Why does your business exist? What is its purpose? It’s something I always ask clients as the answer provides the true north for all decisions, whether strategic or operational. A seemingly logical question yet it is not uncommon to find that the leadership of a business cannot confidently or consistently answer it.
The smaller and simpler the business, the easier it is. A local plumber does not normally have existentialist ponderings. However, larger and more complex organisations are increasingly displaying anthropomorphic behaviour by looking at their navel and asking why?
One reason is Simon Sinek’s 2009 book “Start with Why” and accompanying TEDx talk (which has had 37 million views at last count and is the #1 TEDx talk by views). According to Sinek, “Why” means: What’s your purpose? What’s your cause? What’s your belief? Why does your organization exist? Why do you get out of the bed in the morning and why should anyone care? Importantly, he states that profit is never “Why” but a result.
Sinek uses Apple as an example: “With everything we do, we aim to challenge the status quo. We aim to think differently. Our products are user friendly, beautifully designed, and easy to use. We just happen to make great computers. Want to buy one?” (According to Sinek, the Why is thinking differently, the How is beautiful design and the What is making great computers).
And here lies the problem. For Boards of commercial businesses (NFPs are a different kettle of fish), Sinek’s profit-neglecting words appeal to the humanistic drive for a higher purpose but clash with economic reality. Although there are nuances around balancing profit for risk, timing of profit generation, when to return profit (reinvestment vs dividends) and whether another derivative of profit is the right performance measure (eg free cashflow, total shareholder return or earnings per share), business owners want a satisfactory return* on the capital they invest and Directors ignore this at their peril.
So why the disconnect?
In Australia, the Director’s role is governed by the Corporation’s Act and includes the following Director responsibility: The duty to exercise powers and duties in good faith in the best interests of the company and for a proper purpose. Courts, when assessing compliance, examine why the power exists and whether a Director’s motivation lies within the appropriate objects of the power. ASIC is quite clear that a Director’s primary duty is to the shareholders and logically, if shareholders want return on their capital (and show me an investor that doesn’t) then Directors have a duty to exercise their powers to achieve this. (Sinek works in the US where Directors have a similar duty of care.)
Sinek espouses the need for leadership to sell their message to both employees and customers and to do this by tapping the human desire to search for meaning. He goes so far to reference the Limbic brain and the ability for it to drive feelings as opposed to the Neo-cortex (the logical and rational part of our grey matter). He sees leadership as the art of creating emotional connection within and beyond the business and profit is a dirty word in this context.
Okay, is the governance approach or the Sinek approach right? Essentially, they both are – just from different points of view.
Sinek is a marketer and he is observing that when leadership’s passion and the business’s value proposition align, selling internally and externally is authentic and profit takes care of itself. However, there is a step before this that Sinek is not referencing. The Board sets the primary Purpose of the organisation, appoints the CEO and allocates resources. It also defines what satisfactory performance looks like in the context of the Purpose which in turn informs the CEO’s targets and incentives.
Look at the remuneration report for any listed company and shareholder return (in its various incarnations) is always front and centre. Tim Cook, the chief executive of Apple (Sinek’s exhibit A) since 2011 and Apple Exec since 1998, received a US$45m bonus in 2017 because Apple delivered shareholder returns in the top third of the Standard & Poor’s 500 index during the previous three years. There was no KPI or bonus for “thinking differently”.
The CEO is charged with developing strategy (with guidance from the Board) and delivers it with the intent to achieve the Board’s performance target. In Apple’s case, if Tim Cook does this by thinking differently – excellent. If he does it by thinking the same as always – also excellent. He still gets his bonus. However, if Tim Cook doesn’t hit performance targets, he may need to change his Why. His tenure is dependent on his performance – Why alone is not enough and the legal muscle driving good governance ensures this.
(Some may say that thinking differently will ensure profit. That will be true until it isn’t. Its simplistic to link financial success to an ideology and looking at one successful business that thinks differently does not acknowledge all of the unsuccessful businesses that also thought differently.)
Sinek has been very successful in sharing his view with many millions and in response to Sinek’s success, most major consulting firms are now spruiking a similar and competing product – but – as they can’t use Sinek’s Why, the term Purpose is being used in this context. As Purpose is also used to describe hard-nosed objectives like creating shareholder returns, existential confusion is reigning and if Aristotle was alive he would be guaranteed riches as a management consultant.
The first step in communication is having a common language and knowing the difference between Sinek’s Why and a business’s governance Purpose is essential for any business leader and especially for the CEO, who needs to be fluent in, and translate, both perspectives.
*For non-accountants, all shareholder returns, either capital growth or dividend are driven by actual and/or anticipated profitability.
(Side note: With respect to CSR and shared value in support of profit – refer previous post.)
Mark is Principal Consultant and Director of Pivotal Point Strategic Directions. He has a rich history working with organisations to define their purpose and identifying the best performance measurement aligned to their purpose.