The Return on Purpose: Before and during a Crisis
13 Pages Posted: 27 Oct 2020
Date Written: October 21, 2020
In this paper, we analyze the impact of corporate purpose on performance through a new dataset, developed by BERA Brand Management, based on consumer perceptions of corporate purpose for 13 different attributes across over 200 brands.
Our paper also reviews the state of play in the debate on corporate purpose and draws on the results of a survey of CEOs of large-cap US companies.
Our paper finds that companies associated with high-purpose outperformed on common measures of financial performance, valuation, and value creation:
- Average valuation multiples for high-purpose brands are over four times EBITDA higher than that of low-purpose brands.
- High-purpose brands demonstrate a nearly 20 percentage point advantage in annualized total shareholder returns over low-purpose brands.
- High-purpose brands double their market value over four times faster than low-purpose brands.
During Covid-19 the gap between top and bottom quartile performers increased. Companies with the best purpose scores generally moved up and into the top quartile of total shareholder return performance, suggesting that the capital markets expected companies with stronger corporate purpose to maintain a stronger connection to their consumers and deliver more resilient financial performance. These results suggest that operating with strong corporate purpose is good for shareholders, as well as stakeholders more generally.
The results of our CEO survey indicate that CEOs increasingly see corporate purpose as a key element in competitive differentiation and strategy development.
Keywords: Corporate Purpose, Performance, Brands, ESG, CEO, COVID-19; COVID, coronavirus
JEL Classification: G10, G14, G2, G23, G32, M1, M2, M4, M14, M31
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