Business purpose is essential with the new call for sustainability
In SA we are already seeing the impact of business purpose informing business strategy, for example, with SAB and Distell
If you think technology, robotics and the Fourth Industrial Revolution (4IR) are disrupters then you haven’t considered the mushrooming social revolution. As we recognise the complexities of the world around us and the opportunities the global market place presents, the only effective strategy for business is to embrace people and planet-focused change.
Contrary to popular belief, change is an opportunity that happens all the time and something humans are wired for and adept at handling. Sometimes change happens when we least expect it or when it is downright inconvenient, but we know how to make it work. More often than not, we welcome change and sometimes we even actively create it in order to grow and flourish.
Companies are no different. Businesses can and do thrive on unprecedented change, but this is not simply about reactively keeping up with the competition or exploiting the latest consumer trends. Instead, businesses need to question their purpose, connect with the world, the needs of society and our common humanity. They need to act, rather than react. This is what business purpose means in a sustainable world.
CEOs from 181 of the US’s biggest companies (representing some 30% of the country’s market capitalisation) declared in a 300-word statement that business now requires a stakeholder mode
For those unfamiliar with the term, business purpose operates separately and at a higher level from the mission and the vision of a company. It’s why you get up in the morning and why you do what you do. But, over the past 50 years or so, the mission, vision and purpose of most companies have been contentedly united behind maximising shareholder value.
This approach is embodied in the words of Milton Friedman, the highly respected economist most famous for his 1970 declaration in The New York Times that “the social responsibility of business is to increase its profits”. Even at the time of Friedman’s assertion some were starting to question whether social responsibility shouldn’t be the primary motivation, but Friedman argued for profit, making it the acceptable mission of business ever since.
This was, as it turns out, not game, set and match for Friedman followers. Fast forward to August 19 2019 and a notable about-turn on this stance by a group of hugely influential business people in the US. The Business Roundtable, which traditionally provided a home for Friedman supporters, is rethinking its stance. CEOs from 181 of the US’s biggest companies (representing some 30% of the country’s market capitalisation) declared in a 300-word statement that business now requires a stakeholder model. Conspicuously, the first mention of shareholders came right at the end of the declaration.
This mindset shift was profiled by Fortune magazine, which ran it as their lead article in September with a cover featuring Ginni Rometty, CEO of IBM; Jamie Dimon, CEO of JPMorgan Chase; and Alex Gorsky, CEO of Johnson & Johnson.
In his editorial, president and CEO of Fortune, Alan Murray, wrote: “Milton Friedman must be turning in his grave.” But, to be fair, the “Better Business Better World report by the Business and Sustainable Development Commission also tells us that by 2030 the sustainable business opportunity could be worth as much as $12 trillion a year, having created 380-million jobs. So there is a very real business rationale for breaking the mould.
Not business as usual
But this philosophy needs to be supported by action. The issue of business purpose was deliberated by a powerful group of high-profile executives who enrolled this year for a Gordon Institute of Business Science (GIBS) masters in corporate strategy. These students began to question if this was really a new agenda or just a shift, and if business and society has, indeed, reached a tipping point. Of course, there are degrees of uptake, from a willingness to start having these conversations to an openness towards action.
Despite Fortune’s wonderful coverage of the Business Roundtable’s shift away from profit maximisation, it’s important to note that this is not just a leap from a 1970s view to a 2019 wake-up moment. In the 50-odd years in between, there have been green shoots of thinking that have leaned towards social responsibility, not least of which was management guru Peter Drucker’s 1984 book, The New Meaning of Corporate Social Responsibility, in which he talks about the ability of business to “discharge its ‘social responsibilities’ only if it converts them into ‘self-interest’, that is, into business opportunities”.
Also in 1984, Edward Freeman’s book Strategic Management: A Stakeholder Approach was aimed at exploring ways to improve strategic decision-making and took a different approach to Michael Porter’s work, published in 1980, on Competitive Strategy: Techniques for Analyzing Industries and Competitors. Only in 2006 did Porter acknowledge the stakeholder view when he and Mark Kramer developed the idea of creating shared value.
In SA we are already seeing the impact of business purpose informing business strategy. You don’t have to look to far to find examples such as those of SAB and Distell, both of which have taken a keen interest in social issues that have a direct impact on their business, such as water-supply sustainability and social transformation. These initiatives are not about trade-offs, they are grounded in finding something that is intrinsic to a business’s operations and addressing the issue.
There is a clear business imperative for interventions such as SAB’s water stewardship partnerships or Distell’s role in addressing water quality in the Eerste River catchment area, through the Stellenbosch River Collaborative.
The Woolworths Good Business Journey is another world-class example. The group’s approach to sourcing sustainable seafood is just one initiative in a multi-faceted strategy that commits Woolworths, by 2020, to selling only seafood that is World Wide Fund for Nature-SA Sustainable Seafood Initiative (WWF-SASSI) green-listed; caught from Marine Stewardship Council-certified fisheries; farmed by Aquaculture Stewardship Council-certified fisheries; or sourced from credible fisheries improvement projects.
To create value from the potential it’s essential to make social responsibility a core aspect of your business purpose, even if you sometimes fall short of your own ideals.
Similarly, the Unilever Sustainable Living Plan has embedded sustainability throughout its 400-brand supply chain, which prioritises human rights, and environmental and carbon disclosure. Just recently, Unilever pledged to halve its use of new plastics by 2025.
Sappi, originally a pulp and paper business, is also recognising that its business relies on the stewardship of natural sources such as water and natural fibres. This has led to the adoption of a stakeholder approach that focuses on conserving the natural biodiversity found in and around its managed forests, and creating opportunities for the communities in which it operates.
These examples of business purpose have the added advantage of giving people something more tangible to connect with than just a brand name; something bigger, something more important and more human.
Consumer demand is generally seen as the galvanising force for many sustainability initiatives. The so-called “theory of change” for food commodities, such as seafood, soy, palm oil, sugar, beef and dairy, tells us that when retailers make commitments to having an ethical, responsible and sustainable supply chain, it is driven by consumer demand.
However, in SA, the demand for sustainable seafood was first created by WWF-SASSI by building awareness and an informed consumer base, and working closely with retailers in an effort to embed a new market. This intervention has been recognised globally as a game-changer, perhaps a global first, and one that consumers are rewarding. It reinforces that when companies work together in collaboration with other organisations they can, and should, be the agents of change in line with their core values.
That said, generational change, and the fact that young people just “get” the impact of sustainability, is also pushing profound changes in consumption and challenging the disposable retail culture. Notable areas of consumer focus include ocean plastics, fast fashion and food waste; concerns that responsive organisations would be wise to scrutinise.
In the face of this sea change, businesses around the world need to determine where they stand on the issue of sustainability. You can’t play this game on the side lines. To create value from the potential it’s essential to make social responsibility a core aspect of your business purpose, even if you sometimes fall short of your own ideals. Widely regarded leaders in the field, such as Nando’s locally, and SAB (now part of AB InBev) and Nestlé internationally, have recognised that sustainability is a central pillar of their business purpose, which supports the overall strategy.
SAB’s strategy cannot disregard the need for water stewardship and Unilever cannot afford to overlook issues such as palm oil, plastics and human health. As corporate governance and sustainability expert Judge Mervyn King once said, sustainability is the business imperative of the 21st century.
At long last, the powerhouse of capitalism has spoken. We can now agree that purpose must underpin your business strategy. If your business is hesitant in its resolve, be sure that others will step up and take your place — and faster than you might imagine.
• Dr Bogie is a senior lecturer at the University of Pretoria's Gordon Institute of Business Science (GIBS).