Sustainable Business Week: Best companies aim to be force for good

This is Part 1 of a series of four articles on the role of business and how it may be changing as companies consider social and environmental concerns in the post-global financial crisis world.

Milton Friedman wrote the book  Capitalism and Freedom . Photo / Robin Morrison
Milton Friedman wrote the book Capitalism and Freedom . Photo / Robin Morrison

People do not feel connected with business.

Surveys show that the level of public trust in business is very low. There seems to be a feeling that all business is suspect, big business even more so (the term is almost a pejorative) and for global business there is no hope.

But what is behind this and what can be done about it? After all, most of us derive our living from "business". You couldn't be reading this article or have the light to read it by without business. So why all the bad publicity?

Some leading thinkers - academics, philosophers and, yes, business leaders - have been ruminating on this issue and how it might be resolved. There is an acknowledgment that all is not well (how could it be otherwise after the global financial crisis?) but also that business could play an important role in meeting some of the challenges facing humanity.

It has been said that the business of business is business. While it may not be helpful, this conveys the sense business should maintain its focus on doing its job and creating profits, leaving other issues to governments and other agencies.

Perhaps the most famous exponent of this view was US economist Milton Friedman. In his book Capitalism and Freedom he wrote, "There is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

This view is reflected in the United States where the interests of shareholders are considered to be the primary focus of business. It is a view supported by case law and, although directors have some flexibility, there are risks in taking too broad a view of the wider responsibility of business in such a litigious environment.

Europe has a broader view of corporate responsibility. In some countries a responsibility to society and the environment is the accepted norm and a legislated requirement. For example, Germany has had employee representation in its governance structures and sustainability reporting is becoming a requirement under EU law. In this context a view that business has a broader role in society is an easier concept to embrace.

Perhaps a turning point for business was an article written by Ian Davis (then managing director of management consultancy McKinsey) for the Economist. It certainly changed the perspective of that publication which had always held a disparaging view of corporate social responsibility. Davis argued that business needs to be aware of societal issues and developing societal forces, that there is an implicit contract between business and society and business needs to actively engage in this debate.

Of late, not only has business engaged in the debate about the role it might have in society, in many ways business is driving the debate.

To see the evidence look at the agenda for the World Economic Forum meetings in Davos, Switzerland - think global CEOs, prime ministers and presidents, rock stars as well as journalists and "sherpas" (those who do the extensive preparation).

This event is used as a background for thinking about longer term issues than the next quarter's results.

You may be surprised at the number of sessions that cover CEOs' concerns about broader societal and environmental issues and the part business could and should play in resolving them.

The World Business Council for Sustainable Development has also developed this theme. Even the Institute of Chartered Accountants in England and Wales has produced a paper supporting a broad view of business responsibility.

More importantly businesses have started to put this into action, changing the strategy for their organisations at the same time as leading the debate.

Unilever (Sustainable Living Plan) and Marks & Spencer (Plan A) are often cited as leaders in this area but there are many more.

Analysis of the Global Fortune 500 indicated roughly a quarter described their higher level strategic objectives in terms of contributions to society and the environment.

These companies are not doing this from a sense of pure altruism. Business recognises that unless it makes a return to its owners, it will no longer exist. But there is recognition that business has the ability and opportunity to help shape a society in which it can prosper. Organisations that are mindful of social and environmental issues are in effect ensuring their long-term viability and resilience.

Key features of leading organisations are:

They place broader societal goals front and centre of their strategy. A good example of this is Unilever's desire to "help more than a billion people take action to improve their health and well-being".

They build this purpose deep into the culture of the organisation. Marks & Spencer worked to ensure every sales assistant could describe Plan A and how the product range supported the strategy.

They are transparent in both their goals and their performance.

There is now a significant group of business leaders who reject the narrow view of business responsibility. They accept that business has a wider role in society and can be a significant force for good. They are concerned to protect the implicit licence to operate that has been granted to business. Some of them even want to change the world.

So it may be time for a recalibration of the general reaction to the term "business". Business needs to make it clear that it exists to provide goods and services to society. This may require embracing greater openness and transparency. It may encourage considering business' moral purpose and placing that at the core of strategy. Surveys indicate that this appeals to both employees and customers.

To adopt from Ian Davis, "Business provides goods and services that society wants. This is a hugely valuable even noble purpose." And what could be nobler than ensuring society's needs are met within the very real social and environmental constraints of our time?

Nick Main is a former CEO and chairman of Deloitte New Zealand, a past chairman of the NZ Business Council for Sustainable Development and has recently completed three years as the head of Deloitte's Global Sustainability practice.

Jackie Robertson is an assurance partner at Deloitte New Zealand who specialises in sustainability and corporate responsibility reporting, governance and strategy.

- NZ Herald

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