Hardships test the character and resolve of individuals, and the same is true for companies. Given the anxiety and stressful conditions organizations are currently under, compounded by economic and competitive pressures, companies may be tempted to ignore or work around their cultures, values and purpose. Yet Claudia Saran, Vice Chair of Culture at KPMG U.S., says that’s the opposite of what CEOs need to do.
“CEOs need to make sure that during this difficult time they are more than ever sticking to their organizations’ values and purpose,” she says.
How honorably companies navigate their businesses through the pandemic will be, for a long time, etched into the minds of their employees, clients, communities and shareholders. According to our CEO survey fielded at the beginning of 2020, the biggest group of CEOs (25%) believed that connecting their brand with a compelling corporate purpose was the most important reputational factor for their organizations.
“Today, culture and purpose are more important than ever,” says Saran. “CEOs need to ask themselves: What do we want to be known for by our key stakeholders given all that’s going on? What are the key strengths of our organization culturally that should be really pronounced and evident at this time? And how are we going to hold on to them for competitive advantage in perpetuity?”
Waste Management took a principled approach to the pandemic. “We took steps to support our customers, particularly the small- and medium-sized businesses that have been impacted most adversely during the COVID-19 pandemic. We helped our customers right-size their service levels, temporarily paused price increases, extended payment terms and gave a free month of service to qualifying open-market small and medium business customers. While these actions had a short-term impact on our pricing metrics, we have strengthened our customer relationships and increased customer loyalty,” says Fish.
Chevron donated personal protective equipment (PPE) to health authorities around the world, making such items part of its response. “I’ve also been in more frequent contact with CEOs of other companies than I was prior to the pandemic,” says Wirth. “It’s been really inspiring to see people from different sectors of the economy—companies large and small—coming together to respond to the immediate needs in the very early days, to help inform government policymakers as things unfolded, to repurpose their supply chains to help with the response efforts, and to share lessons on how to keep our people safe and healthy. I’ve been incredibly inspired and humbled by the leadership I’ve seen from CEOs of other companies.”
Our survey reveals that purpose provides a clear framework for making quick and effective COVID-19-related decisions for a majority of U.S. CEOs (70%), but 77% have had to reevaluate their purpose as a result of the pandemic to better address the needs of their stakeholders (Figure 6).
Saran believes that it’s a good idea to take a step back and reevaluate the alignment of purpose and culture with stakeholders’ expectations. Equinix’s Meyers agrees with her wholeheartedly. “The emphasis on sustainability and the notion of stakeholder capitalism—ideas that were already on the minds of CEOs—are further fueled by the introspection that comes with the pandemic,” he says.
Analog Devices’ Roche ties purpose to innovation when he says: “It is our moral obligation to support the essential work of organizations making a difference and supporting those impacted by the virus. It is important to capitalize on the extra time we have these days for reflection so that we can create the right environment for true breakthroughs, otherwise known as ‘Isaac Newton moments,’ to occur.”
Saran further adds that the importance of values has risen in prominence since the beginning of the pandemic. “Companies want to know who they’re doing business with, and it helps to make sure that there’s some common ground in terms of organizational values,” she says.
One of the biggest challenges to sustaining a purpose-driven culture is the inherent lack of accountability and challenges surrounding culture “measurement.” Companies need to have concrete definitions of – and metrics for tracking – success, including the use of predictive analytics. It is best to have explicit leadership responsibility for that success as well. “Otherwise companies run the risk of having a lot of good ideas and occasional momentum,” says Saran, “but an inability to sustain that progress because they don’t understand the value they get from the continued focus on, and investment in, culture.”
Business leaders also aim to strengthen their ESG agendas post-pandemic. Eighty-three percent of U.S. CEOs want to lock in the sustainability and climate change gains they have made as a result of the crisis. Additionally, 58% say that the pandemic has caused their focus to shift toward the social component of their ESG program.
“Analog Devices has long been focused on responsible sustainability efforts, but I believe the time has arrived where we not only prioritize sustainability, but also environmental regeneration,” says Roche. “This means our employees will focus on solutions to help restore and replenish natural resources and ecosystems, while reducing our own carbon footprint and the environmental impact of our operations. This focus must also extend to our partnership efforts with our customers, suppliers and NGOs to reduce the impact on our planet.”
The social component of ESG is also top of mind for the CEO of Iron Mountain. “We've always had a volunteerism program, but we want to make sure our employees are using it to its fullest,” says Meaney. “The murder of George Floyd was a wake-up call for all of us. One of many realizations we had is we are not sure we’ve done everything we could to encourage our people to support a cause they believe in. We are currently planning to show our support by creating opportunities that further foster volunteerism and community engagement.”
Verizon Communications' Chairman and CEO Hans Vestberg announced to his staff that the company was committing $10 million to organizations that are dedicated to racial equality and social justice. He believes that a strong stance is a moral imperative if you find something simply unacceptable. “We knew racial injustice was something we needed to talk about because we’re not going to accept it,” Vestberg says. “We’re really building diversity right here: Our customer base is diverse and our company is diverse .”
Not only is management focused on long-term value creation through ESG, but investors, customers and employees are demanding results that evidence it. “To address this demand, companies must adopt strategic, impactful and measurable ESG policies supported by information beyond industry and SEC requirements,” says Scott Flynn, Vice Chair of Audit at KPMG U.S.
“ESG strategy, including reporting of key metrics, needs more rigor to appropriately measure and communicate to stakeholders how companies are delivering long-term value,” Flynn explains. “Strategic and effective engagement with ESG priorities is a business imperative. The stakes are real for many companies as society struggles with issues of climate change, racial equity and justice.”
As Flynn adds, rigorous ESG reporting helps companies:
- Understand and address risks that threaten profitability
- Attract a new investor base while meeting the increasingly stringent requirements of institutional investors
- Access capital
- Compete for top talent
- Grow and build the loyalty of their customer base.
Assurance of ESG reporting sets expectations for stakeholders and allows management and investors to track progress over time by ensuring the accountability and reliability of the information used to measure the efficacy of the initiatives.