Corporate governance standards and expectations continue to evolve in response to rising demands from investors, regulators, and stakeholders—and in response to continuous improvement on the part of high-performing Boards. In recent years, with more companies clarifying their purpose as their meaningful reason to exist, their boards are beginning to broaden their oversight role to include purpose. This is referred to as “Purpose Governance”—and it is essential to put organizations and society on a sustainable footing.
The purpose governance trend is a welcome one, as boards that fail to oversee their company’s purpose face a governance gap. They put their companies at risk of inauthentic purpose or “purpose washing”, and worse, fail to realize the commercial and social impact of their purpose.
Some observers, such as Corporate Knights, a Canadian media and research company focused on advancing a sustainable economy, contend that there is a widescale purpose-governance gap. In 2022, it published the world’s first rating of social purpose companies: “The Social Purpose Transition Pathway: Helping Companies Move from ‘Say to Do’”. They evaluated 34 Canadian companies and global brands with significant operations in Canada to assess their purpose governance and implementation maturity. They found that many companies had corporate values that reflected the purpose, many boards disclosed progress on the purpose through annual reports, and some included purpose in the corporate strategy. However, few boards in their study included purpose oversight in their board charters; and they also didn’t assign purpose responsibilities to the CEO through the job description. The report recommended that boards close this purpose-governance gap.
In its quest to accelerate social purpose in business, the Canadian Purpose Economy Project (CPEP) identified board oversight of corporate purpose as a key lever. If Boards acknowledge their fiduciary responsibility to act in the best interest of the company as defined by its purpose – if boards work with management to adopt a social purpose as the company’s reason for being and have oversight of the purpose – it can propel the purpose economy into a formidable force for good.
