The Third Dimension: Commitments
I received a bit of feedback to the last episode which I felt I needed to respond to. The feedback was: What happened to Purpose? Where’s the Why?
This is a really important question, there has been a significant amount written about the benefits of a company and its people aligning with a clear purpose. I think the consensus is that this can drive motivation, engagement and therefore productivity. Books such as Drive by Dan Pink have helped support a popular revival of discussions about this. Within the scope of the organisation dynamics model, the ‘Purpose’ of an organisation is represented in two areas (ringed in the diagram below):
Firstly — The leadership ability to impart a purpose, their ability to understand how to motivate their people and design a culture. This sits within the Organisation and People column and is a fantastically interesting section which I will be covering in later posts.
Secondly — The definition of what the organisation and its leaders define as a ‘Great Business’. This is for the founders and/or shareholders to define. For some businesses being great means making the shareholders wealthy, world domination, or putting people on Mars. Others are government departments or charities with non monetary goals. My intent is not to tell people what a ‘Great Business’ should be, but to show where the science — technology, statistics, psychology etc. and thought leadership demonstrates we could do a better job of getting to whatever our ‘Great Business’ goal is.
For at least the last few decades it was seen as acceptable for businesses to exist only to create money for shareholders. Clearly this did not make the most of the potential to motivate staff and inspire consumers. Some businesses are still locked in this cultural pattern and I would suggest that if they put more effort into understanding the research in this area they could significantly improve the effectiveness of their organisations.
In fact, now directors of our largest companies have a legal obligation to consider purpose! There was a shift in UK law October 2018 which finally made this sort of thinking a requirement on some larger companies. I believe moves are happening elsewhere in the world to do the same thing (updates welcome in the comments). If you feel like it, there is a quick summary to read below and then you could go and have a google for more if you’re still keen. This requirement on directors to consider all stakeholders will potentially affect all companies of all sizes in the near future. I’m personally extremely glad to see this.
I’ve included a summary below and a couple of links if you are keen to learn more about the UK changes but it is very dry reading so feel free to ignore.
The next post will be discussing the Leadership layer of the model and I think it will have some thought provoking items for you, especially if you are in management.
Appendix
My lay person summary of the 2018 UK Corporate Governance Code
Do not take as professional legal advice!
The legal obligations of directors for some large companies have now changed here are a few quotes and comments covering these changes but I am not a legal expert so don’t assume I have spotted or understood everything!
“Companies do not exist in isolation. Successful and sustainable businesses underpin our economy and society by providing employment and creating prosperity. To succeed in the long-term, directors and the companies they lead need to build and maintain successful relationships with a wide range of stakeholders.”
“companies should demonstrate how the governance of the company contributes to its long-term sustainable success and achieves wider objectives”
The 2018 Code introduces the concept of purpose for the first time and also emphasises the board’s role in culture, which is now elevated from having previously only been mentioned in the Preface. Principle B requires the board to establish the company’s purpose, and Provision 2 introduces board assessment and monitoring of culture, ensuring it is aligned to the purpose, values and strategy as well as the approach taken to reward. This link of purpose and values to reward extends to Remuneration, with both the board and the remuneration committee to have different roles, looking not only at executive directors, but also senior management and the whole company.
The 2018 Code also asks that policies and practices more widely align with the company’s values, requiring that companies allow the workforce to raise any matters of concern (not only in relation to financial reporting). A link is now made between whistleblowing arrangements (and regular monitoring by the board) and the board’s role in ensuring that behaviours align with culture.
The Directors’ Report must summarise how directors have had regard for suppliers, customers and others, and the effect of that regard on principal decisions taken by the company
https://www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code