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July 29, 2021

Businesses struggle to close gap between purpose and action

By Joe Pickard

The vast majority (98%) of global business executives say it is critical for organisations to have corporate purpose, according to a new brief, Purpose Drives Profit: How Global Executive Understand Value Creation Today.

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 brief, which is the fourth in the Value of Value reporting series, analyses the link between purpose and profit, and how to combine them to create value for all stakeholders.

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 well-being of key stakeholders and corporate performance.

However, a 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.

Other key research findings include:

  • Nearly all companies now have a statement of purpose but only about half (51%) of business leaders believe that their purpose statement is very clear.
  • Nearly all executives surveyed (99%) 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.

 

Representing AICPA and CIMA, Andrew Harding, chief executive of management accounting 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 organisation, at the crossroads between finance, business and management. Their role is to provide, analyse, 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 organisations and enabling them to improve strategic decision-making to generate and preserve value for all stakeholders.”

Value reporting Foundation CEO Janine Guillot 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.” 

The full report can be read here.

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