Reimagine business value: the world's changing expectations of companies
Environmental forces – climate change and social problems – are disrupting our lives. Business strategies that worked in the past will fail in the future. Companies will profit by abandoning the obsession with shareholder return to reimagine what it means to create value.
For decades, society was content for business to drive economic growth and wealth creation. People looked to governments to keep their worlds secure, while ‘doing good' was the job of charities. Companies were free to operate in a bubble of employees, products, customers and profits, as long as they made money for shareholders.
Trade brought progress and opportunity, but relentless growth also caused some of the world’s major problems. With industrialisation came greenhouse gases, while capitalism brought unhealthy lifestyles and dangerous inequalities.
Today’s strategies will become obsolete
The corporate bubble is inseparable from larger natural and social worlds. Simply put, businesses consume and/or add to the planet’s resources; and products are made by, and for, people. These two ecosystems are starting to exert ruthless influence over commercial fortunes.
The forces at work are familiar. Companies depend on the physical environment and natural resources. Opportunity is found in the make-up of human populations (revealed in demographics) and the values people hold. Business operations are enabled by technology, and governed by the laws and norms of our institutions.
Technology is reshaping our entire world, but few outside the coders of Silicon Valley have a say in its direction.
What is new is the crisis we now face. In the past, changes within the natural and social ecosystems hardly disturbed the day-to-day work of maximising profits. In the next five years, however, dramatic and complex outside forces will render many corporate strategies obsolete.
Nature and society are in turmoil
At the current rate, global warming will reach 1.5 ̊C above pre-industrial levels between 2030 and 2052 (IPCC). Even 1.5 degrees will lead to dying oceans and draining freshwater, wildfires and floods, hunger and heat-related death, along with conflict and economic decline.
Society, likewise, faces uncertainty. The widening gap between rich and poor sees British families struggling to put food on the table. As extremism tears apart Western democracies, political chaos and social unrest become the norm.
Technology is reshaping our entire world, but few outside the coders of Silicon Valley have a say in its direction. With the erosion of privacy come challenges to individual freedoms. Even our personal wellbeing is suffering – consumer lifestyles pose risks to physical and mental health.
Society now holds companies to account
We can see already society challenging businesses on climate change and social issues. For example, as Amazon employees joined the Global Climate Strike on 20 September that same week the company announced plans to reduce its dependence on fossil fuels.
Governments also are calling for transparency and accountability on the part of corporations. In the United States, Amazon, Apple, Google and Facebook are in the cross hairs of federal and state regulators over (mainly) antitrust and privacy concerns.
‘Business as usual’ can now turn into a costly scandal that ruins careers.
Demands for new behaviour reach beyond the organisation to individuals. John McDonnell, Labour’s finance spokesman, wants to end banking bonuses and ban share options as ‘a reflection of the grotesque levels of inequality’.
Business as usual risks a scandal
The illustrations here are not scandals of the traditional kind – think Volkswagen’s ‘Dieselgate' – where fraud was committed or established laws broken. These industries find themselves out of step with evolving expectations of how companies should operate.
As worries about the climate and society emerge and are better understood, nations revise their laws. New institutional and societal norms emerge that hold companies to account in fresh ways.
All this means that ‘business as usual’ can now turn into a costly scandal that ruins careers.
Companies must reimagine their value
Where money remains the main (if not only) factor in business decisions and practice, sooner or later a company will fall foul of this shifting environment. To align with new norms – and prosper – companies can commit to strategies that solve problems beyond that of financial return.
The solution is not to tear down the systems that have animated our societies for so long. We cannot overcome complex, global threats without the energy and organising power of business.
The complexity of the challenges also means that firms have to think, and operate, beyond the bubble of products and profits that has defined commerce for years. Traditional strategies geared toward ‘better, faster, cheaper’ offerings will be neither competitive nor relevant.
In all, executive teams must reimagine what it means for their business to create value, accounting for ecological and social, as well as (still) economic, returns. This calls for a holistic and long-term perspective, and the courage to overcome short-term pressures.
A business has to stand for something
In reimagining value beyond shareholder return, a company first will discover simple actions to make a difference and safeguard its reputation and income, at least for a while. An example is fashion retailer H&M’s decision to stop buying leather from Brazil amid worries that the cattle industry has contributed to deforestation and Amazonian fires.
Over time, however, environmental complexity and change demand that businesses set out a different kind of strategic priority. This will empower managers to make sustainable choices when they are tempted to put near-term margins or quarterly earnings before all other considerations.
Suitable priorities will emerge when executives agree what the business stands for: as the company goes about its work, what problems does it help to solve Strong forces threaten our ways of life – the future will have no space for companies that walk away from these questions.
What business offers the future
Criticism of capitalism, markets and business is widespread, and not entirely without merit. Still, the solution is not to tear down the systems that have animated our societies for so long. We cannot overcome complex, global threats without the energy and organising power of business.
Corporate executives have a duty to stand for a ‘softer’ form of capitalism and to harness a more thoughtful, less narrow conception of ‘value’. The future of business is to deliver returns for society, for the world we live in, and, of course, for shareholders.
In the next article of this series, I shall explore what a wider understanding of value means for both company and individual performance. When a business reimagines what it stands for, fresh thinking is required to align day-to-day practice with new ambitions.
Interested in this topic? Read Time to rediscover your values.