Sustainable Business Week: Being responsible good for humanity and bottom line

Overall, business has delivered a huge amount to humanity in the growth of living standards and wellbeing. Photo / Thinkstock

In our last article, we talked about how some companies are evolving their thinking about the broader role of business.

This may be a surprise to many who have a more cynical view of business motivation. But let's spend a little time thinking about why broader responsibility might be both a necessity for humanity and a successful way of driving business strategy.

Business is such a pervasive element of the way we are organised it's probably worth going back to the beginning. Why did we create business in its current form? What are the spoken and unspoken trade-offs? And how can business make consistently appropriate decisions?

Originally, businesses were small and involved an individual, or group of individuals, establishing a trade to serve their local communities. This is still often the case.

Their success depended on personal reputation, and they were likely as focused on what they delivered to the community, and the impact they had on it, as much as the income they made.

Modern business was born in the 19th century with the development of incorporated "joint stock" companies. This allowed individuals to contribute part of their wealth to an enterprise. It enabled the separation of the provision of capital (ownership) from management.

But even with this change, an echo of the earlier form of business remained. Incorporation required businesses to have a purpose statement. There were requirements for accounting disclosures and personal liability of those governing the company could not be avoided in all cases.

Much has changed since those times with business growing beyond the likely imaginings of the time. A web of regulation has evolved to constrain this new invention and manage its periodic excesses.

Overall, business has delivered a huge amount to humanity in the growth of living standards and wellbeing. But is there a less risky way of achieving this success?

In many ways, the global financial crisis (GFC) was a wakeup call. While previous financial crises have been blamed more on the actions (or inactions) of governments, the GFC can be attributed primarily to the actions of business. The scale of the problem was larger than governments and five years later we are still suffering its effects.

So what has allowed this to happen? Our observations are that there are some simple signals when businesses (and indeed societies) are in trouble.

* There is a focus only on profitability: When a business is focused only on profit beware the customer and any other stakeholder.

* The attention is only on the short term: indeed, some analysts are not interested in what happened last quarter but rather in the last week of that quarter.

* Only lip service is given to the broader impacts on society: this relates not just to the incidental impacts, but also to the core business impacts on the environment and society.

* Reporting is narrow: reporting focused on anything other than statutory obligations is dismissed as fluff.

It may be that the immediate past has been a period where the growth in the scale and scope of business has been faster than the mechanisms supporting and enforcing transparency.

Today, with the spread of social media, dirty secrets are harder to keep. And the penalties of being discovered are far higher.

So what would be a better approach?

One group trying to get broad traction in this area is "the B team", led by Richard Branson. Their mission is to deliver a "Plan B" that puts people and planet alongside profit.

Another approach is to put societal purpose at the heart of strategy. This recognises that while returns to capital are important (as are returns to labour) business has a wider responsibility for the delivery of societal benefit. Stripped back to an overarching goal this can help deliver a corporate culture that is ethically sound.

* Nick Main is a former chief executive and chairman of Deloitte NZ, a past chairman of the 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.

Part 2
A series of 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.

Tomorrow
The role of governments.