Q & A

The CFO’s Role in Defining Organizational Purpose: A Q&A With EY’s Kris Pederson

As organizations pursue transformation initiatives or launch significant transactions or structural changes, one of the key success factors is defining a clear purpose — not only for the planned initiative but, more importantly, for the future-state organization.

FEI Daily spoke with Kris Pederson, a principal in EY’s Advisory Services Practice and Americas leader of the firm’s Purpose-Led Transformation Initiative, on the growing interest in defining organizational purpose and CFO’s role in those efforts.

FEI Daily: How do you define a purpose-led transformation?

Kris Pederson: We’re looking at an organization’s purpose as a company, or its inherent reason for being. That’s broader than a mission or vision statement — that’s very much the “what” of the organization. It’s broader than a strategy, which is often the “how” of the organization. Our perspective is “purpose” is the “why” the organization exists, and we’re finding that those companies that have this “why” articulated through the organization are more successful.

Purpose manifests itself in things like your brand messaging, when it’s done well, so your purpose should be directly driving how you portray yourself to the world.

You can look at some of the decisions some consumer packaged goods companies or retailers are making now. Look at the company that decides we’re health/drug store type of a company, and selling cigarettes doesn’t align to our promise of health. We’re going stop selling cigarettes. That is a bold, purposeful move of giving up a couple of billion dollars of revenue for that company.

A purpose-led transformation, then, is really helping a company define purpose, define the aspirational reason it exists, and then helping it to activate purpose throughout the organization and the stakeholders it engages with.

FEI Daily: How is purpose distinct from culture?

Pederson: Purpose is really the umbrella that drives what we call the corporate DNA of an organization. Culture is part of that corporate DNA, but purpose is broader. So a purpose would help as a guiding light so the organization knows where it’s headed and what it’s all about, and culture translates into how people in the organization operate. We think of culture more as the behavior that people exhibit.

FEI Daily: Are you seeing more companies interested in defining their purpose or expressing it more concretely?

Pederson: We’ve looked at hundreds of companies and we think that, yes, purpose is very much on the move. It’s in the corporate vernacular more. We’re actually seeing a decline in things like corporate social responsibility and sustainability, but they’re being replaced by this notion of purpose. So, we’re seeing a lot of companies talk about purpose. We’re seeing activity to shape the purpose message a bit differently.

The purpose statement step is very important, but the companies that get it right are also driving activation through the organization. We’re definitely seeing more of a focus on purpose statement definition, above and beyond just ‘here’s our mission and vision’. Companies are now starting to really work on “What’s our purpose?,” which is a great thing.

FEI Daily: What are some of the factors driving that?

Pederson: First off, I think millennial and the younger workers coming into the workforce are clearly driving purpose. Employees in our new era, if you will, have a lot of choices about what they want to do, where they want to work. There are different, creative ways for employees to work, and employees want to work for purposeful companies.

Our research is finding that employees are three times more likely to stay with a purposeful company. So, this notion of employees engaging with their feet, if you will, and either wanting to stay and work with you, or move on and do something else that’s more purposeful. There’s a definite trend in the younger generation to want to be purposeful and make a difference. I think that’s key.

The other factor is just how ultimately connected we all are. You’re able to read about companies and what they’re doing, and all the social media chatter. There’s a lot of buzz and chat around, “Well, I’m doing something purposeful. I’m doing something good for the world.” This whole notion of being connected and being able to see what companies are doing is key.

We’re also seeing that these stories on purposeful companies are starting to get out there, so there’s more success being reported by these purposeful companies. We’re seeing a lot of companies saying, “Hey, I want to get on that bandwagon, too. There’s some secret sauce in this purpose stuff, and I want to figure out what that is.” So, I think those might be three key reasons.

FEI Daily: When does the purpose topic typically come up? Is there usually some kind of trigger event?

Pederson: One of our clients is a newly merged company. Two companies are coming together, so there’s a need and opportunity to do purpose work. They’re trying to showcase their reasons for being to the world. It really helped them think through, “What’s our purpose?” and then everything flows from that. “What is our strategy? What is the culture and the behaviors we want to emulate and the values we want to showcase?”

We also see when there’s new leadership at the CEO level or even a functional level. A new CFO might be coming in. What purpose do they want the finance function to hold? What’s their vision? What legacy do they want to leave? So, we’re definitely seeing the conversation happening when there’s a leadership change, even in established companies or when there’s somebody savvy at the helm that’s looking around saying, “Hey, these other companies have some great results. We need to do something different.”

FEI Daily: Does a purpose tend to have a social or altruistic element to it?

Pederson: We’ve come up with a checklist of nine attributes. “Is a purpose statement aspirational? Is it humanistic?” “Is it unique to the company? Is it outwardly focused?” We’re seeing a lot of companies that are getting lifts from their purpose statements to be truly considered a company that’s trying to do things outside of their four walls of the corporation, and one that has a broader or higher calling.

FEI Daily: What is the CFOs’ role in the purpose discussion?

Pederson: With the CFO as key member of the C-suite, it just adds a dimension of a leader who understands financial benchmarks asking, “Are we purposeful? Does the world know it?” Some of our clients are reporting now what they call the triple play in their measurement. They reporting their financials, but they’re also looking at their societal impact. Are we being a good corporate citizen? Are we getting the financial returns we want and need? And, what’s our give-back? What are we doing on a broader, more purposeful topic to be a good societal player?

It’s been interesting to see this triple play measurement, and to see CFOs helping to take the lead in how the business is measuring itself, how it’s thinking about itself, and sorting out the right measurements. Obviously, financial results are what it’s all about. But we’re also going to care about these other, broader, mandates of our success as a company. So, I think that’s key.

We’re looking at purpose metrics. What does it mean to be purposeful? How do we see purpose activated? So, we’ve been doing some work to get ahold of that by industry. And so, I think, a key role for the CFO is helping this overall measurement of purposefulness from a longer-term perspective.

FEI Daily: Beyond doing good, do you also have to, for lack of a better word, brag about it?

Pederson: I think so. I think the world needs to know what you’re doing in an authentic way. We’re looking at the elements of the corporate DNA and brand purpose linkage, and making sure messaging about what you’re doing broadly is portrayed to your stakeholders. Your employees, a lot of times, don’t know all of this stuff you do as a company. So, engaging your employees and customers, communicating to them, and making sure they understand the broader good that you’re promoting are key.

One of the things we look at is experience mapping. If purpose is operating well, then what does it look like and feel like to your customers, to the employees that serve them, to your communities and the stakeholders through to your regulators? Is that whole experience purposeful? And/or are there chinks in the armor that need to be fixed?

 

FEI Daily: Are there challenges that companies have to address as they begin this process?

Pederson: I think one challenge is how to not have this just be another initiative. We’re seeing some companies use purpose as a way to help prioritize their initiatives, so not just looking at their “Why?” or strategic alignment, but through purpose alignment. It’s also a great way for the CFO to help with that process as they’re reviewing initiative portfolios. I think that’s one risk that it doesn’t just become another initiative.

It’s really that follow-through, and making sure there are going to be steps taken that indeed start helping move that company broader to the purpose promise that they’re going to portray in the marketplace.