Podcast transcript: Board Matters Podcast l Put purpose before short term gains?

18 min approx | 9 June 2021

JUSTINE GREENE

Hello and welcome to the podcast from EY’s UK Centre for Board Matters for Non-Executive Directors. I’m Justine Greene and our focus this time is ‘Purpose’ and the role it plays in an organisation’s culture. We’re joined by a group of esteemed guests, who took part in a new study by The Purposeful Company of purpose-driven leaders. First, Jon Lewis, CEO of Capita. Hello Jon….

JON LEWIS

Hi.

JUSTINE

Liv Garfield, Chief Executive of Severn Trent. Hello Liv… 

LIV GARFIELD

Hello, everyone.

JUSTINE

Hywel Ball, UK Chair and UK&I Managing Partner at EY. Hello Hywel…

HYWEL BALL

Hello, Justine. 

JUSTINE 

And from The Purposeful Company, its co-chair, Will Hutton. Hello Will….

WILL HUTTON

Hi Justine. 

JUSTINE

Jon, set the scene for us, how does purpose drive a business’s strategy?   

JON

Well, for a purpose-led business, its strategy is, if you like, the executable means by which it realises that purpose. Our purpose at Capita is to create better outcomes, and this has been the comprehensive framework if you like, by which we are executing on our transformational agenda. It shapes our values, it shapes our behaviours, it shapes the types of services we will and will not provide. It determines the market segments we operate in and the suppliers we engage. But I think for a company like ours, going through what is significant transformational change, it's the cultural and behavioural aspects catalysed by being purpose-led, that I think did most to ensure that we were able to execute on our strategy in the first place. In other words, there's, I feel, an interplay, between purpose and strategy. It's not uni-directional, i.e. strategy only supporting purpose. Purpose of itself can also support the execution of your strategy. In our case, becoming purpose-led was probably the single biggest catalyst for cultural change. 

JUSTINE

Liv, how does an organisation follow through on its purpose?

LIV

So, I think it's through two things, isn't it? So the first thing, every single decision that you make and every long term or short term decision you call as a board or as a senior team, I think it's analysing it through the lens of, is that actually something that feels purpose-led?

I think is one thing, so it's almost like, the senior decision-making needs to consider it. But then I think it's in every tiny behaviour, every small content or thought process of every employee, it needs to be in their psyche, in their DNA, and that's through discussion, it's through effectively the shadow that we cast as a senior team. And I think it's that two-way lens of senior, big decisions, and everyday small behavioural types. And I think COVID-19 has given us the most amazing case study. I think everyone's been able to judge organisations in the last 12 months and almost categorise them, are the heroes or zeros, in some sense, as to whether how they managed through a pandemic felt purpose-led or did it feel share protection or did it feel commercial edge? What were those decisions and when you reflect on it, did it feel that every single stakeholder was looked after, and did it feel like the organisation was heading towards a greater purpose or just short-term gain?

JUSTINE

Hywel, do you think boards understand enough the difference between creating shareholder value and the purpose of a business?

HYWEL I think boards are beginning to, sort of, much more focus on broader stakeholder value and how that in the long-term will create sustainable shareholder value as well. So, there has been this movement and a tipping point, probably accelerated by the crisis as well, going from stakeholder to shareholder value. And then I'd echo previous thoughts mentioned on the podcast about the fact that purpose then is the catalyst for that stakeholder value creation and the guiding light which ultimately delivers it. So, I think boards are beginning to understand that difference and the recognition that long term, sustainable shareholder value comes from the creation of stakeholder value through the drive of the purpose of the business. 

JUSTINE Will, I mentioned your new study of purpose-driven leaders earlier — 14 organisational leaders took part. Summarise for us, why they put purpose at the centre of their companies? 

WILL

What shone through, actually, was that it gave strategic clarity. It offers an encompassing clarity, which when you're running an organisation, when there's so many claims on you, you know, keeping your staff engaged, picking off the supply chain, making sure that, you know, your customers are going to repeat the business. So much of running a business is about recurrent orders. You know, you need to be able to say I'm purpose-driven. And it's become — and one of the things that struck me is that it was actually — you know, far from people saying well it's a nice thing to have, an add-on, it's actually very commercially valuable. 

HYWEL

I mean, I think that through the pandemic, the commercial value of the purpose has been evidenced. And partly I say that because, you know, at the start of the pandemic, none of us had any idea what was going to happen. And having that North Star to help you make those decisions in that vacuum of previous experience, previous understanding that you can bring to bear helped a lot of businesses, I think, steer through those storms. And again, I think this year for us in terms of commercial value has reflected, and evidenced, I think, to the organisation and the business the commercial value that's been driven by purposes has given us.

LIV

I think purpose gives long-term decisions, it creates a business that has a future, it creates longevity, also, I think it creates a sense that you invest. Maybe not just for the first cycle, but for the second cycle. So I actually think that when you look at the right time horizon, purpose isn't just commercially positive, it's probably commercially essential. 

JUSTINE

OK, well our conversation continues next when we’ll talk about the role of purpose in the post-pandemic recovery.

Music – Board Matters

JUSTINE

Jon, when it came to organisational resilience in the face of the pandemic, how key was the understanding of purpose for Capita?

JON

It was critical, and it was the principle framework by which decisions were made. But, as others have suggested, and also tested us, and tested our commitment to being purpose-led, in a way that I doubt many other management teams will be tested for another generation. We place the well-being of colleagues at the very centre of how we would respond to the crisis, enabling them to work at home with the right facilities, the right ergonomic set-up, we invested in employee assistance. And as a result of that, we saw a dramatic improvement in our client net promoter score. Our colleagues felt empowered, they felt valued, we rolled out, incidentally, the real-living wage through this time as well. Every employee earns not less than the real living wage today. And that really encouraged colleagues to be committed to serving our clients in a way that we haven't seen previously. So yeah, overall, there is no doubt that being purpose-led became a guiding principle for managing through what was an extraordinarily difficult period. More effectively, more efficiently, and making the right decisions, I think, that we might otherwise not have done. 

JUSTINE

Liv, as we adapt to more hybrid working models, what role will purpose play at Severn Trent?

LIV

So, I'm principally a key working organisation. I was there every single day, visiting different sites, spending time with colleagues, travelling to sites, depots. And, actually, what it reinforced for us is that if you are a key working organisation and you do need your people to be physically present, it's even more important that people feel protected, it's even more important that people understand that what they're doing it for is actually a greater purpose, not just in terms of what we're providing, taking care of one of lifes essentials - you can't live without water, particularly not in a pandemic — but actually, that the style of how the organisation is run and led in a manner that makes you feel proud. So, for us, we've always had supportive working policies, people that needed a bit more flexibility, but we will principally still be a face-to-face organisation, and for us to solve long term dilemmas of climate change, biodiversity, you know, anything of that ilk, it's going to require innovation, but it's also going to require clever people brainstorming around a table. 

JUSTINE

Hywel, some organisations have not fared so well with the disruption we’ve been experiencing. Is that in part down to a less defined purpose?

HYWEL

It's a tricky question, to know exactly why some companies have not done so well at this stage. My reflection would be two-fold. First is, having a purpose will have definitely helped you steer through the unknown waters of the pandemic, so it'd help you with guidance, and certainly from our reflection that's proved commercially beneficial in terms of getting it. I think the other thing that's happened in the pandemic is that it's shone this huge light on what organisations are doing. So that, you know, the socio-macro forces that we've been experiencing in the run-up to the pandemic have all been deepened, accelerated, with the pandemic. So, people are really closely watching how organisations behave, you know, their social contract, in a way that certainly was not necessarily the same 18 months ago. And for those that have not, should we just say, done the right thing during that period, I think they would have had more of an adverse reaction in a way that they probably never experienced in the past.

JUSTINE

Will, after such a testing time for many companies, which way is the pendulum swinging between business ethics and value creation?

WILL I'm not sure that there's a tension between business ethics and value creation. You know, it doesn't absolve you from making sometimes quite difficult decisions. I mean, you know, sometimes you have to close parts of an organisation, sometimes you have to brutally — you have to take people out or make them redundant because actually, that becomes economically impossible to sustain. The point is, if you're purpose-driven, you try and do that in the most ethical way that you can. 

JUSTINE

Alright, well to round off our discussion next, we’ll look at the impact of cultural change on how organisations operate. 

Music 

JUSTINE

Now, investors and employees are taking a greater interest in an organisation’s ethics and values. Let’s ask all of you, how can boards better reflect these stakeholders changing priorities? Jon …

JON

Well, I think fundamentally boards obviously need to fulfil their obligations per Section 172 of the Companies Act, which speaks to all stakeholders. But, I think increasingly, there are greater expectations of society than those defined by Section 172. We saw this in the case of, you know, colleagues’ expectations of leaders around the events in the US, Black Lives Matter, last year. I think the bar has very much been raised with regard to the role, executive leaders and boards play in terms of defining what is right, what is purposeful. And to that end, you know, clearly, boards need to be representative of all stakeholders, and we have put a particular emphasis on the diversity and inclusion of our board members, we've appointed board members from overseas in the last year to reflect the fact that we have, you know, a significant number of employees in places like India. But I think even more fundamentally, boards need to set the tone and that means they too need to be purpose-led, they need to live our values and behaviours, and to that end, we have the same expectations of our board with regard to mandatory training, that we have with every other colleague. 

We're just about to ask our board to undertake our anti-racist training, for example. Because of the shadow they set. And I think setting that tone at the top is not only significant for the company that they represent, but also more broadly, because of their role as significant leaders in society overall. 

JUSTINE

Liv, your thoughts on this …

LIV

So, I love the Tortoise Index which effectively talks about, "Do you walk the walk or do you talk the talk?" And it effectively maps the FTSE 100 between where you sit, between walk and talk. And I think it's a lovely description of leadership in some sense, is that we absolutely want boards, companies, chief executives, leaders, to talk the talk, to be really clear, they make commitments. But actually, what we really want people to do, is we want them to walk the walk. And I think exactly as Jon just outlined, setting the tone, living the values, being the behavioural chief and realising that actually they cast the shadow that is followed by, not actually everyone else just in the organisation, but actually large companies, they often set the tone for corporate Britain. 

JUSTINE

Hywel, your view …

HYWEL

Yeah, all companies are much more aware now of what I'd call the societal contract. That's the sort of re-engagement of that view. You know, for us, we increasingly think of it almost as our license to operate in society, and how we do that — how quickly the societal changes creep up on you was brought home to me a year ago, when I was in lockdown with my three late teenage, young-twenties boys, and we had a debate when George Floyd happened. And I was getting, you know, very irritated that they were saying I wasn't doing enough, and I was having a comment that said, "You know, I'm not a racist", and the response was, from all of them, when they all showed me their blacked-out phone screens, that said "That's not enough, Dad, you're not doing any action about it." It wasn't good enough to be 'not a racist', you had to be anti-racist, and what are you going to do about that? And that led us then to create a public, seven-point, anti-racist commitment to be held accountable to, as Liv has mentioned already, to walk the walk as well as talk the talk. So that we made a public statement to be, what we would be doing to respond to that. And I think that's an evidenced point about how societal changes are moving much faster than you realise, and organisations needs to respond to that. And I think that's also led us to look much more deeply at our diversity, inclusion, and move into a new status which is talking about a culture of equality. So that you actually go beyond how you would measure diversity and inclusion in terms of ethnicity metrics and gender metrics, but actually to try to measure the culture of equality that you're trying to build. 

JUSTINE 

And finally, with the huge challenges that many companies will face over the next few years, how realistic an ambition is it to promote purpose? Jon …

JON

I think, given the expectations of society going forward, I think it would be very challenging for companies to be maximally successful were they not to commit to being purpose-led. I think it is increasingly going to become the norm. 

LIV

Yeah, purpose used to be quite a bold new word, a couple of years ago. To be 'purpose-led' felt like you were at the vanguard of something. I think now it's become very much the accepted way that the best companies will do business. Not every company right now is purpose-led, but I think it's like electric vehicles. A couple of years ago you knew one friend that had an electric vehicle, now every single person that buys a car is buying an electric vehicle. I suspect that's going to be the same, as you watch new corporate directions set in post-COVID Britain, its purpose will be at the heart of most, and soon all, companies. 

HYWEL

I think for a large people business, it is going to be essential. I cannot tell you how many times, when you're interviewing and trying to recruit top talent, they are grilling you on your purpose, the organisation's purpose, and how you're evidencing that. So, in terms of attracting and retaining the top talent to succeed in the future, it's vital. 

WILL

So you know, there’s more to do. We've got to grow this. But I do think that emerging from the pandemic, wherever you sit on the political spectrum, if you want a dynamic British business sector, I think that the more purpose-driven it is the more likely you're going to get that outcome. Whether you want levelling up, whether you want innovation, you need purpose-driven organisations. And I think it's something around which we're going to see, I hope we're going to see, more unity. 

JUSTINE

OK, well thank you very much to all of you for taking part in our podcast. It’s been a fascinating conversation. Jon, thank you …

JON

You're welcome. 

JUSTINE

Liv, thanks to you ….

LIV

You're very welcome.

JUSTINE

Hywel, thank you …

HYWEL

Delighted to have taken part. 

JUSTINE

And Will, thank you ….

WILL

Thank you.

JUSTINE

And if you’ve found our discussion helpful and you’d like to find out more please email n e d s@uk.ey.com. That’s neds@uk.ey.com

JUSTINE

Do join us again soon for another episode, and in the meantime, from me Justine Greene, and all our guests, thanks for listening and goodbye.