In boardrooms from New York to London and around the world, the pursuit of shareholder value has been a mantra for decades.
Some blame this focus—with its unrelenting drive to increase profits by aggressively reducing costs wherever and however it could—for the disillusionment and alienation of the middle and working classes and the further concentration of wealth. It was just a matter of time before this unease erupted into the political upheavals in the UK and U.S., and the World Economic Forum declared the growing gap between rich and poor a major threat to world stability.
The tragedy of the ‘shareholder value myth’, as Professor Lynn Stout calls it, may be that by focusing so much on costs and profits in the near-term, companies may be failing in their actual responsibility—which is to ensure the success and viability of the corporate entity for the long-term. Business cannot grow nor societies prosper if the majority of the world’s people are being left behind.
A more constructive way forward: companies grow by pursuing business strategies that develop human capital while creating innovative products and services that meet complex societal needs.
The Sustainable Development Goals: Strategies for Growth
As the world hurtles towards 9 billion people, the UN, World Economic Forum and other global institutions are grappling with the challenges such growth poses—from food to health, to education, to energy, water, and climate change—particularly at the ‘base of the pyramid’ in the developing world.
At the same time, demographics at the pyramid’s top are changing dramatically. As populations age, the number of consumers and skilled employees sought by companies in the developed world are dwindling.
We are at a nexus where the needs of business and government are converging: business needs the markets and workforce of the developing world; governments need the resources and skills of business to deliver prosperity and security for their people. As demographics shift, tomorrow’s customers and employees will be found in India and countries in Africa – places where more than 50% of the population are in their 20s. It will be up to companies and governments, working together, to turn these eager, mostly unskilled young people into the workforce and consumers of the future.
The UN has long sought to leverage this intersection between business and society. It started in 2000 when it established the UN Global Compact and its Ten Principles for Responsible Leadership, and defined 8 Millennium Development Goals (MDGs) to help eradicate poverty. By 2015, global poverty had been halved, attributed in large part to the greater economic inclusion brought about by globalization. In 2015 the UN launched 17 Goals for Sustainable Development (SDGs), accompanied by 169 ambitious targets, and challenged business and governments to work together to address them (www.unglobalcompact.org/sdgs/about):
For the enlightened, visionary business leader, the SDGs offer enormous business opportunities at the same time as they address critical social issues.
Initiatives like GE’s healthymagination, Nestle’s Shared Value and Unilever’s Sustainable Living Plan are examples where pursuit of the SDGs has created wealth-generating eco-systems that improve people’s lives even as these companies grow their own bottom line. Unilever’s Project Shakti, for example, transforms rural women in India into entrepreneurs and trusted distributors of Hindustan Unilever products. Nestle offers its smallholder farmers agricultural training that yields better crops and increases their income, securing the company’s access to a high quality supply chain. GE is working across the public and private sectors, applying innovative solutions to improve affordable access to healthcare in parts of the world that have been ignored, creating new markets for its medical devices.
By bringing the poor and underserved into the economy, these companies are creating jobs and generating income, building trust, securing their supply chain, and in the end, growing new markets for their products and services.
Early and continued pursuit of the SDGs is becoming a strategic imperative for multinationals, offering them the chance of competitive, first mover advantage in markets that promise double digit growth. At the 2017 World Economic Forum in Davos, the Business and Sustainable Development Commission’s review of four key sectors—food and agriculture, cities and mobility, energy and materials, and health and wellbeing—revealed opportunity for business revenues and savings that could be worth more than $12 trillion by 2030, or about 10% of forecasted GDP.
Realizing the Promise: Responsible Leadership
It will take enlightened, ethical and courageous leaders to set the ‘tone at the top’ and realize the promise afforded by the SDGs. Attributes of these leaders include:
- Holistic, Systems Thinking: These leaders understand that everything is connected to everything else, and that every action has a consequence – both good and bad, and often unintended. Responsible leaders seek to understand the real problem and ask the ‘what ifs’ as they seek solutions. They engage multiple stakeholders and create feedback loops to generate multiple perspectives before they take action. For example, if access to food and water is the issue, and food production the business, how do we grow crops in areas with a limited water supply or unskilled farmers? How do we then preserve and distribute food in places with an intermittent energy supply and poor transportation systems?
- A Universal ‘Code’ of Conduct: The idea of moral relativism—”when in Rome, do as the Romans do”—may work when applied to cultural traditions, but it is becoming increasingly unacceptable when applied to values. Multinationals are judged according to the values of their home country: decisions taken at what may seem a local level can have repercussions that reverberate thousands of miles away. Providing working conditions or conducting clinical drug trials, for example, using different standards depending upon whether it occurs in a developing or developed country may save expenses in the short term, but can erode value in the long term as the company’s reputation is destroyed. The UN Global Compact’s Ten Principles for Responsible Leadership—on human rights, labor rights, the environment, and anti-bribery and corruption—were drawn from accepted global standards, such as the Universal Declaration of Human Rights. They offer a universal code of behavior that respects and dignifies all stakeholders. (unglobalcompact.org).
- Cross-sector Collaboration: The problems are big, but so are the opportunities. Each sector—from business to governments, to academia to non-governmental organizations—brings an expertise and perspective that, when combined to create a collective whole, can offer transformative, growth-generating solutions. Business brings financial resources, technical know-how, and convening power while governments can create policies and regulations that create a vibrant economic environment. NGOs often have the trust of the local populations, while academia can share conceptual frameworks and knowledge, helping to build both human and managerial capital. Each has something to gain by the solution. It is this collective approach to a shared goal that creates successful, lasting solutions.
Conclusion: Economic inclusion is good for business, good for the world!
In its 2014 Global Insights Report on “Redefining Capitalism”, McKinsey authors state that “Prosperity in a society is the accumulation of solutions to human problems.”
Leadership in the 21st Century will be about seeking both economic growth and social inclusion—seeing them as two sides of the same coin. This is business at its best: transformative rather than transactional, courageous rather than complicit, and visionary rather than myopic. The firms that do it best will grow and thrive. Their leaders will create a virtuous circle that generates new value for multiple constituents, ensuring the long term viability of both their business and the society it serves.
This article comes courtesy of Hult International Business School.