28 July 2020

Corporate Purpose during the Coronavirus pandemic

GILES RAFFERTY, Corporate Communications and Media Advisor, writing for the Winter 2020 Issue of Listed@ASX.

What does the Coronavirus pandemic and the ‘new normal’, that is expected to emerge in its wake, mean for a Company’s purpose? As the pandemic surges across the globe many senior corporate leaders will, rightly, view the immediate purpose of the company where they work to be one of survival. It is a hard truth and a stark reality that many companies will not emerge into the ‘new normal’. So when facing an existential threat of the magnitude of the Coronavirus pandemic does a company’s purpose act as a helpful guide or distracting hindrance?

Corporate Purpose a mainstream consideration

There can be little doubt that in the years leading up to the Coronavirus Pandemic, Corporate Purpose was becoming a mainstream consideration for companies. In February 2019 the ASX Corporate Governance Council, in the 4th edition of the Corporate Governance Principles and Recommendations, made it clear that Boards had responsibility for linking a company’s Purpose to its strategic goals.

Principal 3 states a listed entity should instil a culture of acting lawfully, ethically and responsibly. While recommendation 3.1 goes further and says the Board should approve an entity’s statement of values and those values should link the company’s Purpose to its strategic goals. Company directors approving a statement of values is just the first step. Principle 3 also says the Board is responsible for making sure senior executives inculcate the values across the business and are seen to constantly reinforce them in their interactions with staff. Senior leaders need to set ‘the tone from the top’.

In August of 2019, The Business Roundtable (BRT) an American association whose members are the CEOs of some of the world’s largest companies, changed its purpose statement. For over 20 years, the BRT’s purpose statement had been – “the paramount duty of management and of boards of directors is to the corporation’s stockholders” – it now has the following concept at its heart, “while each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.”

Coronavirus – the ultimate stress test of a company’s commitment to stakeholders

The emergence of the coronavirus is fundamentally testing the idea of being committed to all stakeholders. And there have been  many examples of companies rising to meet that challenge. In Australia, at the big end of town, we’ve seen the two major supermarkets, Coles and Woolworths, making extraordinary efforts to respond to the needs of their stakeholders. There is no doubt ‘just in time’ inventory management, which works so well in a business-as-usual context, was overwhelmed by coronavirus panic buying, leading to disruption in the supply of vital products and bare supermarket shelves. In response the supermarkets:

  • placed limits on the numbers of in-demand items that each shopper could buy to try to maximise availability
  • introduced special opening times to allow easier access for the elderly and less able
  • changed trading hours to allow for more extensive cleaning and replenishment of stock
  • increased head count to meet the extra demands created by the coronavirus

Coles’ purpose statement is to ‘sustainably feed all Australians to help them lead healthier, happier lives’ with the aim of creating jobs, supporting suppliers and making a positive difference in our local communities over the long term. Woolworths Group purpose is, ‘we create better experiences together for a better tomorrow’ for their customers, team, communities and shareholders. There is a direct read across from the decisions both companies have made  and continue to make in response to the Coronavirus pandemic, and their purpose statements. They are living their purpose.

Embracing the Coronavirus challenge

And it is not just the big end of town. Independent Sydney Brewer, Young Henry’s, pivoted to making hand sanitiser at its draught beer brewery. The market for draught beer effectively shut down, over night, when bars were closed to prevent large social gatherings promoting the spread of coronavirus. At Young Henry’s company continued to generate sales from packaged beers so the pivot to hand sanitiser was not so much a last ditch attempt to save the business, but rather a way to protect the jobs of some staff by providing a vital product that was in short supply to the general public. They also supplied sanitiser to charitable organisations such as Do Good, which is supporting women that are victims of domestic violence, so that Do Good could sell the sanitiser to raise funds. Young Henry’s does not have a published corporate purpose statement but it does operate by the maxim to ‘serve the people’, and again they are living up to that maxim.

There have been many other examples across ASX listed companies where businesses either pivoted to offer products to help the battle against coronavirus or  ramped up production of a critical product. Pro-Pac Packaging Limited added extra shifts to meet surging demand for the plastic bottles it makes, which can be filled with hand sanitiser. ASX listed medical device company ResMed Inc more than tripled its output of ventilators, a critical piece of health care equipment used to save the lives of patients suffering from severe coronavirus infections. The reason ResMed gives for its existence as a business is ‘to make every breath another chance for positive change.’

Getting it right with purpose led decisions

The challenges linked to the coronavirus pandemic are only just beginning and its full impact will take months, if not years, to be fully realised. The first priority for the leaders of any business must be navigating the economic disruption caused by the restrictions introduced to manage the health impact of the virus. Projects around formalising the Board’s understanding of a business’s corporate purpose and how that links to its values and strategic goals will have to wait. But that does not mean a company’s purpose does not have an important role to play at this time.

Every company was set up for a reason, a purpose, and whether implicitly understood or explicitly expressed that purpose aligns the behaviours and decision making that underpins the culture of those companies. There is a growing body of evidence[1][2][3] that suggests a company that gets its culture right is a company that will deliver long term, sustainable financial returns. A company that gets its culture right is also one that will enjoy long term reputational enhancement.

This coronavirus pandemic is presenting extreme and immediate challenges that create an opportunity for leaders to permanently influence the reputations of the businesses they run and their own personal standing. Making the right decision, when so many of the inputs are unknown, when there is no way to forecast what comes next, is hard. A good approach is to sense check if the decisions being made are aligned with your businesses purpose. If they are, they are likely to be the right ones.

[1] https://www.spglobal.com/en/research-insights/articles/the-esg-advantage-exploring-links-to-corporate-financial-performance

[2] https://www.robeco.com/en/insights/2019/01/the-link-between-esg-and-performance.html

[3] https://www.mckinsey.com/business-functions/sustainability/our-insights/more-than-values-the-value-based-sustainability-reporting-that-investors-want

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28 March 2019

Purpose for the Board

GILES RAFFERTY, Corporate Communications and Media Advisor A listed company’s Purpose is now, very much, a matter for Board consideration. The latest edition of the ASX’s Corporate Governance Principles and Recommendations makes it clear the Board is responsible for linking a company’s Purpose to its strategic goals. Principle 3 states a listed entity should instil a […]

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4 March 2019

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ASX Corporate Governance Council (the Council) launched its 4th Edition of the Corporate Governance Principles and Recommendations on 27 February after more than a year of consultation. It includes input from the nineteen diverse member groups of the ASX Corporate Governance Council, including associations representing the interests of shareholder groups (ASA) and listed companies who are communicating […]

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31 January 2019

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A well understood and expressed corporate purpose drives long term value. This is why purpose, as a driver of profitability, was a central theme of the 2019 letter from Larry Fink, CEO of Blackrock, the world’s largest investment manager, to the Board’s and senior managers of companies Blackrock has holdings in. It has also been the […]

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29 May 2018

ASX to make purpose key to good governance

Giles Rafferty, Corporate Communications and Media Advisor The Financial Services Royal Commission is shining a light on governance failures at some of Australia’s largest businesses. It has also revealed a clear need to restore trust in Australian listed companies. The ASX Corporate Governance Council is seeking to address the trust deficit by updating the Principles and Recommendations […]

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