Shaping business strategy for a better world
A young friend recently asked me what my 28 year old self (her age) would make of my views on corporate leadership today. Good question. I’d like to re-meet that young woman; so clear and confident about how easy it should be for corporate leaders to address injustice. I was then convinced that, if only ethical principles could trump commercial imperatives, corporate responsibility would not be limited to feeble gestures at the close of serious business. Instead, it would be mainstreamed into the core activities and the world would be a better place. Actually, I still believe that today.
But over 20 years’ exposure to the vagaries and demands of markets have tempered the conviction of how easy this is to achieve. Work with some of the most thoughtful leaders in pharmaceuticals, energy and finance, from across business, government and civil society, has shown me how difficult it is to think beyond tomorrow’s scandal and next quarter’s earnings; let alone address longer term challenges. But it has also shown where the levers of change may lie.
It’s time to act
Longer term is, of course, relative. The IPCC has given us just 27 years to bring about a transformation of the global energy system, if our climate is to remain benign enough to support life as we know it. Surely, that requires immediate action? Ocean acidification is happening ten times faster than it has at any other time in the last 65 million years. Another reason for acting now.
Our food system is out of kilter; half the human population is either overweight or suffering from malnutrition; exposure to air pollution is now the single greatest environmental health risk we face. The list could go on. The danger of environmental risks could not be clearer or more present. It is evident that we will need all hands on deck to address these challenges: the knowledge of academia; the policies of government; the wisdom of communities; the innovations of science; the applications of technology; and – crucially – the ability of business to spur innovation and deliver it, at scale, in the shortest possible timeframe.
All this we know, and yet – despite examples of visionary leadership – for most corporate leaders it remains unclear what to do when you get to the office tomorrow. Indeed, for many, even if they are concerned about these things, they are not persuaded it is their responsibility to address them.
Competition with other pressures
And then, other issues clamour for attention. The global economy is unstable. Tectonic shifts in global trade flows are accompanied by signs that aspects of globalisation are juddering to, if not a halt, then at least a serious slow down.
Stunning advances in IT and data management capabilities are propelling demands for transparency about everything from clinical trial data, to banking fees and executive pay.
Competition is ferocious with new entrants coming at you from all sides. In many sectors – pharma, finance, energy, to name but three – core business models are being reshaped. In the face of these pressures, persuading all business leaders that environmental overreach is their problem as much as everyone else’s (and, indeed, more so due to the levers they can pull, at scale) remains the number one challenge.
The second greatest obstacle to corporate leadership on sustainability issues comes from the financial markets. Despite the crash of 2007-08 and its catastrophic impacts which continue to haunt us, financial markets remain dominated by investors who appear not to take an informed long term view of their investments. Holding periods have shrunk dramatically and returns are measured in quarters rather than years.
At the same time, a corporate culture has evolved that also skews incentives towards the shorter term. This bias remains a profound systemic challenge and continues to make it extraordinarily difficult for corporate leaders to invest in ways that address the long term implications of climate change, obesity, air pollution, biodiversity loss, even when they want to do so.
Where business can make a difference
We need business skills in our toolbox to address environmental problems and there are two areas where this could make a massive difference. First, business needs to work effectively with other stakeholders – regulators, policy makers, communities, customers and other companies – to reshape financial markets in ways that give lie to the argument that fiduciary duty can exclude attention to long term social and environmental liabilities. This will not be easy in an era of widespread disillusion with business as a legitimate voice, but it is nevertheless vitally important.
Second, we need to hear more – and more loudly – from those visionary business leaders with the backbone and integrity to argue for the return to business rooted in a deep sense of purpose and service. The reconnection of business with society’s concerns and needs is a vital first step.
A good place to start is with young people whose engagement with finance and business is profoundly different from previous generations. Their hopes and fears, dreams and aspirations should be shaping business strategy much more than it appears to be doing today. They are clearer about the role they want business to play, and it is more positive, less destructive and much more fun.
At its most profound, this is a question of ethics; a view with which my 28-year-old self would agree.