When we think of a company’s purpose, we often acknowledge it as the company’s “why” – its reason for being in business beyond making a profit. While this is true, purpose is much more than a vignette – it is a blueprint for action. The need for companies to adopt purpose is not only because it’s what consumers and shareholders are demanding, but also because it has the potential to become one of the strongest and most effective tools in solving a company’s problems and mitigating risk. Especially within the embattled and risk-averse energy industry, a company’s purpose can be a powerful tool to solve organizations’ greatest challenges, empowering companies to think long-term, exercise transparency, support a nourishing culture, and lead the way towards change.
Addressing shareholder activism
In 2017, we witnessed an uptick of shareholder action in the form of environmentally positioned proposals, which garnered majority votes from shareholders of venerable companies like Exxon Mobil Corp., Occidental Petroleum Corp., and PPL Corp., forcing them to adopt and report on sustainability initiatives. This awakened the industry as a whole to prepare for potential shareholder rebuke if sustainability initiatives are not addressed and articulated in a way that upholds transparency. Shareholders are calling on companies to not only address climate change but to openly communicate the details of how it is doing so. This need for more effective and transparent communication is not unknown, as 75% of energy industry executives believe the industry does a poor job communicating with the public.
Barrick, a Canadian gold mining company, is a prime example of a purpose-led brand that delivers transparency to its shareholders. In addition to a detailed sustainability report, Barrick reveals everything from payments to governments, energy, and water use, to third-party scrutiny via its ‘transparency hub’. Creating a holistic and transparent sustainability report will help energy companies mitigate risk and proactively avoid shareholder activism, also allowing them to make strategic moves to address the transforming industry.
Navigating transformative shifts
One of the more apparent and unavoidable problems the energy sector currently faces is the transformative shift towards alternative energy. The rapidly declining alternative energy costs are now impossible to ignore, challenging age-old energy companies’ core operations. Energy companies are now stuck between striving to deliver value and dividends to shareholders, while strategically looking to fundamentally alter their business models for a lower carbon future.
Any type of organizational shift is difficult, especially when the company has been following “business as usual” tactics for decades. Major organizational shifts require a thoughtful employee communications strategy to engage and guide internal teams towards the new direction of the company. A clearly defined and well-communicated purpose acts as a company’s north star during a transition, providing operational guidance to leadership, clear instruction to employees, and transparency to shareholders.
Improving employee recruitment and retention
The energy industry as a whole suffers from both recruitment and retention issues as it is among the top industries losing millennials, and one of the top sectors seeing the most talent turnover. Purpose can both improve retention rates and enhance recruitment practices, in turn lowering costs and increasing productivity. A clearly defined purpose eases the process of recruiting top talent. Just like knowing a future employer’s values, potential candidates like to know the company’s higher purpose so they can determine if their personal values align with that north star. According to a research project by Rutgers University, two-thirds of students prioritize the potential to positively contribute to society and make the world a better place when searching for work. When a company’s purpose resonates with them, they will be eager to work there and are much more likely to quickly adapt to the new work environment, feel fulfilled in their role, and stay with the organization long-term.
Similarly, when employees know how they fit into the bigger picture and how much their work matters to the company, they tend to genuinely enjoy their work. As a result, retention rates soar, which helps the bottom line. Employees are two times more likely to stay with a company when they feel connected to the overarching purpose. For millennials, that number is even higher; when they have a strong connection to their employer’s purpose, they’re five times more likely to stay.
Garnering positive public perception
According to a recent Gallup Poll, electric and gas utilities, as well as the oil and gas sector, carry some of the lowest public esteem levels. Additionally, while 80% of adults and 75% of teens say the energy industry is important to the national economy, few want oil and gas companies active in their community. Energy companies should strive for maintaining a positive public perception as it can help combat against regulation, amass community support for new projects, secure a dedicated local workforce, and improve overall brand equity.
To improve their public perception, energy companies need to become active corporate citizens, bettering their community and leading the way towards change. When their meaningful and positive impact is articulated well to their stakeholders (i.e. a comprehensive sustainability report), energy companies begin to accumulate their community’s support. Tequila brand, Patrón, commits to offering a minimum wage to its agave growers, even during times of excess supply. The company also pursues numerous sustainable initiatives such as reforestation and the replanting of lime trees. Patrón’s active and impactful involvement in its local community helps it maintain the community’s support so that the company can continue to farm its land and maintain tenancy. A well-defined purpose can clearly share a company’s meaningful social impact with its many stakeholders, which includes its local community.
While starting the purpose journey might seem like an audacious task, starting off with some easy wins will gain the confidence of leadership, employees, and customers, proving purpose ads value to your company’s bottom line and secures the trust of all stakeholders.