Businesses change, but they must do it with purpose
Why does your company exist? What is its reason for being? Having a clarity of purpose is essential if a company wants to empower its people to bring about positive change.
It’s the business of business to change. Boards are tasked with it, employees need to embrace it. Stand still and you lose ground to your competitors. But be it a change to your branding or even the very nature of your operations, it’s important to know who you are and why you exist as a company.
It’s through this clarity of purpose that all other things can fall into place like creating a strategy to drive your company forward, mitigating the factors that put your business model at risk, and empowering your people to reach their collective potential.
Communicating that purpose with authenticity and transparency is just as important - doing so builds trust in everything you do while attracting the best talent to do it.
Communicating purpose is now an imperative
Communicating corporate purpose has been a pressing theme this year and it’s clear that many companies still struggle with how to discuss it in the annual report. But with the revised UK Corporate Governance Code, this will be a discretionary theme no longer, it will become an imperative.
A new provision effective January 1, 2019, will require boards to give more details than ever of their company’s purpose and values and how those details align with the company’s culture ultimately to build long-term value. Should there be a misalignment, the board will need to explain how it is taking corrective action to embed the right values that guide employees to make good, ethical decisions. So how do you communicate this in the annual report?
Communicating purpose in a genuine and distinctive way in an annual report is still a challenge for many organisations, but it can enhance reputation and trust with multiple audiences – including employees.
Here are some ways to communicate purpose, values and culture in the different sections of the annual report.
- Leadership statements – Considered by many as part of ‘the personality’ of the report, the Chairman’s statement could include a discussion of how the board shapes corporate culture and embeds the right behaviours and decision making at all levels; the CEO could include a discussion about how corporate purpose and culture impacts the strategy setting of the company.
- Business model - More than just an infographic, the business model should demonstrate how the company generates values beyond a financial return and include non-financial value delivered to wider stakeholders. Include a discussion of how corporate purpose drives the business both financially and in a broader sense and provide insight into how the company’s core values and culture build business resilience and impact the long-term sustainability of the company.
- Strategy – Instead of general statements of how culture is important to strategy, include data that provides evidence of the kind of culture the company has, such as employee turnover ratios over time, employee engagement rates or customer and employee satisfaction rates – then link them to specific strategic priorities. There is a growing consensus now that companies cannot just state it, but need to prove it.
- Corporate governance - Explain what the board and senior management is doing to embed or change the culture within the organisation. Relevant board committees should explain their actions in relation to culture. For example, in overseeing the executive talent pipeline, the Nomination Committee should provide insight into how corporate values are being ‘lived’ by senior executives. Include an explanation of what the board and its relevant committees are doing to measure/improve culture metrics like employee engagement rates, cooperation across divisions or resolution of conduct issues. Lastly, explain how remuneration is linked to the promotion of long-term value and a forward-looking culture.
More than worthy words
Establishing and communicating your company’s overall purpose is critical in embedding the right set of values, attitudes and behaviours.
It starts with leadership and trickles down to everyone else. Purpose and culture influences behaviours and decision making - in particular, risk management, and, ultimately, business performance. Reputation impacts your bottom line and being ethical protects your company. Communication is a crucial conduit through which to achieve this.
Articulating purpose, values and culture in the annual report is more important now than ever because beyond being worthy words, communication of these things establishes trust, transparency and authenticity – all of which are critical for long-term success.
Any financial report worth its salt needs to discuss the numbers. But it’s the culture and values that support these numbers that are now equally as important. The business of business is still to change – but with clarity of purpose.
Kay Kayachith, Investor Communications Adviser, MerchantCantos