At a recent purpose in business event the Corporate Affairs Director of one of the more respected businesses on the planet said to me ‘we would love to do more on our social agenda but we are restricted by our shareholders. No public business can willingly make a decision that means it will make less money.’
Given all the evidence that responsible business delivers a better and more sustainable return in the long run, is it really true that institutional investors have such a narrow focus on short-term return?
[pullquote]People with good intentions find themselves supporting evil deeds due to systemic or even regulatory inconsistencies.[/pullquote]
We thought we would find out by getting leading lights from the pensions and investments industry around the table with global corporate leaders, academics, charity heads and a sprinkling of entrepreneurs to have a no holds barred debate.
What we found out was a complete surprise.
According to this group of financial and business leaders, the idea that business is responsible not just for shareholder return but also for the wider good of society has become widely accepted. A gradual shift to a more purpose-led business model seems inevitable and the responsible investment community wants to be seen as a driver not a hindrance of this.
“We are beginning to see that we can prove that socially responsible business offers a better long-term return”.
“We are now absolutely starting to look at environmental, social and governance factors in our investments”.
Yet, it was also clear that this was a vastly complex issue. Investors are subject to a range of often conflicting forces. People with good intentions find themselves supporting evil deeds due to systemic or even regulatory inconsistencies.
“The long term might be clearer but on an average investor cycle of 200 days what is the incentive for the investor? “
“Pension law is clear; the sole duty of the trustees is to maximise the return on behalf of the beneficiaries. This does not always support long term responsible business”
“The system we provide is not serving the outcomes we seek”
[pullquote]The system we have allowed to develop is still weighted towards driving short-term, profit-led decision-making[/pullquote]
And the interest in the wider good is by no means universal in the investment world.
“The growth of PE has been phenomenal and the culture of PE is the ruthlessly short term. Nothing else is relevant”.
Despite evidence that the tide is beginning to turn, the system we have allowed to develop is still weighted towards driving short-term, profit-led decision-making. Which begs the question is looking at investors as a catalyst or constraint to purpose-led business even asking the right question?
Perhaps a fundamental reappraisal of what society wants is needed. For some in the room that meant a fundamental change to how the dividends of business are distributed.
“Businesses that are not purpose-led are already obsolete. They just don’t know it yet”
“We have to have the courage to admit that return to shareholders must be compromised if we are to protect people and the environment. To pretend otherwise it is dishonest”
For others there were different and complementary business models emerging.
“Already there are 1 million people employed by social business in the UK. In India there is a dairy company bigger than Nestlé owned by 3 million poor farmers. Business models are changing. And changing fast”.
There was broad agreement that despite poor practice, confused regulation and hidebound legacy structures, change was coming.
“We’re overstating the importance of companies here. The life-cycle of a company is only 15 years. The typical model is changing fast. Businesses that are not purpose-led are already obsolete. They just don’t know it yet”.
And what is driving that change is society itself.
“There is a talent time-bomb. Talent will drive the change. Ultimately, no-one wants to work for an asshole.”
“The sentiment that this is not good enough is shared very widely now. Institutional brands will increasingly be judged by their actions.
This is a change driven not by governments nor by institutions but by an alliance of the socially responsible. Socially-aware consumers, morally-focused business leaders, investors with a longer term view and talent voting with their feet are starting to create a shift in attitudes, all galvanised by the power of social media and global connectivity.
“The solution will come when each of us, as individuals, simply say ‘this is not tolerable anymore”
“You just do the right thing because it’s the right thing to do.
[pullquote]‘As an entrepreneur I simply don’t get why this is so hard. You just do the right thing because it’s the right thing to do.’[/pullquote]
Clearly we are at an early stage and it is far from clear how far and how quickly this change will manifest itself. Changing deep-set beliefs takes time. But it can happen; just consider the cultural acceptance of smoking or drink-driving and how these have completely changed in less than a generation.
“It’s about status and identity – what drives human behaviour? What if your identity was connected to your social responsibility. What if it was unacceptable to be paid ludicrous amounts or destroy the planet or not pay people fairly?”
Ultimately, if we are to change to a more sustainable, socially just and environmentally responsible business model the impetus to change will come from many directions. Early evidence that purpose-led business is simply better for shareholders needs to become overwhelming. And for this to happen we need to be able to measure social good as easily as we measure profit. Business leaders need to have the courage to do the right thing and empower their people to work towards a clearly defined purpose. Ultimately it is social pressure that will make the biggest difference.
And perhaps it would be a good start if , as leaders, we all just chose to behave in a way that we know is to the long-term good of the people we serve and the planet we inhabit.
‘As an entrepreneur I simply don’t get why this is so hard. You just do the right thing because it’s the right thing to do.’