9 minute read
EXECUTIVE SUMMARY
1) The Status Quo is Not Sustainable
Advertisement
Beyond the enormous and acute global challenge of the COVID-19 pandemic, the Survey Participants – including the business leaders - identify climate change, inequality and inequity, a lack of trust and social cohesion, Canada’s place in the world, and Indigenous reconciliation as the largest challenges facing Canada and the world. To tackle these societal challenges, the role of business in society must evolve.
2) Business is Critical to Solving Today’s Toughest Challenges
There is a need for a holistic and concerted effort by all institutions – including businesses - to solve the complex and consequential societal challenges confronting the world today. Businesses need to link profit with purpose by creating and sharing value with stakeholders which includes helping to tackle the immense challenges facing the world.
Chapter 2: Why Business Leaders Should Care
The relationship between society and business is strained and has degraded since the financial crisis of 2008. The relationship risks deteriorating even further if business leaders do not help tackle the world’s most important challenges through linking profit with purpose by creating and sharing value with stakeholders.
2) Growing Criticisms of Capitalism
Although there are benefits produced by capitalism, there is a desire held by many that capitalism be reformed to help address societal challenges and focus more on a variety of stakeholders. It is felt that if capitalism is not proactively modernized with the assistance of the business community, this modernization will be thrust upon the private sector.
3) Impact on Their Business
The challenges facing this generation will have a direct or indirect impact on the profitability and financial sustainability of businesses in the long term. Consequently, by increasing efforts to help tackle societal challenges, business leaders are helping mitigate external risks to their business.
4) Personal Legacy
Concentrating on the legacy of a business leader is a poignant argument to utilize when trying to convince the business community to be purpose-driven and stakeholder-centric.
Chapter 3: Making the Business Case
1) Linking Profit with Purpose
There are economic and financial reasons why business leaders should lead their organizations to help combat societal challenges through the linking of profit with purpose by creating and sharing value with its stakeholders. Although it is not easy for business leaders, from a long-term risk-return perspective a business should take this approach.
2) Creating and Sharing Value with Stakeholders
There is a strong business case for a stakeholder-centric model as there is a link between the impact a business has on its stakeholders and the long-term performance of the organization. Although stakeholder engagement is very much a part of the Canadian business model, there is increasing pressure from stakeholders for businesses to be more purpose-driven and stakeholder-centric.
The adequacy with which a business responds to this mounting pressure will determine if it will be rewarded or penalized by stakeholders.
i) Communities and Civil Society: The extent to which a business positively contributes to the communities in which it operates will have an impact on its ability to obtain and maintain its social license as well as determine the level of support it will have if and when it goes through difficult times.
ii) Employees: Business leaders are feeling increasing pressure from employees to be more purpose-driven and stakeholder-centric. The level to which organizations are seen to be stepping up will influence their employee recruitment, retention, and productivity.
iii) Customers: Although business leaders feel customers are not yet applying as much pressure as they could be, there is a sense that this will change as younger generations take up more of the consumer markets. Customer attraction and loyalty will increasingly be correlated with the efforts to be purpose-driven and stakeholder-centric.
iv) Investors: Stakeholder-centric business leaders believe that pressure from investors to become more purpose-driven and stakeholder-centric is growing; however, the overwhelming emphasis of investors is still largely on achieving short-term financial results.
v) Governments: There is risk of governmental interference and regulatory intervention if businesses are not seen to be purpose-driven and stakeholder-centric.
vi) Media: If a business is not perceived to be purpose-driven and stakeholder-centric, it is exposing itself to reputational risk.
3) Future Prepping
Even those who believe there is currently limited pressure on businesses to address global challenges through the linkage of profit with purpose still acknowledge that change is on the horizon for the role of business in society.
i) Generational Shifts The pressure on businesses to be purpose-driven and stakeholder-centric will increase as the demographics of the workforce, consumer market, and electorate change.
ii) The Importance of Preparing for the Future Today Given the looming changes to the role of business in society, there are benefits for a business to ‘future prep’. The collective impact of the business community ‘future prepping’ would be to bring the immense benefit of businesses significantly enhancing their efforts to help overcome global challenges.
Chapter 4: The Purpose of Business Today
1) The Need for Purpose
Although some are of the opinion that businesses should only have economic or financial purposes, many are of the view that it is pivotal for a business to reflect, define, and implement a purpose that helps tackle societal challenges through creating and sharing value with stakeholders. The model in which a business continues to fixate on profit generation for capital providers whilst implementing corporate social responsibility and/or philanthropic practices does not equate to being a purpose-driven organization.
2) The Evolution of the Purpose of the Corporation
The dynamics and elements of the conversation with respect to the ‘purpose of the corporation’ are relevant to the larger discussion concerning the evolving role of business in society. The Milton Friedman school of thought is that the purpose of a corporation is to generate profits and returns for shareholders. Since the financial crisis, there has been a slow but sure shift aided by the courts, governments, business, and other institutions away from shareholder primacy, and towards a more purpose-driven, stakeholder-centric approach.
3) The Purpose of the Canadian Corporation
Due to clarifications and reinforcement stemming from the courts and governments, the interest of different stakeholders may be considered on the same level as shareholders by decision-makers leading Canadian corporations.
4) Stakeholder Approach in Theory, Shareholder Primacy in Practice
Shareholder primacy still reigns in the corporate world – including in Canada. The financial structure in place and the culture it embodies lead to corporate leaders adhering to a shareholder primacy approach.
Nonetheless, pressure will continue to mount for: the business community to embrace linking profit with purpose; business leaders to prioritize stakeholders’ interests and long-term considerations; businesses to create and share value that benefits society; and business leaders to speak out on social matters.
The role of business in society is shifting away from being about generating profits for capital providers to helping tackle the societal challenges through linking profit with purpose by creating and sharing value with stakeholders.
2) Increasing Focus on All Stakeholders
There is significant pressure on business leaders to meet their respective organization’s financial targets which are often set quarterly. Even if generating profits for capital providers will continue to be a pivotal part of doing business, the future role of business in society will include delivering value and providing benefit to society more broadly.
3) Longer-Term Thinking
Shareholders and other capital providers can exert immense pressure on business leaders to focus on profit maximization which in turn can place more emphasis on the short-term. ‘Short-termism’ is one of the most important challenges faced by business leaders seeking to lead purpose-driven and stakeholder-centric organizations. Nevertheless, there will be pressure for business leaders to focus more on the long-term.
4) Sharing Value Created
It is not easy for business leaders to focus on their respective stakeholders’ well-being when they are consistently bombarded with short-term pressures regarding profit maximization. Nonetheless, there will be increasing pressure on businesses to share the value they create with their stakeholders.
5) Creating and Measuring Societal Value: The Role of the Sustainable Development Goals
The United Nation’s Sustainable Development Goals provide an important, internationally developed, logical method to communicate what a business is doing to contribute to broader societal goals. However, there is not yet a high degree of engagement on the UN SDGs amongst the Canadian business community.
6) Leading on the Big Issues
Despite the long-standing practice of business leaders staying out of the public discourse, to truly be a purpose-driven business that is stakeholder-centric, the organization’s leaders will need to voice their concerns, suggestions, and ideas on substantial societal issues on the public stage.
i) Speaking Out on Social Issues: It is not easy for business leaders to speak out on social issues and injustices on account of potential backlash from stakeholders. Business leaders will, nevertheless, increasingly be expected to use their positions of influence to publicly speak out on societal matters.
ii) Encouraging Other Business Leaders to Act: Peer groups will be needed to offer support to business leaders going through the journey of transforming their businesses into purpose-driven organizations. Peer pressure will also be needed to encourage business leaders to step up, which includes using an organization’s sphere of influence to enable change.
Many believe it would be a demonstration of leadership to other businesses in the country and around the globe if business leaders signed a Canadian version of the U.S. Business Roundtable statement of 2019 which would be substantive and supported in action and follow-up.
Conclusion: The Imperative to Act
With an increased economic focus as countries emerge from the COVID-19 pandemic, there will be a temptation for business leaders to revert to the old focus of profit generation and shareholders. Nevertheless, Canadian business leaders agree that there is still an imperative to act.
The business community must linking profit with purpose by creating and sharing value with stakeholders with the goal of helping to tackle societal challenges if it hopes to repair and strengthen the relationship between society and business.
These five recommendations are submitted to provide concrete ways in which Canadian business leaders and thought leaders can advance linking profit with purpose while strengthening the relationship between society and business:
1. Every Canadian business should have a clear purpose beyond making money 2. Canadian businesses should align their key metrics with the United Nation’s Sustainable
Development Goals 3. The Canadian business community should collectively stand up to be counted: making concrete, time-bound commitments that are refined every three years 4. Canadian business leaders should help develop and actively participate in structured national cooperation and collaboration 5. Canadian businesses should take a greater leadership role in global initiatives and organizations linking profit with purpose
