No longer can business be regarded as vehicle for making owners and shareholders rich. This reputation is a consequence of years of focusing only on profitability. Business needs to use its resources and influence to build a society in which we can have a stake in. Sustainability must be placed at the heart of strategy; it can no longer be seen as a nice-to-have.
Sustainability must be placed at the heart of strategy; it can no longer be seen as a nice-to-have.
Imagine a world of relentless drought, storms and famine; of islands, deltas and coastal regions flooded by rising sea levels; a world where millions die of air and water pollution, while millions more flee in search of safer places to live, and yet others fight each other for scarce water solutions.
Alternatively, imagine a world of clean water and air; of green technologies, and where houses, transport and industry are all energy efficient; where everyone shares the benefits of development and industrialization, and of the earth’s natural resources, yet those benefits can be sustained from one generation to the next.
The choice between these visions is ours to make.
The above was the challenge posed by Khofi Annan, the Secretary-General of the United Nations on the eve of the World Summit on Sustainable Development in Johannesburg in 2002.
And almost 20 years later, we are still dithering!
And this inaction has led us to the stage in which there is consensus on both sides of the political spectrum and throughout the world that business is not working for ordinary people. The conflict between business and society is now at its peak and is it any wonder.
The conflict between business and society is now at its peak and is it any wonder.
As Mackey and Sisodia point out in their book, Conscious Capitalism, when businesspeople operate with a low level of consciousness about the broader societal impact of their business, they view their purpose as profit maximisation and treat all participants in the system as means to that end. Whilst this approach may succeed in creating material prosperity in the short term, the long-term impact is not considered.
Too many businesses have failed to recognise the significant impact they have on the environment, and on the physical health and well-being of their employees and customers. Many of them have created stressful and unfulfilling working conditions and fostered and fed unhealthy appetites and addictions in their customers.
Consequently, business today has a reputation for being greedy, selfish, exploitative and untrustworthy? The sentiment is largely that ‘they’ are benefitting at the expense of ‘us’.
Is it not time to change the business agenda? Is it not time to go beyond profitability as the measure of a company’s success? is it not time for businesses to focus on the common good?
In this short article, I will endeavour to build a case that will convince business leaders (and perhaps others) that Sustainability, or Sustainable Development, is as much their responsibility as it is that of politicians and eco-warriors. And furthermore, I will show how a Sustainability Agenda makes good business sense, and that profitability and social responsibility are not at odds with one another.
profitability and social responsibility are not at odds with one another.
Let me begin by defining the concept of ‘Sustainability’.
One of the earliest definitions was that of the Brundtland Report which defined Sustainable Development as, “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
A fuller definition is that of Bell and Morse who define it as. “A dynamic balance between three mutually-independent elements:
i. Protection and enhancement of natural ecosystems and resources
ii. Economic productivity
iii. Provision of social infrastructures such as jobs, housing, education, medical care, and cultural opportunities.”
Whatever the definition once chooses, they have one thing in common. They share an interest in improving human well-being by seeking an appropriate balance between social, economic and environmental change.
They share an interest in improving human well-being by seeking an appropriate balance between social, economic and environmental change.
It is these that are the three prongs of the sustainability fork, a term coined by John Elkington to refer to social justice, economic prosperity and environmental quality. Integrated and balanced performance across each of these three dimensions will become the triple bottom line – the measure of success in an enlightened, responsible and inclusive economy.
It would be unfair to suggest that business has disregarded the call for it to create value for a broader constituency and not just shareholders.
However, the rock on which good intentions have founded is the belief that social value can only be created at the expense of profits. Business is seen a zero-sum game in which the gain of one participant is balanced by the loss of another. The result is that business and society have become enemies.
In his recent book, Growing the Pie, Alex Edmans suggests that key to a new way is to create both profit for investors and value for society. To do so, he suggests that we have to move from a ‘Pie-splitting mentality’ to a ‘Pie-growing mentality’.In the former, the value that a company creates is seen as a fixed pie, and the only way to get a larger slice of pie for ‘us’ is to reduce the slice given to ‘them’.The ‘Pie-growing’ approach stresses that the size of the pie is not fixed. When all members of an organisation work together, bound by a common purpose and focused on the long term, they create value in a way that enlarges the slices of everyone – shareholders, workers, customers, suppliers, the environment, communities.
Crucially, under the pie-growing mentality, a company’s primary objective is social value rather than profits. Profits are only one slice of the pie. By growing the pie, purpose is not achieved at the expense of profit, and profit need not be at the expense of purpose. A win-win outcome is possible.
Nice sentiments, but do they make real business sense? Is all this altruism good for business?
Let me try and answer that question by referring to the research done by Jim Stengel and his book, Grow – How Ideals Power Growth and Profit at The World’s 50 Greatest Companies.
Stengel proves that in today’s world, improving people’s lives and having a positive social impact are the best prescriptions for long term success.
improving people’s lives and having a positive social impact are the best prescriptions for long term success.
Based on extensive research and tracking performance on two variables – growth in consumer loyalty and growth in financial value – the Stengel Top 50 brands were identified. In trying to understand what was common to these, the central finding was that businesses driven by a higher ideal, a higher purpose, a drive to improve life, outperform their competition by a wide margin.
This finding is congruent with the findings of Raj Sisodia and referred to in his work, Firms of Endearment: How World-class Companies Profit from Passion and Purpose.
Sisodia and his researchers found that ‘firms of endearment’, measured in terms of their sense of purpose, and the degree to which they were loved by staff, customers, suppliers and communities, outperformed the S&P 500 by a factor of 10.5 from 1996 to 2011. These humanistic firms were delivering extraordinary returns to their investors.
Edmans’ research found that the 100 Best Companies to Work for in America (measured on credibility, fairness, respect, pride and camaraderie) delivered stock returns that beat their peers by an average of 2.3 to 3.8% per annum over a twenty-eight year period.
There is enough evidence that you can ‘do well’ by ‘doing good’, and that being profitable and socially responsible are not mutually exclusive.
you can ‘do well’ by ‘doing good’,
So, there you have it. We can continue to do things the way we have been doing them for the past forty years, or we can change.
Is it not time for business to be valued as an important contributor to reimagining a new economic model; one in which the well-being of all stakeholders is the goal; one in which all elements of the triple bottom-line are taken equally seriously?
I would suggest that the answer is ‘Yes’.
This positive response resonates with the millennial generation now moving into business leadership. Citing research findings, Edmans reminds us that a new generation of workers is looking for vocations rather than just jobs. For them, it is important that the business of the future creates value for society as well as delivering profit.
Thus, we need to build businesses on the elements of the Sustainability equation. Business needs to use its resources and influence to build a society that we can all have a stake in. Sustainability must be placed at the heart of strategy; it can no longer be seen as a nice-to-have.
Perhaps then, we can be proud of the state of the world that we will hand over to the next generation.
HOW GMM CAN HELP YOU
With experience gained from over 20 years of facilitating crucial conversations with senior leaders and their teams, we can help you:
- Question and clarify the Purpose of your organisation – Why does it exist? What contribution does it make to society?
- Consider your contribution to the Sustainability Agenda?
- Build your strategy on the three elements of Sustainability.
- Balance the demand for growth/profitability and responsibility – doing well and doing good.
- Create mechanisms for meaningful engagement with your people.
- Develop mutually-beneficial relationships with your customers.