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Join us for this deep dive into Purpose. As we discuss the qualities of a compelling Purpose, a H.E.A.L.I.N.G. purpose, how do you make it matter inside the organisation and what is the role of the Board of Directors.
Frankl, V. E. (1984). Man's search for meaning: An introduction to logotherapy (6th Edition). New York: Simon & Schuster.
Kay, J. (2010-2013). Obliquity: the roundabout route to success. Management Today.
Kay, J. (2020). Change and obliquity: how to achieve complex objectives through indirect means. LSE Business Review. The London School of Economics and Political Science.
Spence, R.M.Jr., Rushing, H. (2011) It's Not What You Sell, It's What You Stand For. Penguin Group.
Timothy: Hi, everybody. Welcome back to the Conscious Capitalism podcast number three, where Raj and I dive a little deeper on what we mean by purpose and the importance of purpose in business. Hi there, Raj. How are you?
Raj: Hi, Timothy. Good to see you again.
Timothy: Good to see you again. Last time, we talked about purpose. And I think one of the questions that has come back is how do you know if you have a good purpose? Like we described it at some levels in terms of impact. We talked about some levels in terms of the platonic ideal of the good, the true, the beautiful, and the heroic. But if you were to build on that a little further and sort of say is there anything else that people ought to be thinking about in terms of - do we have a good purpose?
Raj: Yes. So, I have over the years developed an acronym as I have thought about what are the qualities of a compelling, powerful purpose. And it ultimately gelled into this word ‘HEALING’, right? That a great purpose is ultimately a healing purpose. And first, let me talk about what it stands for, right? What are the different qualities that are embedded in there. So, healing stands for Heroic, first of all. So, a great purpose is heroic in the sense that it is trying to do something worth doing and it is not a trivial thing to do. It is not easy, right? So, given the scale of the company, it is heroic. You know, it could be something that is, you know, you have to stretch to get there. If you are a larger company, the definition of heroic changes, of course. And you almost can change the world, right? So, it has to match. But again, at every point in time, it remains heroic.
Timothy: Well, I recall John Mackey bringing it up when we were talking about the platonic thing. He said, “Well, you know, I think that the mission or the purpose of Whole Foods is heroic. We are trying to change how people think about food.”
Raj: That’s right. And when you do that, you change everything. You change the health care system because that impacts our health. You change a lot of things. You change our soil. You know, you change our food production. Lots of things happen. So, it is heroic. But then connected to that, it is Evolving. It evolves as we evolve as a company. As the needs of the world and what are the imperatives out there change, our purpose can also evolve. So, purpose is not a fixed thing forever, you know. It grows. It is an organic thing. So, that is Heroic. Evolving. And it is Aligning.
I think one of the most powerful impacts of a purpose is that it aligns all of the stakeholders together. Because when you don’t have a shared purpose, then you are literally at cross-purposes. What is the default purpose of a business? Maximizing profits, right? Therefore, an employee of that kind of a business will say, “Okay, I need to look out for myself. I need to maximize my profits.” Right? What does that mean? I need to get paid as much as I can, and I need to work as little as possible. Customers say I need to maximize my profits, which means get the lowest price every time. I have no loyalty to any company. I just become very transaction oriented. Suppliers say I want to maximize my margins, right? Cut corners where I can. Charge them as much as I can. Society says I want to tax you as much as possible because everybody else is maximizing their profits from this business, why should we not. Everybody becomes a taker from this system, right? And in any interconnected, interdependent living system, if every part of it is just sucking out from the whole, ultimately that system will bleed to death. It will die, right?
Whereas, when you have shared purpose and shared values, everybody becomes a giver to that system. Customers say I want Whole Foods to succeed. Employees, you know, investors, everybody cares about the flourishing of that entity, right. And we say, in order to win, win, win, we have to give, give, give. And of course, there is sort of a spiritual principle. The more we give, the more we receive, right? But if we are all about taking, you know, then ultimately, we are going to destroy the thing. So, aligning all stakeholders together is one of the most impactful things.
Timothy: I think that is just so important when you start to look at one of the powers of purpose. You know, often we focus on it in terms of customers and the brand promise, and you know, customers being attracted to brands with purpose. And we know that there is good evidence that that actually is important. If you have a brand purpose that is well stated and you follow up with delivery of that product or service, there is a real benefit there. We know that it is important internally because we know of the great places to work and those kinds of what we call conscious cultures really do create a level of motivation and performance that are higher. But I love this third aspect of the stakeholder and the alignment of the stakeholders around it. Sort of a true north.
Raj: Right. So, it aligns... So, it glues us together because we all care about the same thing, right. And it points us in the direction, right? So, it gives us a beacon, a north star to aim towards.
The fourth is Loving. The fourth quality. A great purpose, true compelling purpose is rooting in love and care. It is rooted in our good will towards other human beings and wanting to elevate their lives. That is a fundamental drive. It is not rooted in fear. It is not rooted in ego, right? It is not rooted in power dynamics.
Timothy: Yeah. Yeah.
Raj: And all of that, right? It is loving. And then, it is Inspiring.
Raj: It really does motivate people in deep ways. And wow, it is not, I don’t have a job. I have got work to do in the world. This is my impact. This is my legacy. This is the impact that I am going to have, you know, after I am gone. And then, Natural. It is natural. In other words, that purpose makes sense for this company to be doing. It is natural. It is a fit for them, right? It is not out of left field to say: we’re about curing world hunger even though we are running a bus company, here. So, it is natural, but also, it is in harmony with nature. We are not going against nature, right? We are in harmony with nature. We are working with nature. And then, the last is Galvanizing. It moves us to action. There is a sense of urgency. As Martin Luther King said, “There is a fierce urgency of now.” You know, it is later than we realize in the world in so many dimensions. And whatever our purpose is, it has to have that sense of urgency to it. So, those are the qualities of a great purpose.
Timothy: I love that. And you know, it is interesting, because I think that you have articulated in a very beautiful way why purpose matters or means things to people.
You know, I think that when you bring that up about the power of purpose with people, I think that that is the other thing that you are so right about. Can you make purpose matter inside the business? So, if I was going to add a fifth category, I would add it there and sort of say, you know, do we make purpose matter within the business. And what does that mean? Well, for me, it means a couple of things. One, it means that we have made it relevant to people. That is, at some level, they can understand how their day to day role in the business connects to the purpose of the business. And I think the second element is that it is meaningful. I mean, they can absolutely see how, for the business we are in, this purpose is a good fit. So, is it meaningful? Is it relevant to me? And then the third one I would put in is it credible? Do I, as an employee at whatever level I am or as a team member, do I see the senior leadership of the organization walk the talk on purpose? Are they walking the talk? Are they communicating clearly about the purpose regularly? And are we making decisions inside the business based on that? So, that would be my fifth pillar, so to speak, on purpose.
Timothy: And I think when you pull all of those together, you look for a meaningful purpose that is then articulated well in terms of meaning, relevance, and credibility, you are starting to get traction inside the business.
And then, there is the reverent skeptics out there who are like, “Well, that is a really interesting idea.” And I think that that is what we sometimes call the paradox of profit. It is that despite these ideas seeming at one level to be idealistic, at another level they are very practical in the sense that there are clear economic benefits to companies that are highly profitable. I remember that was part of the whole conscious capitalism movement starting was what is interesting about these companies that are high performers or are in Firms of Endearment, what really got you interested in what eventually was, what, a 7X level of performance that existed?
Raj: Well, it was 9X in the original sample of 28 companies, of which 18 were public. So, we have the data on their financial performance in terms of returns to investors. It was 9X over a 10-year period. And important to point out that we did not select those companies based on performance and then looked at what they did. We selected companies based on what they did, right? They had the sense of purpose. They cared for and loved all of their stakeholders and had leaders who cared about the people and the purpose. And they had cultures that were rooted in trust and caring.
And then, once we had a list that we had companies that solidly fit in those categories, then we said, okay, how did they do financially. And we weren’t really expecting to be blown away by them. We said, you know, these companies are not profit maximizers. They are actually trying to take care of their people and they are trying to achieve a purpose in the world. So, they are not resolutely focused on this one thing. And our mental model is that if you want something, you resolutely go after that thing, right? But, profit, like happiness, is one of those things that is best pursued obliquely. I think John Kay said that once, right? You pursue certain things obliquely. There are thinks that you do, like Viktor Frankl said, happiness ensues. It is the outcome, right? So, what we found, we expected that they are paying their people better, in some cases double, right? Like Costco or Walmart. They are providing much better benefits and are investing in the environment and their communities. They are paying their suppliers well. They are paying taxes at a higher rate. So, maybe there is less left over at the end of the day. And what we found was that they dramatically outperformed. And that led us to go back and say, how do we explain that? I mean, they are not printing money in the basement, right? So, what is going on here?
And then, if you think about it, it is very logical. You have got employee engagement in these companies in 70, 80, 90% in many cases, where the average globally is, I think 18% or 15%, right. You have got customer loyalty that is bordering on fanatic without a marketing budget, right?
Timothy: Yeah. I always thought that was so interesting. I remember when you first brought that up and you said… and we talked with John Mackey at Whole Foods and sort of said, “What is the marketing budget? The advertising budget for Whole Foods?” What is it for Albertson’s, you know? Seven, eight percent? And it was like, well, if you are not paying more than 1% for your marketing budget, you are paying 8%. You know, that money goes immediately to the bottom line in a sense.
Raj: Yeah. Whole Foods was 90% below the industry average at that time in marketing. They didn’t have a Chief Marketing Officer. They didn’t have an ad agency, all of that, right? So, you save money in areas where it doesn’t add value. Employee turnover, you know, lots of sales and promotions and ad campaigns and so forth, which are not necessary in all cases, right? Often there is overkill on that side. People are trying to buy trust and loyalty. You can’t. You have to earn it. Right? So, you save money in those areas and you actually spend money where it actually makes a difference. Providing benefits, providing better pay, paying your suppliers so they can be actually innovative and profitable, and you know, and investing in communities and so forth.
Timothy: Well, we have really seen that during the coronavirus, you know. In a sense, when you get into companies that are really living their purpose. And some of them are looking out there and sort of saying, okay, what is happening with our suppliers. And how have we lived our purpose now? How have we lived it with our people? Do our people feel that we have been consistent with our purpose? Or are we really discovering that the first cost they cut is people? Have they tried to be more creative and say, listen, we are going to try to delay layoffs as long as we can? We will take pay cuts, but we are all going to be in this together and look for ways in which we can save money and lower costs, so we save everybody’s job. But that takes, you know, that people are aligned and believe that the purpose is something, as you said, that aligns and binds.
Timothy: And now we start to see. What was it? Warren Buffett said, “when the tide goes out, we see who is swimming naked”.
Raj: That’s right.
Timothy: Right now, we are seeing a lot of like, okay, well that is really interesting. How does Southwest Airlines respond versus how does British Airways respond in terms of, we are going to lay off a third of our staff. We are not going to, you know, pay them extra for working in trying times, etcetera, and we have seen that in a number of different cases. You know, I mean, one company where they have turned around and sort of said, listen: we recognize that our small suppliers are going to really be hurting during this period, so we are going to accelerate our payments to our suppliers. So, rather than the regular 30 days, we will try to get money to you, and maybe even look at some loans in advance for future work and keep the smaller suppliers able to survive over the longer term. So again, the coronavirus time has been a really interesting time in terms of testing whether these purposes are real and how people are trying to deal with them. What is your favorite example right now from what is going on? Coronavirus? Companies that you have seen that you really think have done a great job?
Raj: Well, I think Southwest Airlines is a good example because, you know, part of caring about your purpose and your people is building a resilient enterprise that can survive these kinds of downturns. And Southwest Airlines, unlike American, Delta, and United, did that. You know, those companies used most of their profits in the last decade to buy back their own shares and pay out dividends and borrowed heavily in order to do that, in addition to their own profits. And as a result, their balance sheets are incredibly weak. Which means when the market turns down in this way, they can’t survive more than a few weeks without a government bailout. Literally, they would be in bankruptcy. Whereas, Southwest Airlines didn’t do that as they built up. So, part of I think this idea of being a conscious purposeful business which puts people at the center is building a business that can endure and survive these kinds of situations.
Timothy: Well, you know, I think it is also really interesting as we look forward, you know, what is the role of the Board of Directors in guiding a business in this space. Because, you know, at some point the Board has to be able to say we are on board with this purpose and therefore we are aligned around this.
Raj: Yeah. Yeah. That is very important.
Timothy: And as we look forward, you know, one of the things that I am pushing for is on my wish list, is that if you said, you could hope the Board gets involved, or you could start to put pressure on boards, just like they are feeling right now with ESG, that they have got to say something about what our purpose is. And for me, there are sort of three grades to that. The first grade is that the Board, just with their annual report, there is a purpose statement, you know? Let’s just meeting Larry Fink’s minimum standards around purpose and state we have one. And that the Board, every year, puts in a statement. This is our purpose. The second level would be, and then they put in a paragraph or two about how they are living the purpose. So, this is how we are manifesting it. So, not only do we have this purpose, but we are living it. And we are going to have at least a narrative or commentary on it. And then ultimately, be able to describe what is the impact and start reporting on some metrics and targets that we have actually set out there for the corporation. And we, as your stewards, as your trustees, are ensuring that the organization not only has a purpose statement, not only is trying to live it, but is actually living it in a measurable, impactful way.
Raj: And I think there has to be intrinsic motivation on the part of the Board members as well. It is not just a check off or, you know, responding to pressures that they are feeling, but everybody there must care about that purpose at some visceral level, right? Otherwise, I think what happens in many companies, you have a CEO and they do the whole purpose thing, and the Board says, okay, okay, that’s fine as long as the numbers are good. And then, the next thing you know, they replace their CEO with somebody who is better at delivering numbers and, you know, the purpose is out the window, right. So, it has to actually be deeply embedded in the psyches of the Board members. We need to actually recruit Board members who are purposeful and care about what this company is doing.
Timothy: Well, of course, the irony is that when the Board is or does have a majority of people like that, the criteria for hiring the next CEO becomes pretty clear, you know? Are they aligned around purpose? And, you know, there may be a lot of other great skills they have, but are they a fit for purpose within this business? So, it is quite interesting in terms of that dynamic between the Board and getting enough members on the Board who believe this to get the Board to swing to a place that becomes one, an important topic that the Board is talking about on a regular basis, and then two, when they look for the next CEO, that is one of the critical criteria. And then, that leads to what was one of the core questions within our whole conscious capitalism movement, which is how do we change the narrative around business? Because what we are really talking about is what kind of Board members do we have who feel that it is important for them to have a narrative or to describe the business in terms of its purpose and being proud of the fact that they are on a board of a company that has a strong purpose.
Raj: Yeah. That is what our movement is all about. It is to create more purposeful, healing organizations.
Timothy: There! Well, thanks Raj, as always, for your time. And thank you, everybody, for listening in. Again, any thoughts, comments, feedback, go to theconsciouscapitalists.com. That is theconsciouscapitalists.com. And don’t forget to hit the subscribe button on this podcast. Thank you so much. Thanks Raj!
Raj: Thank you, Timothy. See you soon.