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Our shifting view of business

30 May – In the first of his blog series, Ben Kellard, Director of Business Strategy, CISL, considers the evolution of business perspectives and responsibilities - and the role of leadership in delivering sustainable, future-fit strategies.

Wherever you look it seems that business, especially big business, is under scrutiny.

From the heightened awareness of the role of business in the climate crisis to Oxfam revealing that 82% of global GDP in 2017 went to 1% of the population, most of which are business owners people are increasingly questioning the role of business in society.   

These deepening concerns have entered the public arena; from Swedish schoolgirl Greta Thunberg, telling the UN; “our civilisation is being sacrificed for the opportunity for a very small number of people to continue making enormous amounts of money” to reflections from FT chief economics commentator, Martin Wolf, on the “mediocre” performance of big business when  “judged by real wages and productivity.”

This disillusionment runs deep and threatens to fracture the very social contract business has with society. Even by businesses’ own standards, the private sector isn’t faring well. According to research from Cornell University there has been a significant decline in the number of listed companies; there are fewer patents, reflecting poorer innovation and even companies that set out to maximise profits, don’t maximise profits. Tepper and Hearn also point to stagnant wages and growing inequality as a result of the growth in markets dominated by a few large firms and the subsequent decline in market competition.

How has this view of business emerged?    

The role of business in context

Over the last fifty years a consensus emerged that ‘the business of business is business’ and that meant maximising shareholder returns. This view was enabled by the development of accounting practices that focus on measuring the historical performance of largely tangible assets, such as physical and financial. Crucially, assets and value creation is only recognised within the narrow legal boundaries of a business, i.e. what is bought and sold by the business. As a result any investment in, or destruction of, assets outside of that narrow boundary are not captured and therefore not valued. This view took hold during the 1970s when financial capital was scarce and natural and social resources were relatively abundant.

This view of business is so prevalent that we can forget that it’s an aberration in the thousand year history of corporations that have previously sought a range of purposes, not just profit.  From the origins of the Roman collegium, a group bound by a common purpose, through to state-sanctioned trading companies of the seventeenth century, corporations were established and expected to deliver social benefits.

What changed?

During the ascendancy of this view of the role of business, two main trends have emerged.

The first is the rapid growth in globalisation, leading to huge global corporations with international, complex value chains. This exposes corporations to a wide range of territories, variables and stakeholders, that all need to be functional in order for these businesses to thrive.

The second is the drawing down on huge amounts of environmental and social assets, as the population and economy grew, also resulting in waste and the degradation of natural resources to such an extent that they are in threat of collapse. From the accumulation of waste in rivers and oceans, through to deforestation and workers’ rights, the natural and social resources businesses rely upon is in increasingly short supply, unlike fifty years ago.

These trends have combined to exert huge pressure on complex business networks that reveal the vulnerability and reliance on a range of social and natural assets, ranging from skilled workers and the availability of fertile land through to a stable society and climate. As a result, businesses are exposed to external shocks at a time when social and natural resources have become increasingly scarce, while financial capital is relatively abundant. The UN’s Sustainable Development Goals summarise the challenges that need to be addressed.

A new view of business?

As a result our view of business is changing. 

There is an emerging view of businesses as being embedded in complex global social and natural value networks that deliver and rely upon many forms of assets and value creation. This view recognises the reliance business has on delivering benefits to various stakeholders for its legitimacy and longevity. Intangible assets, such as leadership, trust and creativity play a key role in developing the products and services of the future. 

As initiatives such as the Taskforce on Climate related Financial Disclosures and the inclusion of sustainability risk and impact in investor stewardship policies demonstrate, investors and regulators want to know more about the systemic risks and opportunities across a business’ value chain. This includes the business’ positive or negative impacts and their ability to contribute to a sustainable future and thereby deliver ongoing value creation.  Consumers and employees are also drawn to companies that understand these challenges and seek solutions to them. Technology will provide transparency of business impact to stakeholders at the touch of a button, like France’s Yukka app that provides health implications of food products by scanning the bar code.

Consequently, it becomes in business’ interests to protect and enhance these networks and assets to be resilient, trustworthy and appealing to stakeholders.

The leadership dilemma

Our view of business seems to be shifting from one focussed on profit-maximisation and tangible assets, within the narrow legal boundary of the business, to one focussed on providing solutions to global challenges that deliver multiple forms of value across complex networks.

It’s as if we shift from an old, black and white view of organisations to one in colour, revealing all their richness and complexity. However mainstream financial reporting hasn’t kept up, resulting in a distorted view of companies. This results in a focus on short-term financial accounting; risking the misevaluation of corporate value and the overlooking of strategic opportunities.

As a result leaders in organisations can feel caught between a rock and a hard place. On the one hand they are under pressure to deliver short-term financial returns, while on the other hand they need to transform their business to adapt to these global challenges while they still can. 

This tension will only increase as stakeholders become more aware of the growing pressure on complex business networks and their positive or negative contribution to a sustainable future. This raises several questions that we explore with our clients and participants on our programmes:

  • How can companies understand the wider risks and opportunities for long-term value creation?
  • How does a company develop a robust, future-fit purpose and commercial strategy – and align the organisation’s culture and systems to deliver this?
  • What does real business leadership on sustainability look like?

We will be sharing our perspective on some of these questions, informed by our work with leading businesses, in future blogs and webinars.  


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About the author

Ben Kellard

Ben Kellard leads CISL’s business strategy advisory work. He has a passion for shaping organisational purpose and strategies that unlock people’s desire to improve their own and others wellbeing, while sustaining the environmental systems the organisation relies upon. Doing so prepares organisations for the future.

He does this by helping organisations such as O2 and Unilever to develop and implement holistic leading strategies. Ben draws on over twenty years of experience as an organisational consultant, to involve a range of stakeholders to develop shared responses to complex and ambiguous sustainability challenges.

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Disclaimer

Articles on the blog written by employees of the University of Cambridge Institute for Sustainability Leadership (CISL) do not necessarily represent the views of, or endorsement by, the Institute or the wider University of Cambridge.