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Purpose identified as driver of improved performance and culture

Out-Law News | 10 Dec 2021 | 2:39 pm | 3 min. read

Businesses that develop, and align themselves behind, an authentic purpose can improve their organisational culture and achieve a competitive advantage, but as more organisations consider becoming purpose-led, investment is needed in tools to measure its impact, experts have said.

Tom Leman and Liam Wardley, who are driving Pinsent Masons’ transition to being a purpose-led professional services business with law at the core were commenting after the UK’s corporate governance regulator, the Financial Reporting Council, published a new report aimed at promoting good practice and positive working culture in companies (43-page / 3.12MB PDF) and identified the importance of purpose in achieving that.

Leman Tom_November 2019

Tom Leman

Partner, Head of Retail & Consumer

An authentic purpose, one which is truly lived, breathed and experienced by your people, is paramount if purpose is going to translate to competitive advantage  

In its report, the regulator said that it has seen increased emphasis on organisational culture across the UK business community in the past five years, citing increased reporting on issues around purpose, values and other culture-related initiatives in companies’ annual reports. Many organisations, it said, had “taken an opportunity to re-evaluate their strategy, structure and organisational culture, mainly their approach to people – as their key resource” during the Covid-19 pandemic. However, it warned that “culture is not static” and requires regular review. Some companies are failing to check whether “underlying policies and practices, as well as promoted behaviours, are in line with corporate purpose, values and strategy”, it said.

“When companies state that their organisational culture is important for success, action and policies must demonstrate this,” the FRC said. “Committed boards need to build cultural activities into business as usual rather than undertaking one-off exercises for the purpose of box ticking. Ineffective initiatives or delayed or no follow-up actions, even if purely down to poor administration, will likely have an adverse effect and lead to being accused of ‘culture washing’.”

“By assessing and monitoring culture it is possible to establish the current situation and determine what actions if any need to take place. Any changes need to be implemented and embedded into the organisation, before moving back to assessing how the change has been received and monitoring culture once again,” it said.

The report identified how important purpose can be to an organisation’s culture. The FRC said that “having a sense of purpose” can help business leaders foster an internal culture where there is “open and honest engagement” and better teamwork. It said that it wants to see “high performing companies that are purpose driven and foster the conditions that create value for society, where the quality of relationships is important to the board and essential for success”.

Leman and Wardley of Pinsent Masons said that developing a purpose requires broad consultation within the business and with external stakeholders, and that its implementation should be measured to quantify success and enable any changes in underlying policies and practices to be made.

Leman said: “An authentic purpose, one which is truly lived, breathed and experienced by your people, is paramount if purpose is going to translate to competitive advantage. Clients or customers, employees and the rest of the world will quickly call you out if no one believes your purpose or, importantly, sees it in action. Similarly, they will also cry foul if your reason to exist is to drain resources, whether that be your people or the environment, or purely to make profit,” he said.

Wardley said: “A great first step to identifying an authentic purpose is to ask your people, your clients or customers, your supply chain and your communities what is special about working with you and why they continue to work with or buy from you. It is from this data that your purpose will emerge.”

“A purpose should not be created in boardrooms without the input from wider stakeholders. Boardrooms, as the FRC say, have an incredibly important role in ensuring that purpose is activated in an organisation and should set up the necessarily processes, ways of working and tone to enable it, but it should be something everyone can contribute to the formation of. That makes it a shared purpose, which people can buy into,” he said.

Wardley said that the FRC report has highlighted the impact that a positive culture can have on organisational success but added that measuring that impact is challenging. He said measuring impact can not only help quantify how the pursuit of a purpose contributes to the organisation’s performance, but also whether the business remains aligned behind its purpose, whether the purpose remains right for the business, and to address any accusations of ‘culture washing’.

“I think that more organisations should be investing in measuring the impact that purpose has on their organisation and start quantifying the measures. We know from our experiences at Pinsent Masons the value to be derived from working with organisations like Inspired Companies to define and embed our purpose and with Contexis to measure the impact it is having,” Wardley said.

Information on Pinsent Masons’ transition to becoming purpose-led is available online. For more details, please contact head of impact and strategic delivery, Liam Wardley, at [email protected].