January 11, 2022

Rethinking a company's soul

Marbles falling into place

How can businesses can find their direction in the age of climate, diversity and social justice?

These days, many corporate leaders are soul-searching – quite literally. They’re doing it because they must. Operating at the center of deep societal, social and sustainability issues and challenges, they find their corporate playbook lacks the answers to profound (and soul-searching) questions. Climate change, the coronavirus, increasing awareness and transparency on issues of diversity, equity and inclusion, the murder of George Floyd in the U.S., and pressures to both conform to and stand up to autocratic governments around the world, are calling for answers that go beyond most corporate purpose and value statements. Sitting on the sidelines is no longer tolerated, impacting reputation, sales, and recruitment as customers and employees expect, if not demand, meaningful responses and actions in areas that were once the domain of politicians.

With the introduction of the UN sustainability goals, businesses have become attuned to the importance of being socially and environmentally responsible. Their efforts eclipse the philanthropic endeavors of earlier eras and go far beyond the Earth Day initiatives and employee volunteer days of recent decades. Boosted by the relative growth in trust they have earned during the pandemic, they respond to demand from both investors and the public for business to be a part of society, not apart from society.

Expectations are high: 86% of people say they expect CEOs to publicly speak out about societal issues, according to the latest Edelman Trust Barometer. But it is not easy: when companies take a position, it can often disappoint. That failure to satisfy typically comes from both the mindset within the company and the minefield outside it.

Shifting the mindset

The mindset needed is a shift from conservation thinking (whereby responsibility is about preserving the status quo by doing no harm) to transformation thinking (where responsibility is about a proactive effort to achieve a new target state). Both environmental and social agendas have shifted from conservation to transformation in the past few years, and organizations that have not made the same mindset shift find themselves out of alignment.

In the environmental case, the shift reflects a realization that the status quo is itself unsustainable – most obviously regarding climate change, but also in terms of biodiversity loss, the ongoing build-up of plastic waste, deforestation, etc. The quest for “Net Zero” is the most explicit, but not the only, example of an ambitious shared goal that demands the shift to a transformation mindset.

In the social case, the shift reflects a groundswell of demand from talent, customers, and investors that diversity, equity and inclusion no longer sit alongside the business strategy but become core to the organization’s culture, operations and decision-making. The result is the same: a reassessment of what corporate responsibility means, from doing no harm in the context of the status quo to an active quest for a new set of achievements and standards.

Navigating the minefield

Even with a goal-seeking, transformation mindset, taking a stance and speaking out on an issue may not get the favorable reception you expect. If your climate action does not go far enough, you may be accused of greenwashing. Anxious to avoid that accusation, some companies find themselves under-stating their eco stories or “brownwashing.” Brownwashing can also reflect concern about possible legal challenges or wanting to remain eligible for government incentives to go green. Either way, the result is a frustrating circle in which companies fail to explain their stance, and the positive moves they are making go unrecognized. Similarly, the stance you take on diversity, equity and inclusion may underwhelm some stakeholder groups – but there is also peril in appearing too “woke” or doing things that feel performative and out of line with the reality of the company’s own track record.

Our research consistently shows a gap between a moderate and sometimes uninterested majority of the public and the loud critical voices we hear on social media. For example, the active voices on social media are hugely critical of the oil and gas industry, but the American public, when asked, is mainly neutral and, in fact, net positive in its sentiment about the industry.

The challenge is not just one of degree but also trade-offs. Does a US-headquartered business do what will satisfy its domestic stakeholders on free speech, or what enables it to operate in China? Does an organization publish its progress against diversity targets when the drive behind that progress comes from entry-level recruiting without any change at the top or the steps required to create a path to leadership for those diverse new hires? How do you trade off the local societal need for jobs with the global demand for decarbonization when seeking a “just transition” on climate? These and many questions like them have no neutral options, so business leaders need to know what stand to take and why they are taking it. How do you do that?

The role for soul

Some companies – IKEA, Google, Unilever, and Walmart, among others – seem to know. They have tough calls to make and trade-offs to navigate – but they have a guiding context to do so. Faced with one of these challenges, they can be guided by their corporate soul.

Defined simply, soul is the moral intent to do good. For a business, soul is both a moral compass and a driving intent to do the right thing by its workers, the communities it serves, and for society in general. That definition stretches far further than it once did.

Framing soul in terms of trust with stakeholders such as customers, employees, and investors, can be seen as the source of authenticity. Having soul means returning to that authenticity in the face of every decision and deciding to do – or not do – things based on what is true to who you are.

While an organization’s purpose sets out the goal it seeks to achieve, soul gives context to that purpose: It explains who the company is, why its goals matter to it, and what it will and will not do in pursuit of that purpose. Soul is what guides your organization’s reaction in an unscripted situation.

At a first glance that might sound like an organization’s values. Is that not what values are supposed to do?

Values may be one, relatively formalized, articulation of an organization’s soul. They are typically broad and benign: a shared reference that acts as a valuable counterweight to the immediate commercial pressures shaping individual employees’ behaviors. What we are describing as your corporate soul goes deeper, with more nuance and more corporate individuality. It is felt and lived, not just written down in a framework.

To uncover, shape and bring to life your company’s soul – in practice, not only in words, we propose the following four-step approach:

01 | Reaffirm the impact you most want your organization to have on society with a transformation mindset.

Are you defining a target state that does not yet exist, not just a list of initiatives? Are you fully engaging your top leadership and Board to define and own the change they want to create?

02 | Define what the organization must do to contribute in the most authentic and valuable ways, navigating the minefield using real-life scenarios.

Are you prioritizing actions that align with who you are? Are you considering the ‘silent middle’ and not just mitigating reactions from those who shout loudest? Are you prepared to follow through on the actions that your words will be taken to imply?

03 | Determine the metrics that track the specific contribution the organization can make.

Are you being ambitious enough with the targets you do choose? Are the progress metrics aligned with – or at least compatible with – your business goals?

04 | Determine how the organization will tell its story and engage its stakeholders along its journey of progress.

Are you using transparency to your advantage? Are you signaling not only what you’ve accomplished but what remains and where you go next to put your audiences in a similar transformation mindset?

Each business will have its starting points and its urgencies. There is no universal to-do list. Each will have to determine its own particular mix of major and minor issues. Where do you seek to lead, driving the transformation and resetting expectations for your sector? Where do you want to act according to stakeholder expectations, tracking norms without blazing new trails? And where do you not want to prioritize because other issues align better with how your organization can contribute?

In practice, that means actively and continually weaving DEI, climate, and social justice issues into the fabric of the organization’s processes and operating models and doing so in an integrated, strategic and coherent way.

Successful companies don’t just stumble into a set of random businesses or markets, they know how to marshal resources and capital to pursue financial goals. In the same way, successful companies should prioritize the societal issues they want to stand for and say why and how they are doing so. It becomes another aspect of sound business planning.