When I took my MBA at McGill over 20 years ago the purpose of business was straightforward: optimize shareholder value. Talking about climate change and social responsibility in a business meeting until recently was a sure way to be labelled a left-wing extremist and quickly fall off the corporate ladder.
Things are changing…
Milton Friedman (Nobel Memorial Prize in Economics) in a 70’s New York Times
Magazine article stated that “the one and only social responsibility of business, is to increase profits for shareholders.” Countervailing forces have emerged over the years to the extent that nowadays business is becoming accountable to a much broader set of stakeholders. Is the fundamental purpose of business at stake?
Over the years, I have witnessed the parallel rise of two themes that have had a profound influence on how businesses are run: Corporate Social Responsibility and Sustainability.
The term Corporate Social Responsibility came into common use in the 70’s. The concept of sustainable development was coined in a ’87 report by the World Commission on the Environment and Development. The ’92 Earth Summit in Rio was where the term Triple bottom line was first introduced.
The notion that corporations have responsibilities beyond profit maximization is taking root. CSR Europe was created in the early 90’s, the UN Global Compact, a voluntary strategic policy initiative for businesses that are committed to aligning their operations and strategies with principles in the areas of human rights, labour, environment and anti-corruption came to life in 2000. The Global Reporting Initiative (GRI) released its first set of CSR guidelines the same year. CSR magazines, blogs and conferences abound all over the world. Enthusiasm overflows in CSR circles. An Ethical Corporation article says it all: “CSR investment, the next ‘dot com boom’ investment without the crash?”
The 2001 Enron Scandal, Climate Change concerns and finally the 2008 economic crisis all contributed to reinforce the belief that corporations should behave ethically and be good stewards of the environment. I believe the next big thrust in corporate accountability will emphasize their role in addressing our many social ills: extremes of riches and poverty, access to healthcare, education, malnutrition, gender equality, diversity… The needs of society are too great, the debt load of governments to important to rely solely on traditional social actors like non-profits and public agencies.
Harvard business guru Michael Porter anticipates this change in a recent HBR article: “Businesses must reconnect company success with social progress…a narrow conception of capitalism has prevented business from harnessing its full potential to meet society’s broader challenges…Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face.”
Climate Change champion Al Gore is promoting “sustainable capitalism”, which explicitly integrates social factors into strategy: “glaring and worsening systemic failures—such as growing income inequality, high levels of unemployment, public and private indebtedness, chronic under-investment in education and public health, persistent extreme poverty in developing nations …—are among the factors that have led many to ask: What type of capitalism will maximize sustainable economic growth?”
Nobel Peace Prize winner and Economist Pr. Yunus goes one step further suggesting we create “Social Businesses” whose aim is to solve social problems.
The future is bright if you believe the creative and entrepreneurial power of business can be harnessed to address our shared societal challenges.