Responsible Business for a Changing World
Expectations about the role of corporations in society are changing quickly. By pursuing a mantra of maximizing profit for its shareholders, companies often ignored the damaging impacts of their actions on society and the environment. Environmental pollution, unequal pay and weakening workers’ rights were taken in stride as part of ensuring business competitiveness. Today, the focus on profit first is giving way to a new principle in corporate governance - pursuing purpose and profit.
In August 2019, for example, the Business Roundtable, an influential group of CEOs from nearly 200 of the largest corporations in the United States, endorsed a broader view of the “Purpose of a Corporation” in which they urge businesses to “lead their companies for the benefit of all stakeholders.” The truth is that creating value for all of a company’s stakeholders - its employees, customers, investors, community, suppliers, planet - makes good business sense. Let’s take a look at a few reasons why.
Purpose and authenticity matter to consumers
Factors such as price and popularity have traditionally been the primary drivers of purchasing decisions. Today, consumers look at the values, words, and actions of corporate leaders and they scrutinize a company’s ethics and authenticity before buying a product. According to research conducted by Accenture, over sixty percent of global consumers prefer to purchase products and services from companies that stand for a purpose that reflects their own values and beliefs. The same study found that consumers will also avoid companies, whose values don’t align with their own. In interviews conducted by GlobalWebIndex, respondents overwhelmingly (84%) stated they would stop buying from a brand with a poor environmental track record. Half of the respondents said they are also willing to pay more for products from brands that can prove they are socially and environmentally conscious. Authenticity matters. According to an article by The Spinoff “Companies that don’t have (verifiable sustainability actions) are simply not going to last that long. Consumers are getting clever, so companies that are just pretending or doing things in half measures aren’t going to cut it for much longer.”
New ways to create a competitive advantage, attract investors and manage risks
Business success depends at least in part on a company’s ability to understand, respond to, and shape the competitive environment in which it operates. Gaining insights from diverse sources can be crucial for companies in the face of rapidly changing social, environmental, competitive, and regulatory pressures. Active listening is especially important in today’s hyperconnected world, where information travels instantly. Movements such as #BlackLivesMatter and #MeToo can emerge and scale rapidly, generating diverse new legal, branding, workforce, and other challenges for companies, especially those whose diversity and inclusion or sustainability policies are inadequate.
The ability to anticipate stakeholder reactions to emerging social and sustainability issues and how they could affect a business and its performance is vital. Purpose-led companies with well-designed approaches to corporate citizenship and sustainability have a competitive advantage because they actively engage in two-way dialogues with diverse stakeholders as evidenced in this HBR article. Through these ongoing interactions, firms can identify and react to changes as they arise. Benefits to companies include the ability to respond quickly, the opportunity to shape regulations and help design community programs that could generate a win-win for the company and community (shared value, see point 4 below), stronger customer and stakeholder loyalty, and priority access to finance.
Earn trust and build a positive reputation
Companies that prioritize doing good for people and the planet enjoy greater trust with consumers and a better reputation. A March 2020 study by the Reputation Institute found “companies with outstanding reputations mean consumers with a 78% willingness to buy (vs. to 9% with a poor reputation).” The study also found that top talent is more willing to work for brands with an excellent reputation (70% vs. 11%) and such brands benefit from consumer’s benefit of the doubt ( 64% vs. 7%). In an increasingly competitive global marketplace, building a brand that is based on principles of corporate citizenship and sustainability will generate a positive reputation in the eyes of the firm’s stakeholders and drive customer acquisition and loyalty. Companies that perform poorly, on the other hand, can damage a company’s brand reputation and its value.
Earn a coveted social license to operate
Traditional business models, in which a company pursues profit and shareholder value above all things are rapidly being replaced by a new business model that prioritizes “stakeholder value” - value that is shared by the firm and its stakeholders. Companies that do business according to the principles of stakeholder value are increasingly granted a social license to operate (SLO). A social license is very different from the formal legal and regulatory licenses required to run a legitimate business. A social license to operate is the ability of a firm to carry out its business because of the confidence society has that it will behave legitimately, with accountability, and in a socially and environmentally responsible way. It is completely informal and grounded in trust and confidence – hard to win, easy to lose. Benefits of a social license to companies include a robust business-enabling environment; better talent acquisition and retention; stronger value chains; and product and service growth and innovation.
Build business resilience
Companies with strong corporate citizenship and sustainability approaches are proving to be more resilient to change. The asset management firm BlackRock recently published an analysis showing the performance of companies committed to environmental, social, and governance (ESG) issues. According to their analysis, these companies fared far better than other companies during the COVID-19 crisis. BNP Paribas came to the same conclusion, also reporting that investment funds with ESG criteria have outperformed the broader market during the pandemic. For Johnathan Normand, founder of B Lab Switzerland, this is no surprise. In a recent interview in Green Buzz magazine Johnathan notes that B-corporations, which operate to the highest ESG standards have built strong relationships with their workforce, customers and suppliers, based on the notion of a true partnership vs a transactional relationship. In times of crisis, this partnership is proving to be resilient, giving these kinds of companies a critical edge over competitors.
In summary, companies that balance purpose and profit and embrace a business model that aims to generate value for all of the company’s stakeholders are uniquely placed to win the trust and loyalty of consumers, employees, suppliers and the communities in which they operate. This is good for society, for our planet, and for business.
