NEW YORK--(BUSINESS WIRE)--Capital markets are powerfully rewarding companies with strong purpose, an outcome that has strengthened since the onset of Covid-19. The CEO Investor Forum, a global organization preparing corporate leaders to navigate the quickly changing financial landscape and the purpose-driven economy, released The Return on Purpose: Before and During a Crisis in partnership with Fortuna Advisors, a management consulting firm focused on helping clients achieve their value creation ambitions by redefining how they create value today and improving confidence to invest behind that.
The study analyzes the impact of corporate purpose on performance by integrating financial and market data with a new data set, developed by BERA Brand Management, based on consumer perceptions of corporate purpose for 13 different attributes across over 200 different brands. The authors also directly surveyed CEOs.
According to the study, high-purpose brands outperformed on common measures of financial performance, valuation, and value creation, which suggests that operating with strong corporate purpose is good for shareholders, too:
- Average valuation multiples for high-purpose brands are over 4 times EBITDA higher than that of low-purpose brands.
- High-purpose brands demonstrate a nearly 20 percentage point advantage in annualized total shareholder returns over low-purpose brands.
- High-purpose brands double their market value over 4 times faster than low-purpose brands.
When looking pre- and post-onset of Covid-19 to see if crisis affected the findings, the gap between top and bottom quartile performers only became stronger:
- Companies with the best purpose scores generally moved up and into the top quartile of total shareholder return performance, suggesting that capital markets investors expected companies with stronger corporate purpose would maintain a stronger connection to their consumers and deliver more resilient financial performance than companies with lower purpose scores.
“The Return on Purpose: Before and During a Crisis is a clear-eyed assessment of the current stage of the debate on corporate purpose,” said Brian Tomlinson, CIF Research Director, CECP. “It further frames the learnings from the CEO Investor Forum’s work on Long-Term Plans and how CEOs can operationalize corporate purpose. It provides a unique data set indicating the ways in which high-purpose firms appear to outperform—a pattern amplified during this current crisis.”
“This is a milestone study,” says Jim Stengel, former P&G Global Marketing Officer. “Attention CEOs and CFOs: the authors show with ample and compelling data that purpose activation and shareholder value creation are strongly linked. And this became even more dramatic as the 2020 pandemic swept the world. With this data, purpose is no longer a choice. The companies who activate and amplify their purpose—with passion and authenticity—are the ones who will win...the ones who will deliver superior financial results and shareholder value,”
The study suggests that when the debate about corporate purpose moves from opinion to fact-based analysis, we see that corporate purpose serves as a clear source of value, rather than a tax on it.
“Some say corporate purpose and managing for all stakeholders is ‘nice to have’ or ‘window dressing,’” said Greg Milano, Founder and CEO of Fortuna Advisors, “But in The Return on Purpose: Before and During a Crisis we show undeniable evidence that companies perceived as operating with purpose deliver better financial performance, are valued higher, and deliver higher total shareholder return. It can be a true win-win situation.”
The CEO survey identified corporate purpose as a core competitive differentiator. As one CEO put it: “whether it is consumers or prospective employees, suppliers or clients, it has been our experience that being anchored by purpose has helped us differentiate ourselves significantly.”
The study concludes that corporations that develop and demonstrate a clear corporate purpose are well positioned to realize a return on purpose over the long term and through the uncertainty of crises.
ABOUT THE CEO INVESTOR FORUM
The CEO Investor Forum is a global organization preparing corporate leaders for the next generation of stakeholders. The Forum provides support and guidance to CEOs on how to develop and communicate their long-term strategy to institutional investors and other key constituencies. Through a proprietary content framework, advisory services, and events, the Forum empowers CEOs to proactively set the context, own their narrative, and lead toward a sustainable future. CEO Investor Forum is chaired by Bill McNabb, former Chairman of Vanguard. Learn more at www.ceoinvestorforum.com.
The CEO Investor Forum, formerly known as the Strategic Investor Initiative, has established itself as a principal research and thought leader in the space of ESG, corporate disclosures, and long-term value creation. Publications including Reorienting Capital Markets Toward the Long-Term, Emerging Practice in Long-Term Plans, The Economic Significance of Long-Term Plans, Method of Production of Long-Term Plans, and ESG and the Earnings Call have been widely cited and republished in leading corporate finance journals and media. See the complete collection of research and resources available on the CEO Investor Forum’s website.
The CEO Investor Forum is part of Chief Executives for Corporate Purpose® (CECP), is a CEO-led coalition that believes that a company’s social strategy—how it engages with key stakeholders including employees, communities, investors, and customers—determines company success. Founded in 1999 by actor and philanthropist Paul Newman and other business leaders to create a better world through business, CECP has grown to a movement of more than 200 of the world’s largest companies that represent $11.2 trillion in revenues, $23 billion in total community investments, 14 million employees, 30 million hours of employee engagement, and $21 trillion in assets under management. CECP helps companies transform their social strategy by providing customized connections and networking, counsel and support, benchmarking and trends, and awareness building and recognition. For more information, visit cecp.co.
ABOUT FORTUNA ADVISORS
Fortuna Advisors is a management consulting firm that advises some of the world’s largest companies on how to better define, invest in, and achieve their value creation ambitions. The company is an established thought leader in the design of improved financial measures that are better linked to how companies create value today, and the application of those measures to better strategic decisions, resource allocation, and organizational incentives and culture.
Fortuna Advisors’ work has been cited and published widely, including Postmodern Corporate Finance, Beyond EVA, Building a Bridge Between Marketing & Finance, The Pros & Cons of Stock Buybacks, Companies That Do Well Also Do Good, and A Company That Gets Managers to Think Like Owners. In addition, the firm’s Founder and CEO, Greg Milano, recently published Curing Corporate Short-Termism: Future Growth vs. Current Earnings, a book that identifies paths to long-term value creation through an ownership culture.