Dr Axel Kravatzky is the managing partner of TT-based Syntegra-360 Ltd, vice-chair of ISO/TC309 Governance of Organizations and president of EUROCHAMTT. He enables companies to flourish, helping them increase the sustainable value they generate through integrated governance, certified management systems, and transformational leadership.
In the Caribbean, from boardrooms to executive suites and among staff and stakeholders, there is a widely held belief that a firm’s primary purpose is perceived to be generating profit for the owners.
For many, this is also the primary objection for firms to seriously integrate into their strategies generating sustainable impacts that help to achieve the Sustainable Development Goals (SDGs) and to contribute to sustainable development – other than in a vaguely stated vision, and more recently, corporate purpose, statements.
This perspective, deeply ingrained in corporate culture, is seen as the natural order of business operations.
However, a growing number of companies are challenging this notion, striving to redefine their purpose to encompass responsible and sustainable value generation that benefits all stakeholders, including the natural environment.
This shift towards a broader, more inclusive understanding of corporate purpose is not just a moral imperative but a strategic necessity for long-term success and resilience.
The Misconception of Maximizing Profit
The traditional belief that the ultimate goal of a company is to maximize profit is increasingly being scrutinized.
This narrow focus on short-term gains often overlooks the broader impacts of business operations on society and the environment as well as the actual foundations on which the income of the firm rests – income from customers based on all the value generated for them.
A more enlightened approach recognizes that true value creation for customers extends beyond transactional consumption. It encompasses a holistic view of the company’s impact on the customers, all other relevant stakeholders, as well as the natural environment.
Companies can achieve sustainable profit maximization by innovating across the entire value chain and focusing on the fundamentals of creating value. This approach aligns with the insights from a recently published BSI PAS808 Executive Briefing, which emphasizes the importance of redefining organizational purpose to contribute optimally to the long-term well-being of people and the planet.
Rethinking the Purpose of the Firm
The prevailing misconception that the sole purpose of a firm is profit generation is being challenged by a new paradigm. Many companies are beginning to articulate a purpose that starts from the role of the firm to generate a positive impact on society and the environment in such a way that it also generates competitive and sustainable financial returns.
However, there remains a gap between the articulated commitments and actual practices. Many firms only have objectives, strategies, and targets for financial results. A review of their board papers, organizational strategies, board and executive behaviour, and published annual reports clearly demonstrates this.
This disconnect highlights the need for a fundamental shift in how companies perceive their roles in society. The recently published BSI PAS808 Executive Briefing on Purpose-driven organisations: Worldviews, principles and behaviours for delivering sustainability – provides a framework for understanding what it means to be a purpose-driven organization, emphasizing the need for businesses to align their operations with the goal of enhancing the long-term wellbeing of all stakeholders.
Aligning Governance and Management with Purpose
For companies to embody their stated purpose, it is essential to align governance and management practices with this broader vision. The guidance provided by the national standards for governance in Trinidad & Tobago, Saint Lucia and Jamaica ISO 37000 Governance of organizations – Guidance, and the SDG Impact Standards for Enterprises offers a roadmap for companies to integrate their purpose into their strategic decision-making processes.
By defining all dimensions of value creation and establishing clear objectives and strategic outcomes, companies can ensure coherence between their purpose and their operations. This alignment not only enhances the company’s ability to meet the expectations of its customers and other stakeholders but also contributes to higher profit margins through innovation and committed personnel.
Core Practices for Maximizing Value
To maximize value, companies should engage in practices guided by standards such as ISO 37000 and the SDG Impact Standards. These practices include defining a meaningful purpose that resonates with all stakeholders and embedding impact into the company’s strategy and operations. By measuring and managing impact and ensuring transparency and accountability, companies can contribute effectively to the Sustainable Development Goals (SDGs) and generate more value for all stakeholders.
These standards guide organizations in making impactful decisions that are commercially viable and that contribute positively to sustainable development, covering strategy, management approach, transparency, and governance. They encourage businesses to identify and manage their impacts on society and the environment, promoting transparency and stakeholder engagement in the process.
Generating value that contributes to sustainable development is a complex process. The role of standards in this domain is to simplify the complex and to provide practical guidance that results in credible, auditable value.
Most companies have begun to think and start measuring some aspects related to the environmental, social, and governance (ESG) dimensions as demanded by investors and evolving regulation. Companies that want to maximize value generation, including financial returns, are well advised to focus on the fundamentals of value generation rather than simply reacting and starting to measure without a clear plan.
Call to Action for Caribbean Companies
Caribbean companies have a unique opportunity to lead the way in redefining corporate purpose. By embracing the guidance provided by BSI PAS808, ISO 37000, and the SDG Impact Standards, companies in the region can transition from a narrow focus on profit to a broader commitment to sustainable value creation. This shift not only benefits the companies themselves but also contributes to the well-being of their stakeholders and the natural environment. It is time for Caribbean companies to move beyond the traditional profit-centric model and embrace a purpose that aligns with the urgent needs of people and the planet.
The journey towards redefining corporate purpose is a challenging but necessary one. Caribbean companies that embrace this shift will not only enhance their resilience and long-term success but also play a crucial role in addressing the pressing social and environmental challenges facing the region and the world.