In a previous article for Private Company Director, “How Private Company Boards Can Lead with Purpose,” I discussed how boards of privately held companies can help their companies become more purpose-driven in response to current business challenges. Purpose-driven companies differ from their peers in two key respects. Outwardly, they are intentional in how they positively impact their stakeholders, including owners, customers, suppliers, employees, the community and the environment. Inwardly, they have a clear vision of the value they add to the world beyond the goods or services they provide and the legacy they want to leave.
How can a board, working with senior management, guide the company toward becoming more purpose-driven? Here is one approach.
Stakeholders
Every company impacts its stakeholders. To become intentional about creating beneficial effects on its stakeholders, a company must first understand who its stakeholders are and the nature of its current impacts, whether beneficial or adverse. This analysis can be led by management, sometimes supplemented by consultants with relevant subject matter expertise.
For example, a company might conduct a carbon accounting audit to determine its impact on the environment. That audit could look not only at the activities of the company itself, but also at the indirect effects of those activities, such as its use of electricity or natural gas, and the associated upstream and downstream effects. Upstream effects are greenhouse gas emissions that come from the production of the company’s products or services and its supply chain. Downstream effects come from the use and disposal of the company’s products or services by its customers.
A company might also examine the supply chain itself. What challenges do its suppliers face and how might those challenges affect the company’s long-term sourcing? This analysis goes beyond the price the company pays, focusing instead on the suppliers’ business sustainability and whether their practices align with the company’s values. For example, an ice cream or yogurt manufacturer might be concerned with the financial security of its dairy farmers and with their agricultural practices.
With this knowledge, management can draft potential goals for improving these impacts, methods for achieving them and the likely effects on the company. Management might also begin to develop metrics for measuring impacts and tracking improvements.
Board Retreat
A next step could be a one- or two-day board retreat with selected members of management. The retreat would focus on management’s findings about stakeholder impacts, followed by an open-ended discussion to develop a plan for improving and measuring those impacts and to consider what those improvements would entail for the company.
The retreat could also focus on defining the company’s purpose: why it exists and the greater value it provides beyond its products, services or profits. This involves defining core values, aspirations, and desired social and environmental impacts with specificity.
Finally, the retreat could focus on creating a high-level road map for putting the company’s purpose into action and achieving its stakeholder impact goals. This discussion could examine the following:
- Who the company would like to impact
- The specific problems the company would like to address
- The time frame for engagement
- The intended geographic areas of impact
- The approach for achieving the desired impacts
- The reasons for doing this
- What success would look like
- The measures that will be used to track how it is doing
This process may be facilitated by engaging outside professionals, such as a consultant or lawyer, or by utilizing an independent tool, such as B Lab’s impact assessment. This assessment is used to determine whether a company should be certified as a B Corporation.
The retreat is only a starting point. Becoming more purpose-driven is an iterative and evolving process that requires ongoing, regular attention. Drawing on the experience of individual board members will be very helpful in making that process more successful.
Individual Board Member Experience
The board of a privately owned or family-owned company often includes some board members who are also officers of the company or are family members. But others may be outside directors who have been brought onto the board for their experience in marketing, supply chain management, finance or strategic planning, just to name a few.
That experience can be invaluable for helping the board and the company deepen their commitment to purpose and improve their impact on stakeholders. The key is understanding that each director’s experience can have a meaningful effect on improving those impacts. It is the collective experience of all directors, not just one with specific subject matter expertise, that can contribute to the success of the company’s evolution as a purpose-driven company.
For example, the board and management may conclude that helping particular suppliers succeed is critical for the company’s growth, especially in a way that aligns with the company’s values. A board member with supply chain experience would be an obvious contributor to this discussion. However, other directors can contribute as well. Communicating the company’s supplier goals (drawing on the director with marketing experience), understanding a supplier’s financial challenges (drawing on the director with financial experience) and aligning with a supplier’s strategic direction (drawing on the director with strategic planning experience) are all important to this process.
A company’s journey to becoming more purpose-driven is a process that is especially effective when it draws on the experience and alignment of its board. Intentionally improving impacts on stakeholders can ultimately benefit the company in significant financial and nonfinancial ways.