A Deeper Look at the Return on Purpose: Before and During a Crisis

Abstract

There has been much debate about the relationship between a company’s pursuit of purpose and the value it creates for both stakeholders and shareholders. Recent studies have shown broad company statements of purpose may create a false façade that is unsupported by changes to company governance or actions. However, purpose and stakeholder value continue to gain prominence in the cultural conversation, and other studies show purpose has a strong relationship to consumer preference and company performance. In this paper, we greatly expand on our previously published research that proposes a new method for linking objective measures of purpose to financial, valuation and value creation performance. Rather than measuring what a company says about purpose, we instead measure the impact a company creates with consumers across specific attributes of brand purpose. We find that brands scoring highly on these measures of purpose outperformed low-scoring brands in the three years prior to the COVID-19 pandemic. We further show high purpose brands recovered faster and more fully during the pandemic in 2020, leading to a widening performance gap to low purpose brands. We validated these findings by running a series of regression models that showed a statistically significant relationship between purpose and valuation multiples, while accounting for variation in growth, profitability, asset intensity, leverage and sector effects in the sample population. We contribute to the literature by shifting focus from statements of purpose to measurable and investable attributes that show a strong relationship to drivers of value for both stakeholders and shareholders.

Keywords: Purpose, Corporate Purpose, Brand Purpose, Stakeholder Value, Shareholder Value, Performance Measurement