emphasizing different areas of a corporate purpose.
We have compiled an overview of well-known and less well-known explanations and, of course, our own definition. As with any discussion, it is important to clarify the question of corporate purpose beforehand: What are we actually talking about? Is there a common understanding?
Some authors emphasize the social and ethical responsibility of companies in their definitions. In their point of view, companies should show attitude and make a contribution to overcoming the major global challenges. In other definitions, the topics of identity and the creation of meaning come to the fore in view of the changed expectations of employees – also because an overriding sense can explain and drive transformation processes in companies well. Still other authors see value creation in the foreground of their definitions, because a brand purpose should not be an end in itself; at the end of the day, a company is also subject to economic constraints. But most authors do not play the different aspects of corporate purpose off against each other. Some even combine all criteria in their definitions.
In our experience, when the topic of brand purpose is discussed in companies, the various corporate divisions also bring different definitions of corporate purpose into the discussion:
- Marketing often sees corporate purpose as a sales argument with a view to customers.
- The HR department is concerned with conveying meaning to employees – it therefore often sees corporate purpose as an important component of employer branding.
- For communications, purpose is usually a question of reputation.
- The investor relations department sees purpose primarily as a requirement demanded by an increasing number of institutional investors. Here, you may think of purpose as a soft expression of a corporations ESG commitment.
- Top management and the corporate strategy departments often understand purpose as a driver of value creation and transformation processes.
Our holistic corporate purpose definition
“A purpose describes why an organization exists. It defines what it stands for and to what extent it can make a sustainable positive contribution to the value-creating coexistence of business, society and the environment.”
Other corporate purpose definitions that emphasize social responsibility
“The statement of purpose campaign urges companies to issue a statement of purpose to ensure better, more transparent and more socially responsible corporate governance. The statement is a simple one-page declaration, issued by a company’s board of directors, that clearly articulates the company’s purpose and how to harmonize commercial success with social accountability and responsibility.”
Eccles & Youmanns (2019): Statement of Purpose Guidance Document
“In its place, the CEOs of Business Roundtable adopted a new Statement on the Purpose of a Corporation declaring that companies should serve not only their shareholders, but also deliver value to their customers, invest in employees, deal fairly with suppliers and support the communities in which they operate.”
Business Roundtable (2019): Statement On The Purpose Of A Corporation
“Purpose is the statement of a company’s moral response to its broadly defined responsibilities, not an amoral plan for exploiting commercial opportunity.”
Bartlett & Ghosal (1994): Beyond Strategy to Purpose
Other corporate purpose definitions that emphasize identity and creation of meaning
“Purpose is the reason for doing something; the aim to which an action […] is directed.”
“Purpose is the reason the company exists not only materially and economically but also emotionally and spiritually. It is the enterprise’s unifying statement of commitment to customers, employees and the larger world it operates in. If a company’s brand positioning statement appeals to customers’ functional and emotional needs, then its purpose statement expresses the company’s soul, defining how it serves Customers, the Organization and the Rest of the World (its COR stakeholders).”
Randall (2016): How Brand Purpose Propels Brand Profits
“Purpose is a definite statement about the difference you are trying to make in the world. It´s your reason for being that goes beyond making money, and it almost always results in making more money than you ever thought possible.”
Spence (2009): It’s Not What You Sell, It’s What You Stand For: Why Every Extraordinary Business Is Driven by Purpose
“Purpose guides actions, unites employees and connects organizations to their stakeholders. It orients a company to a guiding ‘North Star,’ broadly influencing strategy and execution.”
Rosethorn (2019): Becoming Purposeful
“A higher purpose is not about economic exchanges. It reflects something more aspirational. It explains how the people involved with an organization are making a difference, gives them a sense of meaning, and draws their support.”
Quinn & Thakor (2018): Creating a Purpose-Driven Organization
“[…] we propose that a firm’s purpose can create value – beyond its social impact – by developing or strengthening employees’ identity and reputation. […] We define ‘purpose’ as a concrete goal or objective for the firm that reaches beyond profit maximization […]”
Henderson & Van den Steen (2015): Why Do Firms Have ‘Purpose’? The Firm’s Role as a Carrier of Identity and Reputation
Other corporate purpose definitions that emphasize value creation
“Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being – what it does every day to create value for its stakeholders. Purpose is not the sole pursuit of profits but the animating force for achieving them.”
“Purpose unifies management, employees, and communities. It drives ethical behavior and creates an essential check on actions that go against the best interests of stakeholders. Purpose guides culture, provides a framework for consistent decision-making, and, ultimately, helps sustain long-term financial returns for the shareholders of your company.”
Fink (2019): Larry Fink´s 2019 Letter to CEOs: Profit & Purpose
“Corporate purpose is the higher purpose of a company that goes beyond the sole profit orientation. The purpose is to define and deliver a long-term value-creating promise, either in the company’s local environment or in the global market environment, that is directly related to the company’s value creation.“
Bruce & Jeromin (2020): Corporate Purpose – das Erfolgskonzept der Zukunft
“The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society, and legitimize business again as a powerful force for positive change.”
Porter (2011): Creating Shared Value
What the different corporate purpose definitions have in common
If one looks at this collection of different, but overall often quite similar definitions it becomes clear: from the point of view of most authors, a corporate purpose describes the identity of a company. It represents the reason for existence, the big why of a company, its objective. It explains the philosophy behind the business model, the meaningful essence of the company and the guiding maxim for every economic action of the organization. Simply put, purpose is a definitive statement about the difference a company is trying to make in the world.
A purpose statement articulates how a company strives to harmonize commercial success with social accountability and responsibility. This requires the company to recognize and be transparent about its most significant stakeholders. An authentic brand purpose goes beyond having a compelling corporate social responsibility initiative or a shared value strategy for a product or a service. An authentic purpose can be seen across all company’s operations.
The benefits of brand purpose
A company’s purpose has the power to engage and inspire employees, generate customer loyalty, and help businesses chart a course for sustainable, meaningful growth. Because the fact is that the economic system, we have lived by for many decades, is threatening the very basis of life on our home planet. Future-oriented companies are developing into networked organisms that demonstrably also bear responsibility for the common good. Those who shirk their responsibility could soon find themselves very much alone. Because as an employee, you can determine who you advance with your work and how. And as a customer, you can decide who you support – and who you don’t.
A corporate purpose can enable a responsible culture of doing business – with ideas for innovation, newly developed markets and broader target groups. Corporate purpose is a corporate philosophy, a management and steering tool for the entire activities of a company. In summary, most authors understand a corporate purpose as the formulated assumption of responsibility for economic activity in the environment of all stakeholders, users and also non-users of the service provided by the company.