Only 7 percent of Fortune 500 CEOs believe their companies should “mainly
focus on making profits and not be distracted by social goals.”1
And with
good reason. While shareholder capitalism has catalyzed enormous progress,
it also has struggled to address deeply vexing issues such as climate change
and income inequality—or, looking forward, the employment implications of
artificial intelligence.
But where do we go from here? How do we deliver a sense of purpose across
a wide range of environmental, social, and governance (ESG) priorities? Doing
so means moving from business as usual to a less traveled path that may feel
like “painting outside the lines.” Are we going too far beyond our core mandate?
Does it mean we’ll lose focus on bottom-line results? Will transparency expose
painful tensions better left unexamined? Will our boards, management teams,
employees, and stakeholders want to follow us, or will they think we have “lost
the plot”? There are no easy answers to these questions; corporate engagement
is messy, and pitfalls, including criticism from skeptical stakeholders, abound.
Yet when companies fully leverage their scale to benefit society, the impact can
be extraordinary. The power of purpose is evident as the world fights the urgent
threat of the COVID-19 pandemic, with a number of companies doubling down
on their purpose, at the very time stakeholders need it the most (for more, see
“Demonstrating corporate purpose in the time of coronavirus,” on
Business also has an opportunity, and an obligation, to engage on the urgent
needs of our planet, where waiting for governments and nongovernmental
organizations to act on their own through traditional means such as regulation
and community engagement carries risk.
What is your company’s core reason for being,
and where can you have a unique, positive
impact on society? Now more than ever, you need
good answers to these questions.
1 Alan Murray, “The 2019 Fortune 500 CEO survey results are in,” Fortune, May 16, 2019, fortune.com.
Purpose: Shifting
from why to how
April 2020
2
Fortunately, a “how to” playbook is starting to
emerge as a growing number of companies
lead. In this article, we try to distill some inspiring
steps taken by forward-looking companies.
In doing so, we don’t pretend to have all the
answers. What we present here is some early
thinking about the road ahead from our research
and engagement with clients around the world.
We hope this will help you wherever you are on
your journey.
Confronting the purpose gap
The August 2019 Business Roundtable Statement,
which elevated stakeholder interests to the
same level as shareholders’ interests, represents
both a reappraisal of purpose and a reflection
of tensions that have been boiling over. Customers
are boycotting the products of companies
whose values they view as contrary to their own.
Investors are migrating to ESG funds. And the
majority of employees in the corporate world feel
“disengaged”; they are agitating for decisions
and behaviors that they can be proud to stand
behind and gravitating toward companies that
have a clear, unequivocal, and positive impact
on the world.
Organizations turning a blind eye will face inevitable blowback. In just the past year, companies have witnessed hundreds of thousands of
employees walking out over climate issues and
recurrent high-profile petitions about business
practices that have raised the ire of socially
conscious interest groups. Digital platforms are
powerful amplifiers. As historian Niall Ferguson
warns in a recent McKinsey Quarterly interview,
“If your company has not been on the receiving
end of a Twitter storm, then don’t worry, it soon
will be.”2
Despite all this, the potential is extraordinary
for business to serve as a force for good.
3
remain a powerful lever. We also see burgeoning opportunities for businesses to
contribute that extend beyond traditional CSR—such as deploying digital tools
and advanced analytics to address global challenges, as well as mobilizing diverse
ecosystems of players to pursue goals that no individual business (or government)
could realize on its own. To take just one example, apparel giants such as H&M, Kering,
Nike, and PVH have joined forces to create Global Fashion Agenda, a not-for-profit
organization that promotes sustainable fashion, from the efficient use of resources and
secure work environments to closed-loop recycling. Often, though, these opportunities
feel tangential. Many executives tell us they feel their own companies do great CSR work
but wish those efforts could extend into the core, adding meaning to the day-to-day
experience of their employees and themselves.
We’d suggest that the disconnects between public perceptions of business and its
potential for good, or between employees’ desire for meaning at work versus what they
experience, reflect a purpose gap. In a recent McKinsey survey comprising a representative sample of more than 1,000 participants from US companies, 82 percent affirmed
the importance of purpose, but only 42 percent reported that their company’s stated
“purpose” had much effect (exhibit). That shouldn’t be surprising. Many companies’ purpose
statements are so generic that they do little to challenge business as usual, and
others don’t emphasize the concerns of employees. Contributing to society and creating
meaningful work, the top two priorities of employees in our survey, are the focus of
just 21 percent and 11 percent of purpose statements, respectively.
We’d further suggest that there is a frustratingly simple reason why business leaders
have struggled to square all these circles with coherent statements and credible
actions: it’s difficult to solve, simultaneously, for the interests of employees, communities,
suppliers, the environment, customers, and shareholders. Tensions and trade-offs
QPrint 2020
Purpose
Exhibit 1 of 1
… it is important to
have a purpose
… purpose should
receive more weight
than pro t
… their organizations have
a purpose statement
… their organizations’
purpose statements
drive impact¹
Respondents reporting that …
Employees feel that purpose is important—but many say their companies don’t
have one, let alone one that makes a dierence.
Note: segments displayed in gray reect respondents who were neutral, disagreed, or strongly disagreed.
82% 72% 62% 42%
1
Impact score, which is based on subset of respondents reporting presence of organizational purpose, derived on basis of
responses to questions about achievements of purpose and positive change associated with purpose.
Source: McKinsey Organizational Purpose Survey of 1,214 managers and frontline employees at US companies, October 2019
Exhibit
4
Purpose defines our core reason for being
and the positive impact we have on the
world. It shapes our strategy, inspires our
people, engages our customers and
community, steers choices at moments of
truth, and is fully embedded in our culture. Living purpose authentically should
feel uncomfortable and new. It may
mean surfacing fresh questions in meetings,
engaging in difficult conversations about
some of our businesses, and reevaluating
our partners based on a clear-eyed view
of their practices.
Whether we are reappraising an existing
purpose or designing one for the first time,
we need to wrestle with challenging
questions such as the ones below. These
questions can help test whether we are
acting with the necessary authenticity and
boldness. In exploring such questions,
some companies we know have found it
helpful to use the accompanying framework to help them assess how far they’ve
gone and how much room there is left
to run.
Questioning
purpose
Purpose
Questions
• What is our purpose as a company and how
does it link with our “superpower”—our
capacity to make a distinctive contribution
to the world?
• Who benefits from our success, and what
are our responsibilities—to shareholders,
yes, but also to our workforce, suppliers,
ecosystem participants, communities, and
the environment in which we operate?
Proof points
• Declaring a purpose statement that is clear
enough to help middle management make
trade-offs in daily decisions, and credible in
the eyes of stakeholders
• Defining specific, short-term (for example,
“2021”) impact goals
Strategy
Questions
• When trade-offs arise, how should various
stakeholder interests be balanced and
reconciled? Who needs to be involved, and
how will we make decisions?
• How willing are we to change our philosophy
and economic model to reflect our
purpose and enhance our social and
environmental impact?
Proof points
• Incorporating purpose screens and criteria
into budget and investment decisions
• Changing governance and sources of
capital (such as becoming a public-benefit
corporation)
• Sticking to bold purpose goals during times
of economic turbulence
Culture
Questions
• What is our heritage? Why have we
been successful in the past? How does
this foundation enable our purpose going
forward?
• How will our purpose strategy enrich
and strengthen our culture and values?
• How do we make purpose personal
to employees, unlocking additional
engagement?
Questions
The purpose
of a company leads to
strategic choices and builds
on cultural strengths
to drive impact.
Purpose
Culture
Strategy
Organizations
Operations
Marketing and sales
Engagement Measurement
5
Proof points
• Heavy, early investment in listening
to stakeholders and understanding
the current corporate culture—both
weaknesses and strengths
• Candid, transparent assessment of
corporate identity
Operations
Questions
• What are the biggest externalities
across our value chain (including the
impact of our products’ use) that have
not been considered, mitigated, or both?
• How can we align our supply-chain
partners to our purpose?
• Where can we work with peers and
other partners to diminish any negative
societal impact caused by our sector—
through, for example, collaborative
circular-economy initiatives?
Proof points
• Creating end-to-end value-chain
accountability from sourcing to recycling,
including sustainability metrics
and other environmental, social, and
governance (ESG) disclosures, and
comparing with stated goals
• Investing to help suppliers achieve
ESG goals and exiting relationships
with those that can’t or won’t
Marketing & sales
Questions
• How would our products and services
rank in terms of social and environmental
impact, compared with a ranking on
profitability?
• What products and markets should
be exited, and how will those decisions
be made?
• How will purpose affect future
decisions to invest in new product and
market opportunities?
Proof points
• Exiting products/markets with
significant, adverse social impact—even
if it results in short-term revenue loss
• Entering new products/markets or
making changes to existing products
that enhance their societal value
• Making company-wide branding
decisions that integrate purpose
Organization
Questions
• To what extent does organizational structure
and governance enable employees to make
trade-offs that prioritize purpose?
• What are the most powerful levers to pull
around incentives, policies, and processes
to ensure purpose is lived?
• How are employees able to engage on
purpose today (including specific platforms
and opportunities for dialogue)?
Proof points
• Making clear changes to recruitment and
capability-building processes to embed
purpose
• Incorporating purpose-driven metrics into
compensation and performance decisions
• Developing mechanisms to constantly
measure the link between employee and
corporate purpose
Engagement
Questions
• How does our company talk about purpose
with the board and investors?
• Who are the external stakeholders and
partners who must be engaged? How and
when should we engage them to ensure an
open and authentic dialogue?
• What kind of public engagement enables
us to project our purpose authentically?
Proof points
• Creating mechanisms to engage stakeholders early
• Engaging in purpose-driven public influence
where appropriate
• Withholding nonpurposeful use of public
influence (such as deciding to forgo a lobbying
opportunity whose implications include
identifiable, negative externalities)
Measurement
Questions
• What data and evidence are critical to
measuring the total social and financial impact
of our purpose, and what gaps exist today?
• What is not being measured or reported today
that society will expect and hold us accountable
for in the future?
Proof points
• Accounting for externalities in monetary terms
• Tracking and reporting progress against
purpose goals
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abound as we strive to align our business and societal goals; to integrate that identity
into the heart of our organizations; and to deliver on our purpose, including its
measurement, management, and communication.
Placing purpose at the core
What’s needed is relatively clear: it’s deep reflection on your corporate identity—what
you really stand for—which may well lead to material changes in your strategy and even
your governance (such as your status as a public company, a private company, or a publicbenefit corporation).
But how do you pull this off? What are the mechanics of getting it done and making it
real? How do you embrace challenging trade-offs and uncomfortable truths that, if
unaddressed, are likely to perpetuate the purpose gap and give rise to rhetoric that’s
not accompanied by credible action?
We don’t yet have complete answers to these difficult questions. One thing we are convinced
of, though, is that the only way to bridge a purpose gap is to embed your reflection,
exploration, discussion, and action in the heart of your business and your organization.
We describe here a necessary precondition for any of that, and then four steps for
moving ahead: sizing up where you are, including your vulnerabilities; clarifying how your
purpose connects with your company’s “superpower”; organizing with purpose in mind;
and measuring and managing purpose so that it really becomes part of your core DNA.
0. Understand that purpose is personal and emotional
The precursor to action is embracing the emotion and complexity associated with hard
work on purpose. There is no simple, input/output equation, which makes it hard to
address purpose in the context of prevailing shareholder models. Purpose also is deeply
intertwined with the people who make up an organization and who, like all of us, are
messy at times. Founder-driven companies, such as Starbucks, sometimes find it easier
to put purpose at their core, because their leaders connect with and shape purpose
emotionally as well as logically. The rest of us need to make this personal, too.
1. Get real: Create a baseline from your stakeholders’ perspectives
Connecting purpose with the heart of your company means reappraising your core:
the strategy you pursue, the operations driving you forward, and the organization itself.
That’s hard work, and you can’t do it without deep engagement from your top team,
employees, and broader stakeholders. But there’s no substitute. Your stakeholders care
about the concrete consequences of your lived purpose, not the new phrase at the
start of your annual report.
Start by taking a hard look at the relationships among your social and environmental impact,
your strategy, and your purpose, which may be misaligned. Such a reappraisal could
lead you to reevaluate some of those hard-to-reverse choices about where and how to
compete that represent the core of an effective strategy. The resulting friction is
uncomfortable, but also extremely valuable. You can encourage it on an ongoing basis
by building purpose-linked questions into your key strategy, budgeting, and capitalinvestment discussions. For example: “Which pillars of our strategy are most and least
7
congruent with our purpose? How would a ranking of our products and services according
to purpose compare with one based on profitability?” Questions such as these cause
everyone to pause, legitimize healthy introspection, and boost the odds of spotting
instances when taking a short-term revenue or margin hit is a small price to pay for
being true to who you are or want to be. (For a more complete set of purpose-related
questions, see sidebar, “Questioning purpose.”)
Your self-assessment must go well beyond strategy. Measure your social and environmental
impact, starting with a review of your supply-chain and supplier risks. Society now
holds you responsible for your entire business chain, beyond your corporate walls, including
what your suppliers do. If you, as a senior leader, have not been personally involved
with supplier issues recently, go and see for yourself. You don’t need another report; you
need deep conviction—either that your supply chain is healthy and sound today or
that you have a plan to make it so tomorrow. You need to recognize your vulnerabilities
in the eyes of society and tackle them.
Dig deep into the makeup of your products. If you make cell phones, how much plastic
in the product is recycled versus new, and how easy are your phones to repair versus
replace, which carries additional environmental cost? Your impact also extends to the
resources, including energy, that are required for the consumption of your products,
in their entirety. Starbucks recently estimated that about 20 percent of its total carbon
footprint was related to the production of dairy products consumed with its coffee.
Engage a wide range of stakeholders early as a key input into the process. A basicmaterials company we know interviewed 150 external stakeholders, including investors
who had chosen not to invest in its industry, as well as CEOs in other industries, all
with an eye toward understanding their posture and process related to purpose. Such
engagement brings out new perspectives, mitigates risk, and avoids surprises later
on. What would an activist discover by digging deeply? Where are you most vulnerable?
What is the central thing that critical stakeholders believe society expects from you,
and are you doing enough about that? Are you focusing on only a couple of the United
Nations’ Sustainable Development Goals, while critics would emphasize others at the
bottom of your to-do list? Or are you “doing good” in some areas of your business, while
hoping this makes up for negatives in others? All these can be calibrated and assessed,
to some degree. At times, doing so may demand the courage to let your stakeholders’
perceptions of where you are trump your own views.
2. Connect purpose with your company’s ‘superpower’
As you take stock and tackle your company’s vulnerabilities, you also need to set bold
aspirations and push for specificity on the alignment between purpose and value. It’s
often present. Research by author and professor Raj Sisodia suggests that purposeled companies significantly outperformed the S&P 500 between 1996 and 2011.3 More
than 2,000 academic studies have examined the impact of environmental, social,
3 Rajendra Sisodia, Jagdish N. Sheth, and David Wolfe, Firms of Endearment: How World-Class Companies Profit from Passion
and Purpose, second edition, Upper Saddle River, NJ: Pearson Education, 2014.
8
and governance propositions on equity returns, and 63 percent of them found positive
results (versus only 8 percent that were negative).
Such outcomes don’t arise magically because a company decides to be purpose-driven.
They take shape most effectively when purpose connects with a company’s “superpower”—
its unique ability to create value and drive progress across ESG themes. For example, the
multinational retailer H&M, whose CEO was previously its chief sustainability officer,
has embraced the superpower of its supply chain by opening it up to rival brands that
can use it to accelerate their own sustainability efforts.
Identifying and building around unique assets, capabilities, or points of leverage with
the potential for outsize impact on social challenges can create value in a variety of ways:
● Purpose can generate topline growth (or serve as an insurance policy against revenue
slippage) by creating more loyal customers, fostering trust, and preserving your
customer base at a time when 47 percent of consumers disappointed with a brand’s
stance on a social issue stop buying its products—and 17 percent will never return.
● Purpose-driven environmental stewardship can reduce costs—for example, by improving
energy or water efficiency.
● Purpose can unleash employee potential—helping you win the war for talent, retain
your best people, and boost employee motivation. Today, about two-thirds of
millennials take a company’s social and environmental commitments into account
when deciding where to work.
● Purpose can make you more aware of shifting external expectations, policy directions,
and industry standards—thereby helping you identify risks you might otherwise miss.
If a crisis does strike, preexisting alignment on the organization’s core reason for being
will enable a coordinated, values-driven response that is authentic to your people
and compelling to stakeholders. “Trusted” brands bounce back faster after product
mishaps and economic shocks, particularly when they respond effectively. This
remains as powerful a truth as it was in 1982, when Johnson & Johnson recalled and
repackaged Tylenol following a tampering tragedy.
● Purpose can improve your balance sheet. Danone, the French food multinational,
has achieved materially lower capital costs by meeting a set of ESG criteria, including
the registration of certain brands as B Corps over time. This move is backed by a
syndicate of banks that have committed to rewarding purposeful business with
cheaper capital.
The role of the leader is first to inspire creative thinking about what makes you unique,
how it links to purpose, and why it could be valuable—and then to encourage rigor in
embedding it in your company’s core. As you strive to connect the superpower of your
business with its impact on society, you’re likely to identify a rich constellation of
potential purpose initiatives. Some are near-term win–wins, delivering immediate societal
and financial benefits. Others clearly help society now but take longer to yield bottomline results. There also are bigger, “moon shot” bets, whose potential benefit to society
9
is enormous but, for shareholders, perhaps unclear. If you have already built momentum
with initiatives in the first two categories, it’s easier to stretch for moon shots—which
are the most meaningful, generate the most internal satisfaction, and also capture external
attention (including motivating others to act). For example, Patagonia’s commitment
to repairing jackets, to encourage reusing them, has been emulated by other makers of
outdoor wear.
3. Organize to keep purpose at the top of everyone’s mind, every day
Then there’s the organization itself. Do your people routinely reflect on purpose? Do your
critical organizational building blocks—whether they are business units, agile squads,
or pockets of functional expertise—have the autonomy and incentives to do their work
with purpose? Are your purpose-driven functions (such as philanthropy) self-contained
silos, or are they connected with the core of your business?
What about your culture? That, too, is part of your social impact. Just because you deliver
good service to customers doesn’t legitimize a toxic culture in your organization that
excludes people. Dig deep to assess your own culture, the level of engagement of your
own people, and the degree to which they feel empowered to bring their best selves
to work.
Above all, do you understand what your employees care about—their sources of meaning,
aspirations, and anxieties around social issues? Many CEOs are concerned that the
majority of their employees are not actively engaged. What would it take for employees
to bring enthusiasm, creativity, and collaboration to work, in addition to discipline?
Connecting your people’s individual purpose with organizational purpose is the critical
link. An Asian insurer provides explicit space in its leadership programs to reflect on
this connection. Meanwhile, a US-based healthcare company has prototyped an app with
which people can explore their values and purpose and make workplace connections
to enable the pursuit of those aims.
Making that link—in other words, achieving a truly purpose-driven culture—requires
listening and being very open to what you hear. According to the leader of a recent effort
to reexamine purpose at Nordea, a large bank in Scandinavia, it was indispensable
to spend time “listening to more than 7,000 people in and around our organization over
a period of six months . . . in workshops . . . online with surveys . . . [and] in more than
1,500 coffee-corner discussions. . . . We discussed deeply why people had joined us, why
they stayed, and what they see as impact for a financial institution.” That’s what it looks
like when organizations move purpose past slogans and buzzwords.
4. Measure what you can, and learn from what you measure
We all know that what gets measured gets done. But when it comes to purpose, what
metrics best reflect impact across the ESG playing field? For complex, far-flung organizations, it can be easy to feel overwhelmed by the seemingly endless array of conflicting
reporting standards. Different geographies demand different levels of rigor, and keeping
up with the range of voluntary reporting initiatives can be taxing. Popular frameworks
such as the United Nations’ Sustainable Development Goals or the Global Reporting
Initiative framework are useful touchstones, but they cannot serve as the sole basis of
measurement efforts.
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Instead, you should ask yourself and your peers questions like the following: What data
and evidence are critical to understanding your organization’s total social, environmental,
and financial impact? How much insight are your current reporting outputs generating
about your efforts to deliver on purpose? When was the last time you took action in
response to a metric about your purpose? Perhaps even more important: What is not
currently being measured or reported that society will hold you accountable for in
the future—such as the greenhouse-gas emissions associated with your industry?
And what metrics do your performance-management systems take into account?
Seventh Generation, a maker of cleaning and personal-care products, recently built
sustainability targets into the incentive system for its entire workforce, in service
of its goal of being a zero-waste company by 2025.
Changing how you incentivize people, including the integration of societal-impact goals
into compensation, is a “proof point” taken seriously by stakeholders. What other proof
points can you build in? Measuring and reducing your carbon footprint and making
substantial, measurable investments in reskilling are good examples. Ideally, such proof
points become mutually reinforcing. Shell, for example, has plans to set short-term
carbon-emissions targets and link executive compensation to performance against them.
You may need to create new metrics that more precisely reflect the tensions you are
seeking to reconcile for you and your stakeholders. At PayPal, CEO Dan Schulman and
his leadership team became concerned when they realized that a significant portion
of their nearly 25,000 employees, particularly at the entry level and in hourly positions,
were struggling to make ends meet despite the fact that the company was paying
wages at or above market rate. To Schulman, this “seemed ridiculous” for a company whose
purpose focuses on improving the financial health of its customers. As he put it, the
“market wasn’t working” for these employees—or for many others similarly situated.
PayPal surveyed its employees to assess their financial wellness, developed and began
tracking metrics such as a new “net disposable income” calculation for its employees,
and took immediate action to improve these metrics and provide its employees with
financial security. By significantly lowering the cost of medical benefits, making every
employee a shareholder, raising wages in certain instances, and delivering financialwellness training, PayPal set a target to raise the net disposable income of its employees
and improve their financial health. In a world where, as McKinsey Global Institute
research has shown, a majority of the next generation in advanced economies is “poorer
than their parents,” the impact of such initiatives cannot be overstated.4
Leading from the front
Purpose puts a premium on leadership. Move too fast, and you will be criticized for swinging
too far. Move too slowly, and you will be viewed as a corporate ostrich. Most dangerous
of all, if you claim to be delivering on purpose but are ultimately viewed as inauthentic, you
will lose credibility in front of your employees and society alike. For example, will you
stick to your purpose during economic turbulence, or only when times are good?
4 See “Poorer than their parents? A new perspective on income inequality,” McKinsey Global Institute, July 2016, McKinsey.com.
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To be authentic, you must be unrelenting in elevating and stimulating debate about
uncomfortable truths and tensions you may be tempted to sweep under the rug. You also
need your own genuine way of talking about the symbiotic relationship between
corporate purpose and corporate performance. Aetna CEO Mark Bertolini has a simple
mantra: “No margin, no mission.” Feike Sijbesma, former CEO of life-sciences company DSM, simply says, “You cannot be successful, nor call yourself successful, in a
society that fails.”
Our recent survey indicated that 33 percent of managers experienced trade-offs between
purpose and profit, and 72 percent of all employees hoped that purpose would
receive more weight than profit. These findings underscore both the top team’s role in
mediating tensions, and the point we made earlier that some purpose initiatives
require a leap of faith. At times, senior leaders will need to embolden their managers
to take that leap, which is likely to be easier if some purpose-driven priorities are
self-funding, setting the stage for subsequent, bolder bets. Pixar director Brad Bird
describes these dynamics eloquently in a Quarterly interview: “[M]oney is just fuel
for the rocket. What I really want to do is go somewhere.”5
In pushing your company to define and live its purpose consistently, you will be challenging
the status quo in ways that may be unsettling for your people, and even for you.
Championing such change requires leading with empathy—which, according to McKinsey
research, means developing a broad future vision that extends beyond the problem
at hand, inspiring and building trust with others by finding common ground, and leading
by example. These findings suggest that a reset of leadership norms may be important
as you strive to define and live your organization’s purpose, which must feel congruent
and fit the style and actions of you, your senior team, and your employees. Remember,
purpose is personal. By embracing that reality, you can create alignment between people
and the organization that enables and ennobles everyone.
Decisions about purpose may be some of the more difficult decisions of your career.
There will be a cacophony of opinions; adjudicating them will take discipline and conviction.
There may be thinner evidence to guide your actions than you would like. Don’t let
yourself be rushed. Establish a fact base to help you weigh trade-offs and mitigate risks.
Above all, don’t settle for “generic” on purpose. You do have a superpower to discover,
and unique impact to deliver. Your company’s role stretches far beyond the confines of
your employees and customers. Your suppliers will look to you for guidance. Your peers
will look to you for inspiration. And society will hold you accountable for leaving the
world a better place than it was when you started.
Source : https://www.mckinsey.com/business-functions/organization/our-insights/purpose-shifting-from-why-to-how