The bar for social purpose continues to rise in the corporate world

The CEO of the world’s largest asset manager may seem to some to be an odd advocate for the idea that business should play a bigger role in addressing society’s biggest challenges. Yet when BlackRock’s Larry Fink published a letter this week asserting that firms that lack a social purpose “will ultimately lose the license to operate from key stakeholders,” he upended the debate about the role of business in society.

Some companies have already shown that both society and business can do well when they collaborate; it doesn’t have to be a zero-sum game. However, too many companies continue to struggle with defining their social purpose and then communicating it effectively. That poses a significant barrier to them stepping up to the challenge.

Ahead of the World Economic Forum in Davos, it’s worth examining the environment facing corporate leaders. Society is demanding more from businesses. Set against the backdrop of an increasingly volatile social and political environment, companies are now expected to have a view on the issues affecting the societies where they operate.

Millennials driving companies to put people before profit

In terms of sheer numbers, millennials have already surpassed baby boomers in countries such as the United States. That cohort, unfairly maligned by some for preferring expensive sandwiches to owning homes, is guided by purpose – more so than any other generation. More than 80% of millennials expect companies to make a public commitment to good corporate citizenship. As consumers, more than 90% would switch brands to one associated with a cause. As employees, they are more likely to be loyal and more productive if they feel their employer is playing a meaningful role in society.

Crucially, as investors, millennials are increasingly using their financial assets to drive change. The Royal Bank of Canada estimates that $4 trillion will soon pass down to millennials in the UK and North America. A recent Financial Times article argued that: “Millennials are more likely to want to use wealth effectively to make a contribution to society or environmental causes and wealth managers need to be attuned to that.”

All of this should compel companies to see social purpose as a business imperative rather than something that’s “nice to do.” Done well, articulating a clear social purpose and acting on that purpose shouldn’t be an expense item but an approach that supports a company’s core strategy. Investing in purpose is an important opportunity to push innovation, attract and retain the best young talent, drive brand differentiation and therefore reduce the cost of capital. For example, through a smart, purpose-driven campaign to increase rates of handwashing in the poorest parts of the world, Unilever substantially increased sales of its soap as well as dramatically reduced the incidence of diarrhoea in India.

The triple squeeze on social purpose

Companies face three pressures when it comes to social purpose. The first comes from a public with an increasingly divided attention. The standard piece of communication content is looked at for only a few seconds. The smartphone and social media revolutions have driven a crisis of information overload so profound that many are voicing serious concerns about its impact on the mental health of an entire generation.

The second pressure is the complexity of social issues. Automation, gender equality, climate change, LGBT rights, cybersecurity and financial inclusion are just some of the challenges confronting society and the workplace. Ten years ago, a toy manufacturer would not have expected to be dragged into a global debate about gender neutrality. Today, it’s unavoidable.

Companies face a third pressure from activists and sceptics who have a greater voice than ever before. Historically marginalised groups such as women, ethnic minorities, the LGBT community and those with disabilities have found the confidence and, using social media, the channels to publicly point out tone-deaf campaigns or offensive messaging. This form of social accountability can go viral, as H&M, Dove and Pepsi have all recently found out to devastating effect. Memes and hashtags have become the social activist’s modern-day equivalents of the bow and arrow.

All three challenges can spell catastrophe for a company’s reputation. Understandably, companies facing such barriers may be inclined to play it safe or to not engage at all. This is a mistake. These hurdles are not insurmountable, but can only be overcome by getting a number of elements right.

Demonstrating social purpose well

The first important element to get right is authenticity. A company’s commitment to a big social challenge should run throughout the organization – from its veteran CEO to its newest hire. Platitudes must be accompanied by a point of view and a willingness to engage in debate, even when that engagement creates detractors. A vast number of companies produce statements that reiterate their commitment to diversity and inclusion. But the real test of authenticity rests on their willingness to be vocal on contentious issues such as Donald Trump’s immigration ban (which many companies did publicly challenge).

Companies need to demonstrate that they stand shoulder-to-shoulder with social movements – not just for the photo opportunities during the good times but also during the tough periods. For example, Pepsi’s disingenuous commitment to Black Lives Matter contributed greatly to the backlash it experienced during its advertising campaign evoking the movement.

The second key element is clarity. In a race to burnish their credentials as good corporate citizens, a number of companies have adopted a kitchen sink approach. This often involves attempting to be all things to all people, driven by a belief that volume conveys sincerity and impact. But when a company makes statements about issues that aren’t remotely connected with its core business it creates confusion amongst its stakeholders.

Companies that use social purpose to build strong reputations are those that can identify a single issue where they can offer a unique perspective and build an emblematic campaign. This is not to say that a company’s diversity and inclusion policy or its carbon offsetting efforts are inconsequential. Instead, these are seen as mandatory minimums – which makes those issues difficult to build a proactive and distinctive social purpose initiative around.

The third key element is the need to adopt a movement mind-set. A company with a social purpose should put the cause at the heart of their communications. It’s common for a company to use its channels for self-promotion. What is less common is using those channels to push engaging content that raises awareness of the social challenge at the heart of a company’s purpose.

Calls to action are a common feature of movements, yet too many corporate responsibility initiatives focus on telling their audiences what they do rather than asking those audiences to join in the fight. Too many initiatives fail to reach their potential reach and impact because they neglect to build organised coalitions of NGOs and academic and corporate partners. Excessive self-promotion makes it difficult for the public to engage with a company’s purpose which, ironically, limits their ability to build their reputation as a responsible company.

As the world’s most influential corporate representatives gather in Davos next week to discuss their role in helping to heal a fractured world, an important part of their thinking must be about their company’s social purpose and whether or not they are effective in demonstrating it. It’s a win-win for business and society.