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The inevitable rise of Purpose Governance

Ostensibly only one step beyond, but a radical step. We call it Purpose Governance, not just in name, but truly and fully. A call to end the dominance of a single focus on shareholder and stakeholder governance and embrace the principles of Purpose Governance. Beware, it has major implications for the role of executive and non-executive boards, the way strategy is ongoingly developed and how shareholders and stakeholders are attracted.

Why Purpose Governance? Financial capital is no longer the sole and main contributor to corporate performance, so why do shareholders always have the casting vote and get all the residual value? And while the role of stakeholders has rightly increased significantly with the rise of the knowledge economy, many of them are short-term oriented and follow their own agendas.

What if an organisation's purpose directly contributes to key societal challenges, is directly derived from them and is integral to them? If so, both defining a corporate purpose and developing transformative strategies to realise it can only happen in an open process with and by (not on behalf of) intended beneficiaries of the purpose. With major implications for the way corporate governance is structured and role of boards (yes, plural).

Close cooperation with shareholders and stakeholders who “make it happen” obviously remains essential. But given the centrality of the corporate purpose, they are selected and select themselves primarily on their willingness to contribute to the corporate and societal purpose. And while they receive fair compensation for the value they create and the risk they incur, the residual value goes unconditionally to increasing the impact of the purpose and thus to the intended beneficiaries.

In September, Cambridge University Press published our exploration of Purpose Governance on what it really means to have a corporate purpose and what are important implications for the role of boards, the decisive influence of intended beneficiaries and (open) strategy development. Available on all book sites or directly from Cambridge University Press. More to come, next year, we will publish management versions in a major journal and magazine.


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