A New mandate for the ‘New Normal’ 14/08/2020 by Sarah Pursey
AS the world changes, our expectations change with it – and our values do too. The ongoing pandemic has taken us on a journey whereby preserving public health has, necessarily, taken precedence over jobs, commerce and the broader economy. In accordance, government responses have, quite reasonably, become the subject of intense scrutiny – with lack of foresight or swiftness to react highlighted as failures that now carry far deadlier consequences than most policymakers could have ever imagined possible just six months ago.
And likewise, people across the globe are today taking a much more active interest in what companies represent beyond profits. “If ever there was a time for companies to demonstrate their commitment to the health, safety and prosperity of all stakeholders by addressing inequality in the business model, it is now,” urges Kevin Moss, Global Director at the World Resources Institute’s Center for Sustainable Business (p6), who compels us to ponder how we want to emerge from this crisis.
“Too many companies are running their business into the ground, I would argue, by being myopically short-term focused on the shareholder,” notes Paul Polman, former CEO of Unilever, who arguably led the way on CSR within his sector. He stresses that while certainly requiring astute management and investment, policies like the FMCG giant's ambitious ‘Sustainable Living Plan’ – which committed to doubling the size of the business in tandem with halving its environmental impact – invariably improve the fundamentals of a business for the long-term. Upon taking the helm at Unilever, Polman also famously scrapped quarterly reporting and did his level best to deter investments from hedge-fund managers – a group he said would sell their own grandmothers if they could make a quick buck from it. “Transient investors may not care, but long-term shareholders increasingly see environmental and social governance as a key indicator in terms of investment,” agrees Dr Ioannis Ioannou, a strategy scholar at London Business School.
The very fact that ESG funds, which invest according to environmental, social and governance principles, have proved a rare bright spot during this crisis – attracting record net inflows of over US$71 billion between April and June this year, according to Morningstar – speaks volumes as to the direction in which the wind is now blowing. Clearly, investor demand for sustainable investing was already on the rise before Covid-19, in recognition of the impending climate crisis. Nonetheless, the current pandemic has undoubtedly served to further focus minds – and with it, has thrown further examples of corporate failure into sharp relief. Indeed, Warren Buffet’s analogy – “It’s only when the tide goes out that you learn who has been swimming naked” – has seldom seemed so apt.
Resultantly, the current crisis might well prove the tipping point for sustainable business, as it brings the apparent trade-off between profit and purpose to the fore – and exposes it, in the view of London Business School’s Prof. Alex Edmans, as a fallacy (p10). Value created by a business is not fixed in size like a pie, he argues, with the result of providing a slice to society being a smaller slice for shareholders. Instead, a shift from a “pie-splitting” to a “pie-growing” ethos would have the effect of successfully expanding the value of the business – not only for shareholders but for wider society, too. Fortuitously, “creating value for stakeholders isn’t just a worthy ideal – it makes good business sense”, he opines, yet goes on to note that it requires a shift in business thinking about sustainability – from “doing no harm” to “actively doing good”.
With far broader influence than ever before, today’s global business leaders have the opportunity to take a stand and actively address universal challenges – and in the process help to secure their company’s future positioning. As Polman himself points out, “Business has to decide what role it wants to play. Does it sit on the sidelines waiting for governments to take action, or does it get on the pitch and start addressing these issues?”