How Purpose-Driven Companies Address Business’s Greatest Challenges

They also strengthen employee loyalty.

There is much discussion these days about CEO activism, and companies are under pressure to wield their power to enact positive change in the world. As a result, many CEOs are scrambling to decide which issues to tackle and when they should speak out.

But is this the right way to think about a CEO's role? After all, having an outspoken and socially conscious CEO doesn't always lead to revenue growth. Recently, the world's top business leaders convened at the Fortune CEO Initiative to discuss how businesses can best incorporate efforts to solve urgent social problems into their core business strategies. The secret, perhaps unsurprisingly, doesn't lie in CEO activism alone, but rather in a company's ability to define and maintain a clear sense of purpose.

So, if the top CEOs are lauding the benefits of strong values and activism, why aren't more companies adopting a purpose-driven mindset? It seems the answer is twofold. First, many don't understand that that purpose and performance are intrinsically linked. Secondly, there needs to be a broader set of CEOs visibly embracing this new vision as a means of combating the idea that capitalism is in crisis. Outside of the A-list CEOs like Jamie Dimon, Larry Fink, and Ray Dalio, the purpose-driven approach still isn't widely endorsed.

Here are three key factors that will dispel hesitation leaders may have about adopting a purpose-driven mindset:

Purpose crystallizes a holistic view of the business, social, and environmental landscape

Effective purpose-driven companies align business growth objectives with the overarching goal of furthering global well-being. According to the recent Leaders on Purpose study, leaders who do this can pinpoint the instances where business goals overlap with the advancement of social and environmental causes. This helps ensure a company's longevity and adaptability.

Consider Citigroup CEO Michael Corbat's comments about his company's failure to retain female talent in senior and leadership roles. (Citigroup is a client of my company.) Corbat recognized that the loss of so many valuable people isn't an HR problem; it's a strategy problem that could derail the company's long-term success. In response, he set a strategy to reduce this attrition and simultaneously reiterate the company's commitment to gender equality.

It's also useful to think of purpose agendas as the intersection of "left" and "right" brain approaches to business. For instance, empathy, creativity, and intuition--often considered right brain skills--are obviously essential qualities to a person inclined toward integrating social impact into their values. Similarly, you'd be hard-pressed to find a CEO who didn't prioritize left brain attributes like strategic and logical thinking. Interestingly, a recent study showed that C-suite leaders who used a combined right-and-left brain approach to business achieved 22% higher revenue growth and 34% higher profitability growth, illustrating that it takes both emotional and rational intelligence to succeed in today's business world.

Purpose strengthens employee loyalty, promotes productivity, and improves retention

Many employees today expect companies to take a stand on a range of issues, including religion, gender identity, women's rights, health care, and gun control. Smart CEOs will open channels of communication to learn which issues are most pressing to their employees, building company loyalty and camaraderie in the process.

In a conversation with Fortune CEO Alan Murray, Salesforce co-CEO Marc Benioff described how his activism was borne out of listening deeply to his employees. Consequently, Benioff has become an emblem of CEO activism, unafraid to comment on hot-button issues like pay equality and LGBTQ rights. Compare this with recent demonstrations organized by employees at major tech companies--like Google, Microsoft, and Palantir--related to the handling of #MeToo allegations and collaboration with the military and ICE.

Purpose helps to predict--and overcome--challenges

It's not surprising that many leaders and organizations struggle to respond to the rapid, unprecedented degree of change in today's business environment. However, companies that lean into a purpose-driven strategy have a more comprehensive perspective of today's challenges, allowing for clearer decisions.

For example, many retail companies struggle to keep up with ever-shifting consumer expectations and trends. Many consumers today prioritize a clothing brand's ethics over affordability. Indeed, one study found that 62% of consumers were willing to pay 2-5% more for expensive clothing if it was produced by workers making a fair wage. Rather than lament the challenges of mass-producing ethical clothing, Inditex CEO Pablo Isla has chosen to embrace ethical products as part of his company's purpose. He wrote in the Leaders on Purpose survey that in order to produce products that inflict minimal environmental damage, companies have to invest more in research and development. The extra efforts pumped into R&D actually lead to higher quality products overall.

Of course, there are many other reasons to instill a sense of purpose in your organization. Consumers, for example, are more likely to give their business to companies they perceive as ethically and socially responsible. The link between purpose and profit is undeniable; just look at how Unilever's purpose-led brands--such as Ben & Jerry's, Vaseline, Seventh Generation, and Dove--are growing 69% faster than their other brands are.

At the conclusion of the CEO Initiative, journalist David Brooks discussed the need to return to a society that emphasizes strong interpersonal bonds. I believe that the success of purpose-driven agendas reflects Brooks's point about society's craving for community.

While political commentators shout about capitalism's crisis, I propose that capitalism is evolving. In this new era, the companies that combine social impact and business growth strategies will forge new collaborative partnerships, drive creative solutions, and innovate at unheard-of speeds.

Kathy Bloomgarden is the CEO of Ruder Finn and is the author of Trust: The Secret Weapon of Effective Business Leaders.

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