In this thought provoking exclusive article, Ranjay Gulati defines different kinds of ‘purpose’ including directional purpose, relational purpose, reputational purpose, and motivational purpose. He unpacks three kinds of ‘convenient purpose’ (purpose-as-disguise, purpose-on-the-periphery, and purpose-as-win-win-only), then, leads us to committing to a deeper purpose…

Purpose is all the rage these days. It is common for executives to invoke purpose when announcing a new strategy, introducing a new product, or releasing their financial results. Companies are stepping all over themselves, it seems, to prove that they are making the world a better place.

As someone who has championed the need for corporate purpose, you’d think I would be thrilled that so many companies are jumping on the purpose bandwagon. But I’m not. That’s because there are many executives who fail to embed purpose into their day-to-day operations. They craft noble-sounding purpose statements and then proceed to pursue—and trumpet—their purpose only when it’s convenient for them.

A faulty assumption underlies this superficial behavior: that if a company wholeheartedly pursues purpose, its performance is bound to suffer. In fact, I have found that just the opposite is true.

When a company makes purpose part of its operating system, its executives are forced to make difficult decisions that serve a range of stakeholders. Yes, from time to time some of these stakeholders might have to take a short-term hit. But in the long run, as I discovered in my research, this way of operating yields performance advantages that consistently emerge in four distinct ways.

Directional purpose is a kind of “North Star,” serving as a reliable guide during times of strategic and moral uncertainty.

Relational purposeful actions generate trust, building long-term relationships with all stakeholders.

Reputational purpose instills trust in a company’s products and services that in turn leads to long-term customer loyalty.

Motivational purpose inspires employees to feel an emotional connection with their employer that causes them to put extra effort into their work.

The motivational benefits of purpose are particularly relevant now, amid the “Great Resignation” that has seen an unprecedented number of people quit their jobs. The pandemic ushered in a period of soul-searching that led many individuals to reassess all aspects of their lives. According to a survey by McKinsey, nearly half of employees in the U.S. said the pandemic had caused them to rethink the type of work that they do.

More people – and especially millennials — want to work for an employer who truly embraces purpose, the survey found. Employees are leaving companies whose commitment to purpose they find lacking. And they can, because the current labor market has given them the upper hand. This gives a major advantage to companies that have shown a commitment to purpose.

Avoid “cringeworthy emails to your team about corporate social responsibility efforts that seem disconnected from the team’s day-to-day experience,” an article on the study advises; rather, leaders need to help individuals and teams find personal meaning in their daily work. This correlates with my own research, in which I found that purpose is a generative force that by its very nature leads to greater productivity.

Many executives apparently do not believe that doing well and doing good could possibly co-exist. I have found that there are companies that practice three main types of convenient purpose because they believe it is the only way they can preserve their corporate interests.

The worst of these is what I call purpose-as-disguise, in which companies use a high-minded purpose statement to conceal wrongdoing. Theranos, which claimed that its purpose was “to facilitate the early detection and prevention of disease and to empower people everywhere to live their best lives,” fell into this category. A jury recently convicted its onetime CEO, Elizabeth Holmes, on federal fraud charges.

Then, there are the companies that practice purpose-on-the-periphery, by writing up a purpose statement but only acting on it in ways that are tangential to their core business. The author Anand Giridharadas has written of top executives who prefer to pursue “virtuous side projects” instead of incorporating purpose into their daily operations.

The most well-meaning members of the shallow crowd practice purpose-as-win-win-only. These companies articulate purpose as a high-minded intention to follow a multi-stakeholder approach to business that includes society as a whole. But they only follow through with this intention when it is profitable to do so. This is an extremely limiting approach as it leads to actions that only have immediate economic benefit.

Employees, customers, and the general public can easily detect when professions of purpose are shallow. Cynicism takes hold when they see a disconnect between a company’s purpose statement and its real-world behavior. Because purpose statements are so often misused, this cynicism has become widespread. And it overshadows the real value that purpose can offer – not just to society but to financial performance, too.

When executives commit to what I call deep purpose, they know they will sometimes need to make painful short-term tradeoffs as they work to serve their multiple stakeholders, including shareholders, customers, suppliers, employees, and society.

I saw difficult trade-offs at play when I studied Gotham Greens, a grower and distributor of fresh produce. It seeks to create “new ways to farm, produce local food, revitalize communities and innovate for a sustainable future.”

Committed to reducing environmental waste, the company at first wanted to use compostable packaging for its products. But it soon found that its greens wilted much sooner than if they were packaged in single-use plastic containers. And delivering greens with no packaging at all was very unpopular with customers.

The CEO, Viraj Puri, knew the company would face criticism for its decision to use single-use plastic. But after extensive study, he found that the environmental harm from food waste using compostable packaging was greater than the harm from using plastic that preserved the food for much longer.

Puri is not giving up on his goal to use more planet-friendly packaging. He is continuing to explore viable alternatives, and he hopes the packaging calculus will change someday, in step with advances in science and industry buy-in. Despite superficial evidence to the contrary, Puri’s decision on packaging was inconvenient and also principled.

Leaders like Puri know that companies that prize short-term benefits over long-term purpose do so at their peril. My research has shown that when leaders look to purpose as their “North Star,” they can steer their way to long-term health, even as they face the most trying times.