REVEALING CORPORATE DNA

Corporate Communications | IMD
ompanies love talking about their sustainability initiatives and noble corporate purposes. But are these companies really walking the talk? Corporate purpose is often received with mistrust, skepticism and even cynicism. Many perceive the way companies express and communicate their corporate purpose as “window-dressing” or political correctness.
Recent events before and during the global recession have reawakened public scrutiny of a corporation’s purpose. These events have revealed strong differences and opinion about the role of business in society and how it links to the stated purpose of corporations. The current societal flux is also leading corporate decision-makers to revisit the definition of corporate purpose.
To make a solid contribution to this field of research and organizational practice, IMD’s Center for Corporate Sustainability Management entered a partnership with the global public relations firm Burson Marsteller to better understand the inputs and impacts of communicating corporate purpose.
What is the nature of corporate purpose being communicated by leading companies? How is purpose integrated into corporate strategies? How do companies express their sense of purpose in the public arena? What is the impact of corporate purpose in building trust with key stakeholders such as employees, financial analysts, media, NGOs, suppliers and customers? What is the link between impact purpose and financial performance? These were some of the questions we sought to answer.
IMD interviewed managers in 27 companies in a diversity of industries (banking, food & beverage, energy insurance, technology and communications pharmaceutical, transportation equipment and services, retail and heavy manufacturing) to understand their communications inputs. We also scrutinized the purpose outlined on corporate websites and in annual reports. To understand impact, we compiled a rankings of the rankings based on data from 213 top European companies, such as Fortune’s World’s Most Admired Companies, the Reputation Institute’s ranking of the World’s Most Reputable Companies, the Dow Jones Sustainability Index, and so on. Excellence in purpose communication was measured by evaluating the level of trust that companies had actually built with key stakeholders.
In a nutshell, corporations wishing to reflect on whether and how better to communicate corporate purpose more effectively, and – particularly in this day and age – salvage or rebuild tarnished or wrecked reputations through a more purposeful communications strategy need to “better walk the talk while talking the walk.”
The project revealed that these European companies are transitioning from a “just do it” approach to a “talk the walk” approach on communicating corporate purpose. Leading companies that have traditionally taken a low-key, “below the radar screen” approach have recently become much more active in this regard.
Companies articulate and communicate on corporate purpose with the ultimate aim of building and sustaining reputation and trust. Managers have good reason to view this proposition as a double-edged sword. On the one hand, more thoughtful and careful communication of corporate purpose gives the opportunity to build, sustain and increase trust. On the other hand, some managers feel it can open the door to still more stakeholder mistrust and skepticism. Clearly the idea of not only “walking the talk”, but “talking the walk” consistently and coherently is the only way around this conundrum. This is no easy proposition, but the rewards, in terms of reputation and brand benefits, are potentially rich.
In interviews, leading companies stated that they are not positioning financial performance in their communications as an end in itself, but as a means to an end. Interestingly, they also claim that the “lion’s share” of leading companies’ efforts in communicating corporate purpose is dedicated to communicating on issues that help companies to align their corporate interests with those of key internal and external constituencies. Customer-focused messages also take up a good share of efforts. But viewing the literature and discourse around this subject, companies still have to be careful that “talk” matches “walk”. Otherwise, a substantial reputational risk factor enters the equation.
Overall, we found a positive correlation between effective communication of corporate purpose and financial performance. The effect of corporate purpose on financial performance of 108 companies was statistically tested through regression analysis and the results show that communicating purpose in a way that is consistent with corporate action can boost differentiation, strengthen reputation risk management and build additional competitive advantage.
Whilst one can be cynical about this, pointing to the “chicken and egg” conundrum (the view that financially successful companies do most things better anyway), we tried to counter this view by taking time effects into consideration to build a regression model that only measures the effect of purpose on financial performance, but not vice-versa. We tested the impact of purpose impact rankings in 2005 to financial performance over the five following years.
Nokia, Philips, BASF and L’Oreal are the top performers in purpose communication and have been extremely successful in building trust in the market and with key stakeholders, as well as in using it to leverage financial performance. Energy, pharma, technology and communications are the sectors in which companies are thriving in purpose communication, pulled by the excellence of industry leaders such as Nokia, Philips, Siemens, Vodaphone, E.On, StatoilHydro, Total, Roche, Bayer and GlaxoSmithKline.
Companies in the banking, insurance, logistics and automotive sectors have been struggling to communicate purpose in an effective way, with the exception of Swiss Reinsurance, HSBC, Volkswagen and BMW.
The food and beverage sector have the most uneven playfield. Danone and Nestlé excel in purpose communication, followed very closely by Unilever, Inbev, Diageo and Sabmiller, while its competitors are having a very hard time in building and sustaining reputation and trust. Interestingly, food and beverage is the sector in which purpose have the strongest influence on financial performance.
We conclude that clarity on corporate purpose – and in communicating it – enhances not only economy-wide financial performance but also relative financial performance within industries. Communicating purpose is indeed more than just talk.