Business faces pressure to achieve societal impact

Peter Vogel
Natalia Olynec
If a company doesn't engage with the community and have a sense of purpose "it will ultimately lose the license to operate from key stakeholders,"
Peter Vogel
Natalia Olynec

WE are seeing a wider group of global stakeholders converging to seek entrepreneurial avenues toward societal impact. There’s marked shift as corporations, banks, and investment funds reconsider business’ role beyond financial returns as defined by economist Milton Friedman and consider their overall impact.

Unique partnerships are developing across industries and types of organizations, tapping into technology, innovation and entrepreneurship to tackle some of society’s most difficult problems. As a result, we are seeing new opportunities for multi-stakeholder cross-learning and collaboration.

Stakeholders are driving the expansion of the corporate role in public affairs. Shareholders, employees, and consumers are increasingly scrutinizing corporate behaviour, asking for evidence that they are not only ‘doing no harm’ (a CSR approach) but also improving society, as evidenced by their impact on broader challenges such as gender or income inequality. Participation by the private sector is seen as crucial to meeting society’s biggest challenges, represented by the ambitious 17 UN Sustainable Development Goals, which aim to eradicate poverty and hunger, foster safe and inclusive societies, and combat climate change by 2030.

There is a growing concern that individual governments are not capable of addressing today’s broad international challenges on their own, as they are subject to short political cycles and faced with weakening international cooperation. Among those surveyed the 2018 Edelman Trust Barometer 64 percent said CEOs should take the lead on change rather than wait for the government.

Greater access to data is laying corporate behaviour bare and raising red flags with investors. When assessing corporate viability, investors are increasingly analysing corporate Environmental, Social, and Governance (ESG) performance, heeding the old adage “what gets measured, gets managed”. That’s because purpose-driven companies that rank high on ESG indexes outperform their peers in the long term, recent research shows. US investors seeking ESG data on companies more than quadrupled in the first half of 2017, according to Morningstar. They are fuelling demand for more sophisticated ESG data and impact measurement methodologies.

In a strong signal in support of ESG measurement, the biggest investor in the world, Laurence D. Fink, founder and CEO of Blackrock, warned the world’s largest companies in January that he would withdraw his support without evidence they are contributing to society.

If a company doesn’t engage with the community and have a sense of purpose “it will ultimately lose the license to operate from key stakeholders,” Fink warned.

Corporate leaders are taking note of the shift in sentiment. They are setting aside their often piecemeal, philanthropic CSR efforts in search of a broader strategy that integrates their core business with measurable societal impact.

The number of companies directing corporate citizenship from the C-Suite has increased nearly 75 percent compared with five years ago, according to Boston College Center for Corporate Citizenship.

An increasing number of CEOs are discussing corporate purpose as part of their strategy setting and dialogue with stakeholders, a study by the EY Beacon Institute and Oxford University shows.

Businesses should shift from maximizing Total Shareholder Return to a new strategic focus on Total Societal Impact, the total benefit to society from a company’s products, services, operations, core capabilities, and activities, a Boston Consulting Group recommends.

To be sure, the debates over the best models and the measurement of private sector impact are unlikely to be resolved soon, but it is clear there is a shift in expectations of private sector contributions to societal change.

Peter Vogel is IMD Professor of Family Business and Entrepreneurship and Debiopharm Chair of Family Philanthropy. Natalia Olynec is Senior Writer and Researcher at the IMD CEO Learning Center. Shanghai Daily condensed the article.

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