The Role of Corporate Purpose in Corporate Governance

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In this paper, I review the notion of corporate purpose in contemporary management theory and in corporate governance, and present a framework that can be used by boards of directors. From a rather limited presence in those academic fields, corporate purpose has emerged as an important area of interest for boards of directors and senior managers. Purpose has the potential to be an engine for organizational change, improve corporate governance and help reconnect companies with relevant stakeholders and society. Some scholars and experts fear that purpose may promote some social causes at the expense of shareholders, by eroding firms? profitability and decreasing shareholder value creation. Some recent empirical studies show a positive relationship between corporate purpose and financial performance. Nevertheless, the unique challenge that corporate purpose raises is to understand how a well-defined purpose can help improve the quality of governance and, eventually, corporate performance. This addresses this issue. It is based on three longitudinal real cases that have been using corporate purpose in their governance and management for a long period of time (about ten years each): Ingka (Ikea), Unilever and Schneider. By exploring in detail and discussing the experience of these companies that have worked over the years with some notions of corporate purpose, this paper offers new perspectives on how to articulate purpose to be effective for boards of directors and senior managers. It also sheds some light on how purpose can play an important role in corporate governance and in the quality of strategic decision-making. This paper also provides a framework on how boards of director can work on corporate purpose and benefit from it.
Bibliographic citation: CANALS, J. (2021). The Role of Corporate Purpose in Corporate Governance. A framework for boards of directors and senior managers (WP-1301-E). Barcelona: IESE.
Date: 01/07/2021
Author(s): Jordi Canals
Document type: Working Paper
Department: Strategic Management
Languages: English
Learning objective Research data to support discussions