The Sustainable Business Revolution – a unique challenge and opportunity
Published on 16 December 2019
Having spent most of my professional career leading business transformation, restructuring, and business model innovation as a CEO and senior leader in various industries and countries, here are some perspectives on sustainable business and a call for action I would like to share.
Sustainability isn’t a threat to future business – it is the future of business, of a thriving economy and long-term prosperity. Our current operating model must change, and the time is now. Long-term economic viability can only be based on the alignment of purpose with an equal balance of People, Planet, and Profit. It is the new basis for competitiveness and financial success.
Sustainability is already transforming our economies and the companies that drive them. Investors and business leaders need to embrace this paradigm shift and actively lead instead of just follow the change. We as leaders are not only faced with an unparalleled opportunity – we also have the moral, social, and ecological obligation to commit ourselves fully to using business as a force for good.
Sustainability is a seismic shift not only in business but in the history of humanity. The foundations of our economy need to be revisited. We need to create a more inclusive and sustainable framework for meeting the needs of people and their communities, for engaging human skill and effort, as well as technology and capital. We need to stimulate and support cross-societal co-creation to achieve it.
However: my perception is that the gap between those insights and where we stand today is huge. Despite growing awareness and urgency, there has been much more talk than concrete action. So far, we have not been successful with unfolding any significant momentum. While there are many positive examples, business organizations that have embraced stakeholder value focus fully are by far outnumbered by those who lag, stick their heads in the sand, or are in denial. Shareholder value and profit maximization are still the dominating principles. Governments are way too slow and passive. This situation is dangerous for all of us and unacceptable and here is why.
We are facing a revolution. Even surpassing the Industrial and the Digital Revolution, this paradigm shift will affect everything and everyone on this planet. It will influence the way investment works, industries function, governments act, and businesses operate. It will bring about a time of intense instability as much as it produces unparalleled opportunities. And it will happen in the next 5-10 years.
This isn’t only about the environment. While most commonly associated with climate change, this revolution goes way beyond the environment. Economic, social, and governance models must change in the face of a growing and aging global population, scarcity of natural resources, increasing inequality, and political polarity. We must fundamentally rethink established business practices and models in virtually all areas of our economy. No country, sector, or company will go untouched.
Access to capital will depend on stakeholder value creation. Investment and creditworthiness will soon be determined by universally accepted stakeholder value ratings like credit and investment-grade rating. While there are still many different ESG frameworks today, soon there will emerge universally accepted ESG standards. Role model banks like ING are already linking access to capital and financial services to demonstrate stakeholder value as much as financial stability.
License to operate in Supply Chains will depend on proven sustainability. Admission to compete and cooperate in supply and value chains will depend before anything else on demonstrated stakeholder-value orientation and the UN urges companies to take this very seriously. Accordingly, supply chain sustainability standards are emerging that force companies to take full responsibility for their partners, their business practices, models and processes as much as for their own. Not actively taking on this responsibility is not an option if one wants to stay in business.
Embracing this paradigm shift will be crucial for access to talent. Attracting, developing, and retaining talent will be a function of the seriousness with which organizations embrace this shift. Millennials are coming into power and in contrast to Boomers are much more outward focused. “Doing well by doing good” is a massive change in mindset compared to the “what’s-in-it-for-me” orientation of the Boomer generation. Their decisions about where to work, which cause to support and where to invest will be driven by the opportunity to make a positive difference in the world.
Sustainability produces superior financial results. A widespread misconception claims that the pursuit of sustainable business goes in exchange for profitability as previously externalized cost need to be internalized. However, as many studies and real experiences have shown, putting stakeholder value first creates by far superior and more stable value. Preference of talent, customers, business partners, and investors is one reason. Another one is that the internalization of cost creates more purpose-driven, robust and innovative business models, and reduces risk.
Avoidance strategies are doomed to fail. Procrastinating change or masking it with alibi activities is by no means an option. Trying even to circumvent it by employing non-compliant business practices to gain competitive advantages is the highway to hell. “Diesel-Gate” and many other recent cases of manipulation, corruption, and anti-trust behavior as a “substitute” for lack of innovation and sustainability changes have demonstrated this unmistakably in various business sectors. Hence, waiting for laws and rules to come into full effect instead of acting now is a recipe for failure.
So, in the face of these perspectives – as black and white as some of them might be – which key questions do we need to address to get a more powerful momentum going? Here is what I think:
How do we practically replace shareholder with stakeholder value as the prime focus?
What kind of leadership do we need and how to select and develop the right leaders?
How can we inspire, plan, and execute the necessary changes to the way businesses operate?
What is the role of government and which measures should be taken?
What is the purpose and function of our economy in the future?
I firmly believe that we do need much more proactive and innovative ways for addressing these fundamental questions. Here are some ideas as food for thought and further discussion:
Investment & financing – “the one who pays the piper calls the tune”. We need to target the ownership focus first. E.g. in the same way that activist private equity investment is being used for maximizing profits, we can use this strategy in the pursuit of maximizing stakeholder value: setting up activist investment funds for acquiring stakes in businesses, actively driving their change of business practices and models focusing stakeholder value, and using them as lighthouses of successful change.
Leadership – purpose-driven transformational leadership that fosters co-creation. We need leaders with a “Doing-well-by-doing-good” mindset coupled with the emotional intelligence, drive, creativity, and ability to inspire cooperation in the pursuit of stakeholder-value as the prime target. Identifying purpose, orchestrating and supporting internal collaboration as well as driving and mentoring co-creation with external stakeholders and partners will be vital key skills.
Business transformation – creating “lighthouses of change” as role models. In the light of disruptive technological and market changes more and more companies cannot avoid measures of hard-core restructuring. But rather than treating this as an end in itself, this should form the foundation and pave the way for a unique opportunity: embarking on stakeholder-value driven change of business practices and models in order to form organizations that are able to create long-term sustainable value. We need showcases of successful change that others can understand and follow.
Government and legislation – making it mandatory to demonstrate stakeholder value. Governments should adopt an active “sustainability-first” policy that targets transparency as well as incentives and sanctions for businesses based on demonstrated stakeholder value creation. Legal frameworks should make triple-bottom-line reporting mandatory for businesses. Transparency requirements should treat ESG performance in the same way as key financial metrics. Also, based on well accepted standards like the BCorp framework, certified companies could be eligible e.g. to obtain tax-breaks or other benefits as opposed to non-performers.
The future role of our economy – an engine to match human needs and opportunities. Finally, there is an urgent need to revisit the purpose and function of our economy. At its best, it is a dynamic and evolving framework of rules, habits, agreements, behaviors, and practices that facilitates meeting the needs of people and their communities, and engages human skill and effort, as well as technology and capital, to do so. We need to review how emerging technologies can help us re-create ways to meet human needs, those we have been incapable of addressing in a traditional manner. This requires new avenues of a broader, much more inclusive dialogue and co-creation involving stakeholders from all parts of our society. The more diverse, the better.
Stephan Strauss is an entrepreneur, investor, mentor, and advisor who helps organizations and leaders change business for good.
He has a long-standing global track record in business transformation, turnaround & restructuring, and business model innovation as a CEO and senior leader in various industrial, service, and NGO environments.
Stephan`s special interest is in developing and orchestrating the use of business as a force for good and in building a more inclusive and sustainable economy.
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