The role of the board in defining the purpose of the organisation

Organisations face ever-increasing scrutiny, and their purpose beyond making monies for their shareholders matters more than ever.

Organisations face ever-increasing scrutiny, and their purpose beyond making monies for their shareholders matters more than ever. In a previous podcast, we discussed Generation Z and corporate purpose matters even more for this younger generation. So, in this podcast, we explore the role of the board in defining the purpose of the organisation and the importance of aligning the purpose with the strategy and culture of the organisation.

Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards , talks with Gill Meller.

Gill is the Legal & Governance Director of MTR Corporation, a company headquartered and listed in Hong Kong, responsible for the construction and operation of the Hong Kong metro system and the development of transit-oriented communities. She is responsible for overseeing the Company’s legal, company secretarial, assurance, insurance, and risk management functions, and also a central procurement and supply chain function. Gill is also the vice chair of the Legal Committee of The Hong Kong General Chamber of Commerce and immediate Past President and ex-officio council member of The Hong Kong Chartered Governance Institute. She is also a member of the Listing Committee of The Stock Exchange of Hong Kong Limited.

Some of the key takeaways of the conversation include:

“Profits are simply the result of the activities that you carry out”

Gill believes that corporate purpose is incredibly important, because understanding your purpose means understanding why the organisation exists and was established. Corporates have to be financially sustainable, but she argues that profits are simply the result of the activities you carry out and are not a purpose.

Gill feels that knowing and understanding corporate purpose is important for two main reasons. Firstly, she explains that a corporate purpose gives people (and particularly staff) something to “get behind.” In particular, Gen Z employees tend to want to work for a company whose purpose they feel makes a positive contribution to the world. Understanding your purpose and being very clear about it can be much easier to get these employees on board.

Secondly, and more importantly for Gill, she explains that purpose gives you a “guiding star” when trying to make difficult decisions in today’s business environment. She gives the example that in MTR, the purpose statement is to keep cities moving, and particularly their home city of Hong Kong. Through the Hong Kong protests in 2019 and COVID-19, MTR encouraged staff to stay motivated by working towards keeping Hong Kong moving. She feels this helped from a decision-making perspective when weighing up different stakeholder interests.

She firmly believes that understanding purpose gives the framework to make better decisions. Once you know your purpose, you can identify your key stakeholders and establish a governance framework that enables you to take those different stakeholders and their often-conflicting interests into account in pursuit of your purpose. Gill fundamentally believes a governance framework is needed that ensures awareness of those conflicts and it helps balance the differing interests of stakeholders as far as possible in the pursuit of purpose.

“What sort of problem were we designed to try and address or help solve?”

Gill believes the role of the board is critical. Following changes in Hong Kong’s stock exchange corporate governance code last year, the role of the board was enhanced, specifically saying that a company’s purpose, values, and strategy should be established by the board and aligned with the culture. In MTR, she notes they had an organic development process around the executive table, constantly remembering the purpose to keep Hong Kong moving – this was why MTR was established in the late 1970s. When the government decided to set up a metro company in Hong Kong, the thought was not to make profits, but to make It easier to get from one side of Hong Kong to the other. So, the “Keep Hong Kong moving” statement was adopted by the board as part of their strategy review and is now the formal purpose statement.

“Company secretaries play a critical role”

Gill believes that while the board should of course understand the genesis of the company and the purpose, addressing the strategy and culture needs engagement with the management team. She notes that if there is a primarily non-executive board, it can be quite difficult for them to be as close to the day-to-day strategy and culture of an organisation. Hence, involvement is necessary from the management team as well.

She also feels that Company Secretaries play a critical role in these issues because they often form a bridge between the management team and board, and the Company Secretary, who effectively sits on both of those bodies. So, they play a really important bridging role between the two teams, making sure that each is aware of the discussions in both forums.

Gill also feels the Company Secretary often has a role to play in setting the agenda for the board and putting forward issues to the chairman for discussion. This is where changes in regulation and disclosure requirements can be particularly helpful in getting discussions onto the agenda, as Company Secretaries (along with the CEO) are often responsible for a company’s overall governance framework, making sure the internal controls and the culture of the company are fit for purpose.

“Culture is incredibly important, and aligning your culture with your strategy”

Gill believes it is incredibly important to establish alignment between purpose, strategy and culture. She sees culture as a crucial part of corporate governance, but notes that it can be difficult to explain or describe. Getting corporate governance ‘right’ but not having the right culture will only result in failure. She feels that in today’s world, where compliance is no longer enough, companies are now expected by a broad group of stakeholders to be doing the ‘right thing.’ Unfortunately, stakeholder perceptions of what the ‘right thing’ is can change very quickly. The culture needs to be agile enough to respond to those changes and potentially get ahead of them.

“Sometimes people are uncomfortable with raising bad news”

Gill feels certain aspects of culture probably benefit every company, such as a ‘speak up’ culture or an agile culture that can respond to changes in the external environment. However, she notes that creating a ‘speak up’ culture is a challenge in any large organisation, especially within the Asian culture, where organisations are predominantly hierarchical. Sometimes people are uncomfortable raising bad news up the chain of the organisation, so she advocates repeating the message from a cultural perspective that this is actually what is needed from employees.

Employees should be rewarded for raising bad news or concerns instead of being blamed. She also advocates putting in place things such as whistleblowing frameworks so people have a channel to raise issues or concerns if they feel uncomfortable doing this in their day-to-day work environment or within with their direct line of report.

Finally, she believes technology and the modern approach to data have helped in this regard, if an organisation is accessing and understanding what the data is indicating. Data does not do away entirely with the need for people to speak up. Still, it can give what Gill calls radical transparency, whereby people speaking up becomes less important, because the data will indicate what is happening.

The three top takeaways from our conversation are:

• Ask questions about the purpose of the organisation and seek to understand it to really get to the why of the organisation.
• Challenge yourself, and ask yourself whether strategy and culture are aligned with purpose, and if not, what you can do to try and seek that alignment.
• Do not underestimate the role of the company secretary or the governance professional in addressing some of these challenges.
• To add a fourth takeaway, getting these things right takes time and investment, but if you can get it right, it can be incredibly powerful for any organisation.

Don’t forget to subscribe never to miss an episode of the Better Boards Podcast Series. Available on Apple, Spotify or Google.

To find out how you can participate in the Better Boards Podcast Series or more information on Better Boards’ solutions, please email us at info@better-boards.com.