The Dangers of Purpose-Driven Business
Finance Matters is the Lab’s newest programme of work – supporting finance professionals who are committed to transforming their industry from within their institutions. This blog continues to share some of the thinking behind how we’re approaching this work. You can read the first blog in this series here.
We need to talk about purpose.
As the Karrakins Group describes it: “Purpose is the answer to the question: “Over and above making money, why does our organisation exist?”
We’re hearing the ‘p’ word a lot in finance at present:
- Larry Fink, Chairman of Blackrock, has called on CEOs to ensure their organisations serve a social purpose: “Without a sense of purpose, no company, public or private, can achieve its full potential”
- Purpose in financial services is a key pillar of the FCA’s 2019 business plan
- Challenger banks are basing their entire brands on a sense of service to society.
This is really exciting, but I’d like to suggest that we need to be very clear about what we mean when we talk about purpose, otherwise there is the very real risk that it is all just talk which changes very little in practice.
INTENDED VS ACTUAL PURPOSE (VERTICAL ALIGNMENT)
While a company can easily state what it believes its purpose to be, systems theorist Donella Meadows introduces an extra dimension: “A system’s function or purpose is not necessarily spoken, written or expressed explicitly, except through the operation of the system. The best way to deduce the system’s purpose is to watch for a while to see how the system behaves.”
So from this, we can say that there is a difference between the intended purpose of a company i.e. its mission statement or corporate purpose, and its actual purpose i.e. how it operates in reality. Let’s call this ‘vertical alignment’. If you are a finance professional seeking to create positive change from within your industry, then seeking to close the gap between the intended and actual purposes of your organisation is the primary work to be done.
THREE SCALES OF PURPOSE (HORIZONTAL ALIGNMENT)
But there’s another dimension, too. Purpose is not just limited to the organisation as a whole. Purpose can be found at the scale of the individual, team, organisation, industry and society. It’s important for purpose to be aligned across these nested levels too – let’s call this ‘horizontal alignment’.
The purpose of an individual, their organisation and their industry won’t be exactly the same, but they must be congruent with one another. When they aren’t, problems arise – for individuals, organisations, the industry and society. Many of us have experienced this when our personal sense of purpose doesn’t align with how our organisational structures or culture encourage us to act. This can lead to dissatisfaction and demotivation for us as individuals, low staff morale and high turnover for our organisations and lack of public trust at the industry level. At the societal level, this leads to undesirable social and environmental outcomes such as financial exclusion and financing environmental degradation.
PURPOSE IN PRACTICE
To explore vertical and horizontal alignment in combination, we can look at the example of a sales manager in the current account business at a large retail bank.
In this case, the intended purpose of the individual, their organisation and their industry are well-aligned (though this isn’t always the reality in practice). But the actual purposes expressed at these three scales have varying levels of vertical and horizontal alignment with one another.
THE DANGERS OF PURPOSE
Walking the talk of purpose at the individual, organisational and industry levels has tremendous power to ensure finance is an enabler of a thriving world. However, there are several dangers of using the language of purpose, but not striving for horizontal and vertical alignment:
- Self-serving purpose: A company can declare any intended purpose it wants, not necessarily one that aims to benefit people and planet. For example: banks that declare their purpose is to create the best outcomes for their customers omit responsibility for those in society who are not their customers, especially those who are deemed too expensive to serve. It is critical for organisations to establish an intended company purpose that acknowledges its role in wider society. Identifying this can be complex and contested, but the UN Sustainable Development Goals are a helpful place to start as they broadly represent our collective vision for the world.
- Purpose-washing: Where a company does state an intended purpose that acknowledges its role in wider society, this may not always be accompanied by an intention to deliver on that purpose. If we only talk about purpose as what we intend for our organisation to achieve, without bringing our core operations into alignment with this, then we change nothing. For more on this, here is a great resource by the Karrakins Group on purpose-hawking vs purpose-aligned business.
- Compartmentalisation: Too often, purpose is limited to CSR strategies, social innovation teams or dedicated ESG funds. When we seek to align intended and actual purpose in only a small part of our organisation, we limit its impact severely and miss out on the broader strategic benefits. (You can read more about this in our previous blog on what it takes to embed purpose in business as usual.)
THE POTENTIAL OF PURPOSE
Despite these dangers, many financial institutions are successfully aligning their intended and actual purpose at the organisational level and encouraging their people to do the same. Many are part of the Global Alliance for Banking on Values. Take Ecology Building Society for example, which actively seeks to align its business activities with its intended purpose of promoting sustainable development – from discounting its mortgages in line with the carbon impact of properties through to the design of its office headquarters.
At Finance Matters we support intrapreneurs within finance to clarify their own personal purpose and to influence their organisations to align core operations with the long-term needs of people and planet. The reality of creating purpose-aligned business is messy, complex and deeply human. We aim to connect changemakers with one another and build their capacity to lead change from within, so that together we can ensure the finance industry really puts its money where its mouth is.