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.
Two pitfalls that should be pointed out to corporations that should help in the shift to more sustainable business. The problem is that the structure of the corporation makes it tough for them to address:
1) A blogger by the name of Ian Welsh made a post regarding not mistaking capital for currency that is hopefully heeded by corporations, but as Hawken has pointed out, the structure of corporations can make them self-immolate purely for immediate profit.
2) I contend that, like Hawken, price should reflect cost, and money is the best incentive/disincentive with which to modify a corporation’s behaviour.
These two things may have to be insisted upon rather than suggested… and the government is the best organism suited to “twisting their arms”. The final issue I will raise is that corporations do not practice profit maximisation, they practice share-value maximisation. I find this is a common miscalculation that leads us to believe corporations will act a certain way – and then they surprise us. Profit isn’t what corporations have evolved to be about – they are about return on investment, which can be made out of nothing more than fiction. Just as the sword itself incites to violence, the balance sheet itself incites to malfeasance.
Great breadcrumb trail! That’s intended as a compliment, by the way.
In addition to the pragmatic advantage for changing business practices, the one issue you did not address in your post is the power of the emotional connection which I believe helps to drive engagement with both internal and external stakeholders. Almost like cellular fission, emotional connection supports the propagation of the idea and its sustainability over time. I truly believe that the horses have left the stable and that we will not return to the “for profit only” model. Like any relic of the past, I look forward (not really) to the day when I can go out of my way to scrutinize the out-dated trappings of the old business model, curious to understand how it survived for as long as it did.
Thanks for your contribution Cathie. You are absolutely right! As a matter of fact I’ve been invited to talk to groups of business people about social innovation and social business because of the direct link with employee engagement and motivation!