For business this is the topic of the decade.
This is not a fad. This is not a socialist conspiracy. Interest has been a growing for a while. Today, ‘create value AND do good’ is becoming a – is perhaps the – central ethos of business.
We are not there yet. There are still laggards who don’t see this as their job, who cynically cheer the public mistakes of those who try. Plenty of vested interests are trying to turn back the tide. Also concerning is the potential for a more radical response to growing disenfranchisement and inequality – social unrest and authoritarianism. But the fact is that our economic and social system continues to evolve and it’s up to business to evolve to something better.
Where to for business?
Most leaders are aware of the 2019 US Business Roundtable Statement, the 2020 Davos Manifesto, and Larry Fink’s 2020 letter to CEOs. They all speak to purpose. Purpose is where to start as you move forward.
A corporation’s principal purpose is no longer defined solely as maximizing shareholder return.
The purpose of a company is now broadened to explicitly engage all its key stakeholders in shared and sustained value creation.
Stakeholders include shareholders, employees, customers, suppliers, local communities and society at large.
Each company’s prospects for growth are inextricable from its ability to operate sustainably and serve its full set of stakeholders.
These calls to action appear very clear and the potential benefits enormous. Customers, employees, business partners, investors and society are looking for enterprises to create and share value more sustainably and equitably. Unfortunately, it is not clear if any substantive action has followed, or if these statements go far enough to encourage, support and maintain the necessary changes in mindset and behavior.
One possible place to start? Invest in innovation that drives sustainability instead of lobbying government to delay or roll back policy. As Duncan Austin suggests to the Business Roundtable:
“…a helpful next step might be to publish a similarly succinct statement describing what they believe is an appropriate relationship between corporations and government for a 21st Century marked by global public goods challenges. Such a statement might commit to releasing government from corporate influence to begin to restore society’s capacity to address social and environmental problems with public policies that are a better match for the scale and nature of those problems…”.
The opportunities to improve your competitive position are significant. And there is still the opportunity to lead.
And the consequences of not responding to these shifts? Think Kodak missing the digital revolution filing for bankruptcy in 2012 (they had patented a digital camera in 1977 but did not want to cannibalize film revenue, eventually launching Advantix – a digital camera that used film) (or Nokia the rise of the smartphone (Nokia’s share price plummeted through the 2000’s from around $40 to $5). The consequences of saying the right things but not doing right? Think the Volkswagen emissions scandal, and let’s not forget Enron.
If you are genuine about creating value AND doing good, but still:
You struggle with the complexity of trying to define, balance and account for the competing demands of multiple stakeholders.
You are doing the minimum required – legal compliance, well-meaning CSR, maybe a Foundation, and feeling like it’s not enough.
You are not getting traction with changes in your business practice or in the operating model, let alone measuring and reward performance against a broader set of criteria, but aren’t sure what else can be justified at the board level.
The internal refrain is ‘this is a tradeoff we are not willing to make, it is too complex to optimize, not our priority today, more about managing risk than doing anything fundamentally different right now’– your people aren’t on board and you’re wondering what would get them there.
Then, it is time to reset!
Getting started
Think in terms of a business model that achieves its purpose through a strategic and operational plan that addresses stakeholders in a sustainable way. Not a business model that tries to address all the needs of all stakeholders, but one that understands, measures and repays the value contributed by all stakeholders to the business. A model that works to align as many variables as possible with repeatable, long-term success. Kering is an example of a business that started the journey early and is now leading their market. Sustainability is at the heart of the Kering strategy. It is seen as an ethical necessity, a driver of innovation and of value creation. “Luxury and sustainability are one and the same”. The development and use of an Environmental Profit and Loss shows how it is possible to measure impact in their accounts.
At SVT Group we have spent 20 years working on these models and we understand their power, their uniqueness and their risks. We can help you navigate around the pitfalls and reap the rewards of this new direction. One key: find the people inside your organization who already want to go here. The board member who just needs to find people to bring along. The senior internal champion whom people trust to explain the opportunity and the risk. The aspiring leaders who “get it”, the CSR leaders who have the evidence of how this reduces risk and opens up opportunity. They are already in your company if you just look.
The transformation journey that a Finnish oil refining company, Neste, took to becoming a global leader in renewable and circular solutions is illustrative. The move to renewables represented a major reset for the business from where they had been as a local refining company. Neste now has an inspiring intent: “Our purpose is to create a healthier planet for our children. We are committed to reduce our customers' climate emissions by 20 million tons annually by 2030, and to reach carbon neutral production by 2035”. Neste has outperformed the market with its share price in August 490% higher than it was five years ago.
In our COVID-impacted world, CEO Peter Vanacker has described a “quick recovery” for their products and services that are sustainable and renewable and have achieved record sales volumes, while oil-based products are still “suffering” and not recovering.
There are four steps to begin.
Start with purpose. What high-level benefits are you trying to achieve with your products and services? Whom do you serve? Does everyone understand this? Is the organizational culture clear? Is everyone on board? Map out internal and external allies- you already have, you may just not know it yet.
Map where your business sits in the context of the broader system (economic and social) and the individuals you do business with (customers, employees, your supply chain, local communities, capital providers). Map the interactions and model the current and future impact (positive and negative). Do a materiality assessment–in what ways does what you do help or harm different systems and people?
Agree on some goals. Define what you want to achieve, what you want to change. This might require a major strategic review or only a small number of basic changes to your core business. Either way, take the time to communicate with and involve your stakeholders.
Give yourself a time frame. Put some structure to how you engage others internally and externally on the journey. Use this to diagnose where you are, understand the gaps, prioritize what matters, and agree on a way forward in a staged approach.
Connect and rewire. This what most people don’t do, and that’s why their efforts fail. Making this real in a way that’s not going to default to the status quo requires new accounting systems to guide, manage, and reward performance- and implementing them in a human way that recognizes what this means for your people.
Let us know if you are interested in further discussion
Let’s talk about aligning your purpose, repositioning your business and realizing the full potential for a more sustainable future. [click to connect]
