Though it is not always easy, big firms that aim to produce outcomes beyond company profit tend to find that profits actually improve after social responsibility goals become part of the core firm mission.
More than 2,000 academic studies have examined the impact of environmental, social, and governance propositions on equity returns, and 63 percent of them found positive results, versus only eight percent that were negative.
About 93 percent of U.S. Fortune 500 CEOs believe their companies should not mainly focus on making profits to the exclusion of other social goals. That makes sense. What executive from a Fortune 500 company would say anything but that, in an age when customers and employees say they care about many outcomes from large firms, beyond maximizing profit?
That is not the point. The point is what happens if such goals become a core part of the company mission, allowing pursuit of profit to remain in place, but also adding other social outcomes as well.
Reality arguably lags, as you might guess. In the McKinsey survey of 1,000 participants from U.S. companies, 82 percent affirmed the importance of purpose, but only 42 percent reported that their company’s stated “purpose” had much effect.
Contributing to society and creating meaningful work, the top two priorities of employees in the survey, are the focus of just 21 percent and 11 percent of purpose statements, respectively.
To be sure, “there is a frustratingly simple reason why business leaders have struggled to square all these circles with coherent statements and credible actions: it’s difficult to solve, simultaneously, for the interests of employees, communities, suppliers, the environment, customers, and shareholders,” McKinsey says.
But McKinsey argues it can be done, while not damaging firm profits. Purpose can generate top line revenue growth (or serve as an insurance policy against revenue slippage) by creating more loyal customers, fostering trust, and preserving the customer base.
There is some evidence, McKinsey argues, that 47 percent of consumers disappointed with a brand’s stance on a social issue stop buying its products. Perhaps 17 percent will never return.
Also, purpose-driven environmental stewardship can reduce costs. In some cases, companies gain because energy and water consumption fall as a result of stewardship activities, for example.
Some results can be hard to quantify, but purpose can unleash employee potential, helping firms win the war for talent, retain the best people, and boost employee motivation.
Perhaps 66 percent of millennials take a company’s social and environmental commitments into account when deciding where to work, for example.
Purpose also can make management more aware of shifting external expectations, policy directions, and industry standards, helping identify risks management might otherwise miss.
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