Building Corporate Soul

The following is an excerpt from Building Corporate Soul, by Ralf Specht, available February 22, 2022 from Fast Company Press.

Praise for Building Corporate Soul

“Building Corporate Soul shows how twenty-first-century leaders can transform their companies into inspired communities.”

— Adrian Hallmark, Chairman and CEO, Bentley Motors

“Culture is everything — Building Corporate Soul provides an actionable framework to build a culture at the workplace that is both human centric and success driven.”

— Aaron Hurst, CEO, Imperative and author of The Purpose Economy

“Ralf Specht brings together practitioner realism with the theory of an academic into a new framework for building corporate soul. Never has there been a time more important for corporations to take note; as the boundaries between personal and professional, human and business, purpose and profit become less defined. Building Corporate Soul is a trusted guide for this journey.”
— Charles Trevail, CEO, Interbrand

CHAPTER 1

The Corporate Soul

Understanding and behavior are the two sides of the coin that allow corporations to establish and nurture their soul.

Chapter Goal:

Understand the critical dimensions to building corporate soul.

“I am the master of my fate; I am the captain of my soul.” William Ernest Henley’s famous line from his poem “Invictus” provided inspiration and energy to Nelson Mandela during his twenty-seven years in prison. Mandela read it again and again to remind himself that it was he who was the “captain of [his] soul.” It helped him to understand that it was up to him to frame his perception of himself, inside and out.

What is true for individuals is also true for corporations. Their leadership teams are the masters of their fate; they are the captains of the soul of their enterprises. But what do they need to embrace to drive that soul for the best of their enterprise and all of their stakeholders? There is no answer to this question without clarity of purpose. Being clear about your business’s purpose is the foundation for it to develop, build, and grow its corporate soul.

What Is Corporate Soul?

From my experience of working in a few companies and for quite a few companies and brands, I strongly believe that corporate soul is the ultimate currency of success. It is a function of aligning both corporate understanding and behavior around a purpose that is inclusive to all stakeholders—by “simply” ensuring that all three levels are a shared property of the firm and its people.

That shared purpose allows a company to develop a shared understanding of what drives that company and its people, as well as the corresponding shared behaviors that reflect that shared understanding.

As a result, shared understanding and shared behaviors are inextricably linked in building the soul of a company and its brand. If corporations walk the talk—meaning that they behave on the basis of shared understanding—then you find companies with soul. As the social philosopher Charles Handy said, “The companies that survive longest are the ones that work out what they uniquely can give to the world, not just growth or money but their excellence, their respect for others, or their ability to make people happy. Some call those things a soul.” This was a new perspective that Handy introduced in his 1989 book The Age of Unreason. Until then, a different view had been predominant in the world of business. Handy, who has been rated among the Thinkers50, a private list of the most influential living management thinkers, was one of the first who understood that soul might also be a relevant attribute when it comes to corporations.

In September 1970, Milton Friedman wrote about shareholder value in The New York Times Magazine in an article titled “The Social Responsibility of Business Is to Increase Its Profits.” In 1997, the Business Roundtable (an influential thinktank of two hundred CEOs from the largest and most influential companies in the United States) formalized the Friedman approach with this definition of corporate purpose: “The paramount duty of management and of boards of directors is to the corporation’s stockholders. The interests of other stakeholders are relevant as a derivative of the duty to stockholders.” It wasn’t until 2011 that this perspective began to change. That year, Michael E. Porter and Mark R. Kramer published their article “Creating Shared Value: How to Reinvent Capitalism—and Unleash a Wave of Innovation and Growth.” It was an academic perspective coming a few years after the 2008 financial crisis, but it created the basis for what was to come.

Fast-forward to 2018 when Larry Fink, CEO of the world’s largest asset managing company BlackRock, first introduced the concept of Purpose in his annual letter to CEOs. In 2019, he reinforced his position when he wrote to CEOs again. This time, it got him headlines in the business press all over the world: “Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose—in fact, profits and purpose are inextricably linked. Profits are essential if a company is to effectively serve all of its stakeholders over time—not only shareholders, but also employees, customers, and communities. Similarly, when a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability. Purpose unifies management, employees, and communities. It drives ethical behavior and creates an essential check on actions that go against the best interests of stakeholders. Purpose guides culture, provides a framework for consistent decision-making, and, ultimately, helps sustain long-term financial returns for the shareholders of your company. The World Needs Your Leadership.”

Fink would not have made purpose the key element of his letter if he were not completely convinced that it was the right path. The fact that he was convinced was no real surprise—because he is a member of the Business Roundtable. When this group revisited the topic on August 19, 2019, they came to a different conclusion compared to the one in 1997. They prioritized creating value for customers; investing in employees; fostering diversity and inclusion; dealing fairly and ethically with suppliers; supporting the communities in which they work; and protecting the environment over prioritizing the corporate stockholders. Alex Gorsky, board chairman and CEO of Johnson & Johnson and chair of the Business Roundtable Corporate Governance Committee, summarized at the time, “This new statement better reflects the way corporations can and should operate today. It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”

Statement on the Purpose of a Corporation

Published by the Business Roundtable, August 19, 2019

Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment, and economic opportunity for all.

Businesses play a vital role in the economy by creating jobs, fostering innovation, and providing essential goods and services.

Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications, and other services that underpin economic growth.

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:

Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.

Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity, and respect.

Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.

Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.

Generating long-term value for shareholders who provide the capital that allows companies to invest, grow, and innovate. We are committed to transparency and effective engagement with shareholders.

Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities, and our country.

What a change — with this influential group of leaders it becomes very likely that we will see change happening in the right direction. When you compare the two concepts the obvious question is not “if ” the stakeholders are being considered (as they are as well considered in the shareholder-value approach), but “how” they are being considered.

In 2020, Ernst & Young (EY) sponsored a survey of 474 global executives conducted by Harvard Business Review Analytical Services. The resulting report, called “The Business Case for Purpose,” provided very clear results, stating that “there is near-unanimity in the business community about the value of purpose in driving performance.”

But is everybody walking the talk? Apparently not. The survey results went on to say, “Less than half of the executives surveyed said their company had actually articulated a strong sense of purpose and used it as a way to make decisions and strengthen motivation.”

It gets worse. EY concludes from the data that “only a few companies appear to have embedded their purpose to a point where they have reaped its full potential.” It is fair to say that only a shared purpose can become an embedded purpose.

One company, however, that understands the importance of shared purpose is Unilever. In the spring of 2020, Unilever’s CEO Alan Jope gave a remarkable response in an interview with Bloomberg Businessweek in the context of the COVID-19 pandemic outbreak. Jope was asked how he navigated between profits and doing the right thing, given the current circumstances.

He responded, “I think if you frame the recovery as economy vs. health, it’s a false framing. In the same way, we shouldn’t talk about purpose over profits. And I really hate to set up some trade-off on purpose vs. profits.” His words demonstrate real leadership in action:

• positioning the various brands on doing real good
• making sustainability a key element of Unilever’s supply chain
• pushing the firm’s policies in the area of being a responsible employer

Unilever is one of the companies in the Firms of Endearment Index that professors Raj Sisodia and Jag Sheth, as well as customer behavior expert David B. Wolfe, have created. They assess performances of companies that fit defined criteria based on qualitative metrics, such as companies that subscribe to a purpose that is different from and beyond making money and actively aligns with the interests of all stakeholder groups. Their analysis drew an antipode to the Good to Great approach from Jim Collins, which focused on a company’s financial characteristics. Their view: “Today’s greatest companies are fueled by passion and purpose, not cash. They earn large profits by helping all their stakeholders thrive: customers, investors, employees, partners, communities, and society. These rare, authentic firms of endearment act in powerfully positive ways that stakeholders recognize, value, admire, and even love.” What really supports their point is the performance that these companies have been able to deliver.

Comparing the Firms of Endearment indices (US and International) to the S&P 500 and the Good to Great Index, the outperformance is mind-blowing.

It is fair to say that the companies that can carry the Firms of Endearment badge are those that are clear about their purpose and provide a shared understanding and shared behaviors across their workforce on their way to building corporate soul. Again, it is a similar pattern as we have seen with the Soul Index, where the gap between the S&P 500 and the Soul Index on a 5-year basis has been 115.67 percentage points — with the Firms of Endearment it has been 90 percentage points (US firms) and 93 percentage points (Int’l).