Purpose is having a moment in the business world. The collective impact of organizations as social actors has never been more important than in our social-media driven news cycles, where unsavory or illegal behavior is quickly circulated. Even unintended consequences of well-intended actions can bring swift consumer reaction. In an increasingly complicated world where market reactions are amplified, your customers need to know and believe in what you stand for as a business. Having a clearly stated purpose that drives leadership behavior is one way to both steer in the right direction and mitigate mishaps. It also helps attract and retain employees who are committed to your brand and leads to a better world for all. What’s not to love about it?
It turns out, there are a few things to not love about purpose in the business environment. At the top of the list is that it requires executives to change their behavior in meaningful ways. A close second is that it introduces the very real risk of being perceived as hypocritical is you aren’t perfect at delivering your purpose.
We have noticed in our work that there are two kinds of organizations. First, there are those we call ‘purpose-hawkers.’ They treat purpose as a marketing exercise, full of words and cool videos to convince the market that they are about more than profit. But behind the scenes, leaders are still doing exactly what they’ve always done, and actual delivery of the purpose is far from anyone’s mind.
The second kind of organization we see is ‘purpose aligned.’ In a purpose aligned organization leaders hold themselves and other accountable to behaving in ways that brings the purpose to life. They make decisions that actively deliver on the short- and long-term goals embedded in the purpose.
When it comes to words and actions, Matshona Dhilwayo puts it bluntly: “It is lightning that strikes, not thunder.” Making a difference in the world takes action, not just words. So how do you make your purpose lightning, not just rumbling thunder that may or may not deliver?
Purpose-hawking is the thunder. It happens when an organization uses its purpose primarily as marketing – to generate good public relations, without meaningfully shaping behavior. Purpose-hawking reduces a call for meaningful impact into a pithy slogan.
At Karrikins Group, we contrast purpose-hawking with purpose-alignment, where employees at every level of an organization see a clear line from the topline purpose to their daily work – the paycheck to purpose connection. In these organizations, purpose places clear boundaries on what products to develop or what social responsibility initiative to fund, it inspires employee value propositions, and it creates a clear through-line for operations, brand, and investment strategies. It also guides the behavior and decision making of leaders in the organization in meaningful ways.
It is easy to let the Marketing department come up with a purpose statement and use it in brand conversations. Aligning to purpose is hard, and frankly, many leaders aren’t inspired or incented to do it. Often, the demands of achieving short-term results or delivering on a customer commitment or beating a competitor to a market take priority over staying in alignment with purpose.
It is easy to settle for purpose-hawking, right up until it becomes very, very hard. Purpose-hawking is a precarious state: because the commitment to purpose is a shallow one, it is easily subsumed within larger decisions. When those decisions then result in poor behavior in the market, with customers, or towards employees, the damage can be exponential as the ripples quickly become tidal waves.
WHEN MARKET AMBITION TRUMPS PURPOSE
To get an idea of what purpose-hawking can look like in real life, consider the case of Volkswagen. Volkswagen was founded by Dr. Ferdinand Porsche in the early 1930s. His purpose was to enhance people’s lives through great engineering, and his vision was a ‘People’s Car,’ something everyday people could afford. He brought the automobile to the masses in many ways sooner than Ford with his assembly line practices.
In the mid-2000s Volkswagen, which includes luxury brand Audi, was the 4th largest carmaker in the world. In 2007 the chair of Audi, Martin Winterkorn, became the CEO of Volkswagen and set an ambitious goal: to become the world’s largest auto manufacturer by 2018.
Winterkorn’s goal became a rally cry that thundered across the company. For VW, many structural factors worked against VW’s growth goals, mainly environmental regulations on their emissions in the U.S. and Europe. Winterkorn’s growth obsession did not allow for a serious investment in research on electric or hybrid drivetrains, so he instead focused the company on building its diesel engines, which can get much better mileage than gasoline.
American diesel at the time had a much higher sulfur content than European diesel. California’s stringent air quality rules – imposed to reduce the infamous Los Angeles smog and copied by several other states – made diesel cars difficult to buy and register in the largest car market in America. Around the same time Winterkorn directed VW to prioritize the build-out of diesel cars in America, he also signed a signed a technology sharing agreement with Mercedes-Benz to use their new “BluTec” system to capture and sequester NOx emissions. Once this agreement was in place, VW began marketing heavily on Clean TDI technology.
They announced to the world that they cared, earnestly, about the environmental problems of diesel emissions and wanted to help environmental conservation while building more fuel-efficient vehicles – a laudable goal anyone could support. And, it aligned to Porsche’s original purpose – enhancing people’s lives through great engineering. It felt like a home run – a business goal that delivered on the founder’s dreams.
And this worked! Over the eight years that followed Winterkorn’s announcement, Volkswagen managed to become the world’s largest automaker by sales volume in 2016 – two years ahead of schedule. Volkswagen’s build quality, driving dynamics, and design choices were praised. Iconic models like the GTI routinely topped auto journalists’ lists as high-value cars to own.
Unfortunately, the leaders of Volkswagen were not aligned to the purpose. Instead, they were blinded by the business goal, and began using their commitment to the environment to hawk their purpose without delivering on it day-to-day. Over a series of critical junctures, key decisions were made by the most senior leaders in the company to bypass the emissions testing systems in order to meet their aggressive sales goals in the United States.
The promises of Clean TDI technology created a paradox for Volkswagen: the value-proposition for diesel engines is better mileage. Clean TDI requires spraying unburned fuel into the exhaust, which reduces the high gas mileage that made new diesels so appealing. But without this process, emissions are unacceptably high.
Volkswagen executives decided to install ‘defeat device’ software that could detect when the vehicle was being tested for emissions. Under normal driving, their engines released would not spray unburned fuel into the exhaust, keeping mileage high. When the vehicles were checked for emissions during an inspections process, the car would allow unburned fuel to enter the exhaust, keeping them in compliance with the law. As a result, 11 million VW diesel customers were burning up to 40 times the legally allowable amount of NOx per mile of driving while passing emissions tests.
In summary, the executives made decisions that:
- Lied to consumers through branding that emphasized environmental concern
- Intentionally bypassed critical emissions tests
- Unequivocally failed to deliver on enhancing people’s lives through engineering
In the aftermath, the company has faced astonishing losses. VW has paid more than $30 billion dollars in fines, settlements, and remediation. So far more than 30,000 workers have been laid off. Several managers and engineers have been imprisoned. In May, 2018, Winterkorn was indicted by the U.S. government for fraud. Everything that came out about the emissions scandal was compounded by the degree to which Volkswagen had marketed a commitment to environmental sustainability as part of their value in the world – an extension of their purpose.
It is hard to speculate what might have happened if the executives at Volkswagen had held themselves accountable to their founding purpose. They may have missed their market domination goal, but it is safe to assume they would not have had catastrophic losses to the value of the firm. This is the risk of purpose – when you fail, it can be catastrophic, and delivering can mean delaying business goals in order to stay in alignment.
WHEN PURPOSE SPARKS ALIGNED BEHAVIOR
Aligning behind a purpose is not easy. For VW it would have meant delaying their quest to become the biggest car company in the world and doing the hard work of developing Clean TDI to a point where it authentically reduced emissions and delivered high mileage.
Alignment requires daily decisions that might cost time and money – and could work at odds to a quarterly reporting cycle. However, the willingness to do the hard work to commit to a purpose and align the entire organization builds trust and creates long-term value for stakeholders.
Consider Hancock Whitney Holdings, a small bank operating in the Gulf Coast region of the U.S. In August of 2005, as Hurricane Katrina bore down on their Gulfport, MS, headquarters, which processed corporate operations, check-processing, loan servicing, and credit transactions, they followed their disaster plan and send backups of their systems to off-site centers. The company decided that their branches would be the last close to maximize the chances that their customers could carry out any transactions (mostly withdrawals) before it became impossible.
The hurricane hit to devastating effect. Their headquarters building, a 17-story building along the coast, was gutted by a 4-foot wall of water that inundated the area. A tornado spun off the main storm, which ripped the roof off their building and blew glass, roofing materials, and furniture through the windows (more than 1,300 of which were destroyed). The interior of their headquarters was flooded with salt water sprayed by the storm, which shorted anything electrical and began corroding every piece of metal inside. There was no power, no internet, no phone service. More than half of their branches throughout the region were damaged or destroyed, 20% of their employees lost everything, and thousands faced catastrophic damage to their homes.
Yet, Hancock opened every available branch of its operations the day after the storm left. Their decision to move their data back-ups off-site helped: within days the bank was processing transactions normally from a rented mainframe computer facility in Chicago. But their decision to open their branches locally proved more problematic: with no power and no internet, how can you responsibly operate a bank and handle cash transactions?
This is where Hancock Whitney’s purpose becomes meaningful. Founded in 1899, the founders of the bank articulated their company’s reason for being: “Provide financial services to our communities to facilitate commerce and create opportunities for people.” This purpose, written 120 years ago, is so powerful and simple, it has never needed to be changed or updated. It has, however, been revisited many times, and leaders and staff throughout the bank were very familiar with it.
Hancock’s purpose is what guided their decisions around Hurricane Katrina. Looking at the storm, it was clear they could not provide financial services to the community, facilitate commerce, or create opportunities for people if they remained closed until the power and internet came back.
The 69,900 residents of Gulfport who survived needed to be able to acquire and spend money if the region was going to recover, and no one knew how long it would take for help from the outside to arrive. Credit or debit cards don’t work without electricity, so bank employees decided to get physical currency back into circulation as quickly as possible. They located their own ATMs (many of which had been moved by the storm) and handwashed the salty, sand-crusted bills inside, ironed them flat, and set up micro-branches on the street: folding chairs and tables, with clipboards and paper to create hand-drawn ledger tables.
Hancock provided homemade IOUs out of sticky notes and handed out up to $200 so long as people signed the post-it notes for documentation. They handed out nearly $50 million in cash this way. It was a huge risk, taken in alignment with their purpose, and in the end, all but $200,000 eventually was paid back.
Crucial to Hancock’s purpose is that it does not explicitly mention the pursuit of profit. And the risk they took on in handing out cash after the storm, to serve their community even if it meant risking huge amounts of cash, was fully aligned to the purpose, not to any short-term revenue or market goals.
The risk paid off. Hancock’s business grew by $1.9 billion dollars by the end of 2005, and within five months the bank had signed up nearly 13,000 new accounts. By 2015 Hancock Whitney had grown to more than $20b in assets (when they rang the bell to open NASDAQ). Hancock’s purpose-alignment generated not just community impact, but enormous profit as well.
THE CASE FOR PURPOSE-ALIGNMENT
Purpose-alignment is not just a feel-good story. The leaders of Hancock were not thinking about their next quarterly report when they literally laundered $50 million to get a devastated community on its feet – they operated from their purpose, which was to provide financial services, facilitate commerce, and create opportunities for people. They made sure all the leaders in the company knew and understood the purpose, so when disaster struck, they naturally aligned their decisions and behavior to deliver on it. Aligning to their purpose even during unfathomable destruction created the astonishing growth they saw afterward.
In contrast, organizations like Volkswagen show how risky it is to park purpose in marketing. Growth to an arbitrary size (“bigger than the next guy”) is not a purpose. What does it matter if you’re the biggest if you are cheating your way there? Arbitrary growth targets may be exciting internally and for investors, but if they come at the expense of ethical behavior, they ultimately fail.
At Volkswagen, they talked a good game about reducing emissions and building great cars – the thunder was loud. In the end, though, it was just noise. This is typical of a purpose-hawking company. In contrast, Hancock Bank had a purpose that was clear enough to light up the sky, and the positive impact they had was the best kind of lightning in a community that had been struck a devastating blow. As you think about your own organization and how your leaders align to purpose (or don’t), do you hear thunder or see lightning?
Thank you for reading on. This article is part of a series on purpose-alignment. We dive deeper into the research, concepts, and thinking in the following whitepaper — ‘Purpose-Aligned Leadership: From Purpose Driven to Driving Purpose,’.