Corporate Purpose Statements Must Replace Verbiage with Precision

29 Apr 2021

University of Oxford professor Colin Mayer calls corporate purpose statements "verbiage," but believes that greater precision with respect to these objectives can improve companies’ governance and resilience.

While convinced that defined purpose generates better corporate governance, Oxford University professor Colin Mayer says corporate purpose statements tend towards "verbiage." During his presentation at the October 2020 Can Purpose Deliver Better Corporate Governance? experts meeting - sponsored by STI - Mayer went so far as to describe these statements as 'twaddle,' at least insofar as they are normally understood. For Mayer, it is senseless to try to put into practice imprecise and indeterminate corporate purpose ideals. 

Mayer pointed out that corporate purpose is commonly understood as what allows companies to understand "why their business exists, is created, and has reason for being." Put it in these terms, he reflects, “it's no surprise that declarations of purpose become 'verbiage'." The professor compares the concept to asking children what they want to be when they grow up. He asserts that many companies answer this question as would any child: 'better,' 'bigger,'... which is to say, vaguely, simply and imprecisely. "Purpose verbiage fills the void of vagueness," Mayer claims.

To improve this situation, the expert suggests that "when greater specificity is brought to the notion of purpose, it provides a basis on which one can move from verbiage to something that really makes sense." In this way, he claims, corporate purpose can truly "find ways to solve the problems we face as individuals, as a society, or in the natural environment,” offering “profitable solutions, not profiting from problems”. Mayer also believes that addressing corporate purpose this way confers clarity and credibility - especially when it moves beyond mere words and is implemented: "What is key in corporate purpose is not only clarity around corporate purpose statements, but adopting that purpose in companies," he says.

Mayer posits that current arrangements within the business environment do not do justice to the concept of corporate purpose, and proposes various modifications for companies to put into practice. He proposes

  • that the law establish duties that are always intended to give the company a purpose;
  • that the regulation of companies go beyond the "rules of the game," to align the purpose with social legitimacy, or social license to operate;
  • that ownership be linked not only to the rights of shareholders, but also to their accountability and, in particular, "to the promotion of company purpose."
  • As for governance, Mayer says, it should aim to imbue the company with purpose beyond its accountability to shareholders. 

In short, it's about understanding every facet of a company, from finance to its relationship with suppliers, employees or owners, with the concept of corporate purpose in mind.

Exercising corporate governance with an internalized corporate purpose, says Mayer, would give it greater validity from the outset, "in the sense that it would not be not something imposed." It would also promote plurality and clarity in purpose; as well as greater innovation in execution, "in that it would allow us to find ways to solve problems profitably." Finally, it would provide financial and operational resilience, to the extent that it "promoted those purposes in a way that benefited rather than undermining others."