April 2022 - The Power of Purpose

Team New Zealand’s decision to defend the Americas Cup in another country will be a good test of the power of corporate purpose.

Team New Zealand's decision to defend the Americas Cup outside of New Zealand will be an interesting exercise on the power of purpose. I still have a t-shirt from Team New Zealand’s campaign in Valencia, which probably had the clearest statement of purpose that I have seen, “Bring it home”. This purpose not only united its employees it engaged a great portion of New Zealanders. To the point that the New Zealand Government felt compelled to part-fund its campaigns.

Over its history Team New Zealand has been a massive over achiever, regularly beating much better funded opponents. Part of this success is almost certainly due to the greater sense of purpose that their team has had working there. Most other syndicates seem to exist solely to satisfy a billionaire’s ego. Taking the cup outside of New Zealand, in our opinion, significantly dilutes Team New Zealand’s purpose. It is likely that team New Zealand will need to pay more to hire key people, they will be less motivated and harder to retain.

Anyone needing to see a demonstration of the power of purpose need only look at the Ukraine war. Despite being hopelessly outnumbered and outgunned the Ukrainians continue to fight. There is a total difference in purpose between the two armies. There is news that Russian troops are lacking in morale as many are unsure why they are there, whereas the Ukrainians are fighting passionately. Kyiv Mayor Vitali Klitschko summed up the purpose well: “the people of Ukraine are fighting for their independence, their families and their future.”

There is also evidence that purpose-driven companies perform better than the rest. For example, while studying successful, high-growth companies, Malnight, Buche, and Dhanaraj discovered that purpose was also an important driver (see Put Purpose at the Core of Your Strategy (hbr.org)).

A purpose statement gives the reason why a company exists, its “philosophical heartbeat”, according to Greg Ellis, former CEO and managing director of REA Group. A well-considered and clearly stated purpose ensures that everyone is paddling in the same direction, gives a sense of worthwhile work, and increases dynamism and innovation. It needs to be ambitious, actionable, inspirational, authentic, and simple but not simplistic. It should also be succinct and devoid of cliches. It then needs to be put at the core of a company’s strategy.

The table below shows the purpose statements in the annual reports and presentations of NZX50 listed companies that we have found.

Purpose statements of S&P NZX50 Companies

Source: Castle Point, company annual reports

Here are some other good examples:

  • REA Group – To make the property process simple, efficient, and stress free for people buying and selling a property.
  • Salesforce – Change the world for the better through technology that builds stronger relationships.
  • Kiwibank – Tamariki are better off, Kiwi are better off, and Aotearoa is better off.

Valuing companies is a tricky business. The only thing certain about any spreadsheet that forecasts future profits is that it will be wrong. In our opinion, how wrong those forecasts will be is often determined by the qualitative elements of a business, and that can sometimes be determined by how well a company’s purpose and values are defined and implemented.

We wonder if Team New Zealand has properly factored this into their decision to defend the next Americas Cup in Barcelona.