By Aaron Hurst, author of The Purpose Economy
For months, there have been signs that a recession could be on the way. But many economic indicators remain strong, confusing the markets and investors. Most economists expect a moderate recession this year. But this slowdown is very different from previous ones for a reason that has gotten far too little attention: the economy itself has changed.
Having spent years tracking the growing role of purpose in organizations, I’ve come to see that the business world has shifted into a new era: the purpose economy. More than ever, people seek purpose in their work -- and companies that commit to purpose thrive.
As Harvard Business School professor Ranjay Gulati explained in Fast Company, “A growing body of research in recent years suggests that the pursuit of purpose can boost the financial performance of companies.” One study showed public firms “embracing a multi-stakeholder approach” outperformed the overall S&P 500 by a factor of eight over a decade. And a report from EY and Harvard Business Review found that companies that “most fully pursued a purpose were more likely than other companies to report rapid growth” over a three-year period, he wrote.
As belts tighten, some investors may be less likely to focus on corporate purpose, and more driven by what feel like immediate bottom line issues. This would be a mistake. When this economy contracts, purpose becomes even more salient -- for corporate executives, employees, and shareholders.
Learning from history
I have been following the economic impacts of corporate purpose and the science of purpose through several ventures over more than two decades. In 2014, I published The Purpose Economy, a book I have since expanded and updated. I’ve also worked with researchers to conduct studies, and regularly work with a wide array of businesses to help employees connect their own unique sense of purpose to their work.
Several recessions the economy has faced during that time provide valuable lessons. When conditions are difficult, people turn to purpose as a stabilizing force. They want to spend their time and energy working for companies that they feel stand for something big and important.
Take the aftermath of the September 11, 2001 terrorist attacks. The economy was already in decline that year. “The attacks clearly deepened the contraction and may have been an important factor in turning the episode into a recession,” according to the National Bureau of Economic Research.
But the economic impacts of the horror did not push people away from seeking purpose in their work. In fact, the opposite happened. "Rather than focusing on extrinsic job concerns, the terrorist attacks caused many people to ask if they ought to reframe their work lives,” Amy Wrzesniewski, then with NYU and now a professor at Yale School of Management told me in an interview for The Purpose Economy.
The same happened after Hurricane Katrina in 2005, and again after the "Great Recession” which began in late 2007. These delivered a proverbial “rude awakening” to millennials especially, who were in early, formative years of thinking through the kinds of careers they wanted. Many became committed to bringing their talents, skills, and hard work to companies that they felt earned them through a real commitment to purpose.
The past couple of years has served as another reminder of how powerful purpose can be. As Imperative CEO Steve O’Brian wrote recently, companies that help employees connect a sense of purpose to their work have dramatically higher retention rates -- an absolute necessity for strong performance, including investor returns, in the era of the “great resignation.”
Instilling confidence, achieving potential
But it isn’t just about attraction and retention. Companies that stand for something big are also much more likely to attract clients and customers. As a Forbes column explained, a groundbreaking global study found that “consumers are four to six times more likely to buy from, trust, champion, and defend companies with a strong purpose.”
So as you consider where to invest in 2023, keep purpose front-of-mind. In shareholder calls, ask executives about the role of purpose in their organization. Find out what specific initiatives they are undertaking to help staff connect a sense of purpose to daily work. Look at what current and former employees say about a company’s sense of purpose, on sites like LinkedIn and Glassdoor.
After all, a strong sense of purpose has been shown to instill confidence in stakeholders, including investors -- and for good reason. As BlackRock CEO Larry Fink put it, “Without a sense of purpose, no company, either public or private, can achieve its full potential.”
Aaron Hurst is author of The Purpose Economy and founder of the Taproot Foundation, Imperative and Purpose Mindset.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.