Purpose Drives Profit: How global executives understand value creation today

Posted
28 July, 2021

A vast majority (98%) of global business executives say that it is now critical for organizations to have corporate purpose, according to a new report: Purpose Drives Profit: How Global Executives Understand Value Creation Today.

The interdependency of purpose and profit is clearer than ever before, with executives reporting a significant jump in investor interest in purpose, values and culture. This was reinforced during the Covid-19 pandemic, which demonstrated the links between protecting the wellbeing of key stakeholders and corporate performance.

However, the majority do not feel that they have the tools and techniques to incorporate broader performance measures into strategic decisions. And only a small minority, 11%, are making extensive use of broader performance metrics in strategic decisions.

Compiled by Black Sun, in collaboration with the Value Reporting Foundation and the Association of International Certified Professional Accountants, the unified voice of AIPCA & CIMA, the report, which is the fourth in the Value of Value reporting series, analyzes the link between purpose and profit, and how to combine them to create value for key stakeholders.

Prior reports in the series argued that changing societal expectations meant that businesses were increasingly expected to achieve both profits and purpose. Purpose Drives Profit: How Global Executive Understand Value Creation Today revealed that business executives overwhelmingly believed that managing organizations using corporate purpose as a strategic framework – including as a filter or lens for decision making – is critical to making good decisions and creating sustainable profits over the long term.

Other key research findings include:

  • Nearly all organizations now have a statement of purpose, but only about half (51%) of business leaders believe that their purpose statement is very clear.
  • 99% of all executives surveyed continue to agree that understanding all dimensions of value creation is necessary to make timely, well-informed decisions.
  • A substantial majority of executives surveyed (75%) believe that company performance would improve if management used longer-term perspectives. Only 28% work with a time horizon of more than three years, although 58% would like to do so.
  • A majority of business leaders (62%) believe that their current reporting meets the information needs of key external stakeholders, however, executives acknowledge that there is still room for improvement.
  • 75% of executives think that integrated reporting better enables a company to communicate the full range of factors that materially affect its ability to create value over time.

Andrew Harding, FCMA, CGMA, Chief Executive – Management Accounting at the Association of International Certified Professional Accountants, representing AICPA & CIMA, said: “This research perfectly illustrates that society’s expectations of business are changing. As a result, business strategies that worked in the past will fail in the future. The key challenge for business leaders is to reimagine how they create value for all stakeholders, embed it into their business model and measure results – if they want to survive and thrive now and in the future, businesses will need to adapt.

Finance professionals are at the heart of any organization, at the crossroads between finance, business and management. Their role is to provide, analyze, use and communicate decision-relevant financial and non-financial information to enable businesses to seize opportunities and mitigate risks. They have a key role to play in facilitating integrated thinking across their organizations and enabling them to improve strategic decision-making to generate and preserve value for all stakeholders.”

Janine Guillot, CEO, Value Reporting Foundation, said: “Buy-in for the fact that purpose and profitability are interdependent is at an all-time high. There is a growing and global understanding that integrating purpose, long-term value drivers, and transparency into business strategy can enhance economic, environmental and social outcomes. This report indicates that tools such as the Integrated Reporting Framework and Integrated Thinking Principles can help businesses deliver these outcomes. That said, we also acknowledge the findings that there is still a gap between buy-in and action. The newly formed Value Reporting Foundation remains committed to supporting businesses getting started on this journey.”

David Christopherson, Group CEO, Black Sun plc., said: “Meeting the evolving disclosure and transparency needs of not just investors, but customers, employees and public trust continues to grow in importance to global executives in each of our surveys since 2014. At Black Sun, we believe stakeholder communications is a vital foundation for building trust – a necessary component of sustainable, long-term business success. We know from our experience of working with clients around the world that it can be a powerful and dynamic tool to engage with stakeholders, stimulate thinking, energise innovation and change behaviours; as well as help differentiate, shape reputation and build confidence with employees, customers, investors and wider society.”

Download the report: Purpose Drives Profit: How Global Executives Understand Value Creation Today.