How A Strong Corporate Purpose Leads To Long-Term Profits: An Interview With The ‘Father Of CSR’
The myopic focus of companies on profits has been criticized in recent years. Mads Øvlisen, the former CEO of Novo Nordisk, explains how the pursuit of a corporate purpose beyond short-term profits, can actually lead to higher long-term profits.
By the time Mads Øvlisen stepped down as CEO of Novo Nordisk A/S in 2000, he had grown the pharmaceutical company from a household name in Denmark into a global leader in insulin and enzyme production.
Rather than bow out of the public spotlight and enjoy a quiet retirement with his wife, Lise, and three children, he has spent the last two decades advocating for the revolutionary and often counterintuitive thinking of corporate purpose that goes beyond profits. It was his commitment to a strong corporate purpose that not only made Novo Nordisk one of the most profitable global pharmaceutical companies, it had also contributed to immense positive social impact at home and abroad — at a time when many executives saw a corporation’s purpose primarily about profits. This is why many call him the “Father of CSR (corporate social responsibility) in Denmark.”
According to Øvlisen, whom I met while investigating foundation-owned firms, corporate purpose isn’t just about vision and values, it’s about keeping an eye on the long term. Upholding corporate purpose requires leaders to resist the short-term demands of shareholders and investors in order to build companies that are both financially successful in the long term and create a good life for the people around them.
What is Corporate Purpose?
A corporation’s purpose has traditionally been the pursuit of profits. This myopic focus has been criticized in recent years for exacerbating and even causing some of society’s greatest challenges, including pandemics, climate change, biodiversity loss, and income inequality. Young people, and society more broadly, are starting to demand that companies pursue a purpose beyond profits.
McKinsey & Company defines corporate purpose as a company’s “core reason for being and its impact on the world.” Corporations with a social purpose often need to be willing to forego short-term profits in order to invest in research and development, employee benefits, and community initiatives.
But this doesn’t mean foregoing profits altogether. Rebecca Henderson of the Harvard Business School cites research that shows a corporate purpose drives innovation, creativity, employee engagement, and trust — all of which serve to drive long-term profits. Purpose-driven companies attract and retain the best employees and stimulate creativity, and help executives decide on which initiatives to say yes or no to. A strong corporate purpose also fosters trust among all stakeholders, including customers, suppliers, and communities that hold the social license to operate. That trust is important in building corporate resilience.
Some companies express their purpose in their vision, others through their mission statements, and still others in their corporate objectives. For example, Ikea expresses its purpose through its vision: “to create a better everyday life for many people.” Holcim, which is in building materials, states its purpose is “to build progress for people and the planet.”
Novo Nordisk’s purpose is “to drive change to defeat diabetes and other serious chronic diseases, such as obesity and rare blood and endocrine disorders.” Wherever it’s stated, a corporation’s purpose must be its “what” and “how.” It’s the north star that motivates employees to come to work.
How Mads Øvlisen Thinks About Purpose
Øvlisen was recruited to Novo Industri A/S in 1972 by his father-in-law, then the CEO. Despite having just finished his MBA at Stanford Business School, he proved so capable that he was asked to stay on as secretary to the board of directors, ultimately becoming the chief counsel and then the CEO from 1981 to 2000. He remained as Chairman of the Board until 2006.
Øvlisen engineered the merger of Novo Industri A/S with Nordisk Gentofte A/S in 1989 to form what is today Novo Nordisk A/S. What was once a Danish-centered pharmaceutical company is now one of the three largest global producers of insulin, alongside Eli Lilly and Sanofi. Profits from Novo Nordisk help to fund the grants from the Novo Nordisk Foundation, which now represent approximately 11% of the annual public research and development spending in Denmark.
Not only did Øvlisen generate long-term growth and profitability for the company, he is also credited for having “defined and implemented the fundamental values that still characterize the Novo Nordisk of today.” I asked Øvlisen about how he incorporated corporate purpose into his strategic decisions and some of the tradeoffs he had to make.
Focus on People
In 1970 to 1971, Novo Nordisk’s sales dropped from 550 million DKK (Danish Kroner) to 350 million DKK, or roughly $90 million USD. For the first time in the company’s history, Øvlisen’s father-in-law had to make the difficult decision to lay off employees.
Faced with a similar challenge many years later, Øvlisen took a different path. Rather than laying people off, he worked hard to relocate them elsewhere in the organization, even if the fit wasn’t perfect. He told me that everyone needs to be a hero in their own home, and letting people go robs them of their dignity. “I believe that each and every person in the company has a unique possibility of contributing to that company’s progress,” he said, adding that he didn’t want people going home and saying, “I put in my best 25 years in that company and they just fired me.” He believes this approach to people has contributed to Novo Nordisk attracting the best people who give their very best to the job every day.
Øvlisen recognizes that Novo Nordisk could have been more profitable and grown faster if he had taken a more aggressive approach to layoffs and hiring, but he believes that growth in the business must be based on the “growth in people” — not growing the number of people. He believes in fostering personal development. He refused to tell employees, “Look you guys, the company grew its bottom line by 12.8% last year, next year it’s got to be 14%.” Øvlisen said his driver was always people, not profits.
Focus on Good Products
When Øvlisen became CEO, Novo Nordisk had 21 competitors in the insulin market. He knew he had to offer a product better than his competitors’. For this reason, he invested heavily in research and development.
Building on Dorothy Hodgkin’s research on the structure of insulin, Novo Nordisk was the first company to produce highly purified insulin preparations, which meant that patients required smaller doses and were less likely to experience side effects, relative to competitors’ products. This discovery led Øvlisen to double down on his investments in research and development. When the company experienced poor results, the one group that always remained intact was his research team.
“I wanted us to be a company respected for our results and for the way in which we achieved the results,” Øvlisen said. “When people hear the name Novo, they’ll say, ‘Weren’t they the people that did something to improve diabetes, improve hiring conditions, and improve the environment?’
Focus on the Long Term and Deeply Held Values
Øvlisen inherited (and left) a company that was built on a strong foundation — literally. The Novo Nordisk Foundation controls Novo Nordisk through Class A shares, yet divests all strategic and operational matters to Novo Nordisk’s Board of Directors. This ownership structure ensures that Novo Nordisk has a stable, long-term investor who focuses not only on “stable commercial and research activities” but also “supports scientific, humanitarian and social purposes.” Øvlisen said the foundation’s board didn’t influence his day-to-day work, but inevitably gave him the latitude and permission to think long term.
Øvlisen also insisted on the importance of listening to one’s critics. When the Friends of the Earth or WWF raised issues about the impact of Novo Nordisk’s activities on the environment, Øvlisen did not simply invite them for coffee and a Danish. He invited them to meet and discuss their concerns with the staff. Ultimately, the NGOs influenced Novo’s environmental strategy.
“Where is it written that you can decide to start your own business and hire all the best talents of society, use society’s infrastructure, or use everything out there without having integrity to pay back,” Øvlisen said.
Corporate Purpose is the Path to Profit
It’s far too easy for corporate executives to lose sight of where they’re going, especially when they’re facing unprecedented global disruptions. A corporate purpose is becoming an increasingly important north star, guiding the company to a destination of creating long-term value for both stakeholders and society as a whole, even when the waters are rocky.
Originally published at https://www.forbes.com.
