Faced by a world in crisis, businesses should focus their value creation in four key areas, says award-winning academic and business leader John Davis
What role must businesses play in today’s volatile world? The answer has far reaching implications for companies, business education, and business leadership. Companies cannot continue to operate in the 21st century using 20th century business models. Business education cannot continue to teach siloed disciplines as the world needs people with cross-disciplinary skills. Business leaders cannot continue to act as if financial performance is their only report card, without also being concerned about the impact of their decisions on their company’s contribution to society.
One hundred and fifty years from the start of the industrial revolution, we have learned a fair bit about the impact that business activities have had on the world. Global GDP has grown dramatically to more than US$100tn today, strengthening economies, building a stronger middle class, and creating new technology that has improved our quality of life. But there has been a cost, including worsening environmental damage, widening economic inequality, and deepening social injustice. Business leaders already have more than enough to do day-to-day to ensure growth each quarter and year. Where is the rule book describing how to do this while also confronting these larger crises? How we get through today will determine whether we end up in a better place tomorrow.
Change is needed, and soon
I’ve spent the past 20 years working with companies in 40 countries and the most successful ones offer lessons on what businesses can do to improve. The best view their enduring contribution to society through four value filters: Reputational, Organisational, Societal, Financial. However, far too many businesses struggle to understand the interdependence among these four values because leaders don’t lift their view above the weeds, consequently missing important opportunities to change for the better.
Reputational value
Lead by example. That sounds easy but being a business leader today is not for the faint-hearted. Your company’s reputation in society depends on how successfully you galvanise the interests of stakeholders while ensuring the financial health of the business. You earn trust by delivering on the promises you make and the values you espouse. When society trusts you, you are given temporary permission to continue operating. But if you violate trust, society can revoke that permission, devastating your reputation. Boards are integral to this as they play a major oversight role of management, strategy, and stakeholder interests. Their fluency in today’s challenges, like sustainability, is vital to improving a company’s contribution to a healthier world.
Help is on the way. Competent Boards, a company founded by Helle Bank Jorgensen, provides professional development for boards and executives to gain the knowledge and understanding required to tackle today’s converging social, environmental, and economic challenges. As Warren Buffet said: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” When leaders truly lead by example, reputational value improves.
Organisational value
Company cultures have deeply rooted orthodoxies, relationships, and unwritten rules. Anything that upsets these comfortable routines spurs resistance, so how do you know where to even begin the change effort? There are likely people in your company who have been part of highly collaborative projects. They understand the sense of purposeful accomplishment that animates such work. Tap into their wisdom and experience to help inspire a workplace and company culture that feels more like a cause.
Another example of help on the way is Janice Lao, an Environmental Scientist and Development Economist who has influenced change everywhere she has worked by helping company cultures adopt a cause-like mindset. She is “others-focused” and understands the power of inspiring a community to action. She created a mathematical and economic model for aviation’s carbon-neutral strategy and has developed standard-setting sustainability solutions for carbon trading, biodiversity, textile upcycling and even refugee hiring practices. She doesn’t hector or “guilt” people about what we are doing wrong.
Instead, she invites them to do well by doing good as part of a larger sustainability movement. Janice epitomises the proverb: “If you want to go fast, go alone; but if you want to go far, go together.” When people believe their work matters, they will increase their discretionary effort with others beyond what is expected because of the greater good they perceive they are pursuing, and organisational value will be strengthened.
Societal value
This is a set of actions designed to enhance the quality of life and wellbeing of the communities you serve. The people within want to know what your company is doing to contribute to the health of the community dynamic, beyond providing jobs.
Are you part of the social fabric, or are you simply occupying space because of financial convenience? Are the business leaders seen as community energisers, or de-energisers? When your company is absent from the local community’s life, “us-vs-them” tensions are exacerbated, making reputation building far harder, and damaging your relationships with stakeholders. A laser focus on societal value is good for investors. 73% say being socially responsible positively contributes to their ROI. However, only 36% of consumers trust business leaders to do what is right. This is both a problem and opportunity. The problem is evident: you aren’t trusted. The opportunity is also clear: get deeply engaged in the community by demonstrating that you care.
My final example of a business leader influencing positive change is Mac McKenzie, CEO of the Bridge Institute. Bridge Institute works with an ecosystem of partners from business, government, and non-profits to build peaceful and inclusive communities by solving today’s most formidable problems (violence in societies, solutions for Covid-19, sexual assault, working towards the UN’s Sustainable Development Goals, and much more). Bridge Institute’s approach gives people and organisations the tools needed to close gaps and work collaboratively, developing and strengthening their ability to continue working for their collective good well into the future. Their ecosystem approach offers lessons for any business seeking to build meaningful societal value through community partnerships.
Financial value
Business health is measured by its financial condition, which is a function of how successfully it embraces the three values described above. The blind pursuit of financial gain absent of a deliberate emphasis on the three values above may lead to short-term success, but the business won’t survive for long if profits and shareholder wealth are the only measures of value. In short, financial value is the result of success in strengthening the first three values. Furthermore, sources of capital are changing, and you would be well served to pay careful attention to these shifts. The factors shaping what is considered valuable in society have been underway for years. The risks associated with investments once considered safe are increasingly risky, and opportunities that were once considered risky are now central to your company’s market relevance and survival. Younger investors favour companies with credible ESG initiatives.
The question is not if change is needed, but how quickly can you be part of it? Consider climate change. A Swiss Re study forecasted the financial impact of climate change on the economies of 48 countries (90% of global economy). The study found:
- 18% reduction in global GDP if no actions are taken (3.2°C increase)
- 14% reduction if some actions are taken
(2.6°C increase)
- 11% reduction if further actions are taken
(2°C increase)
- 4% reduction if Paris targets are met
(below 2°C increase).
If you choose not to act, then you are helping accelerate future climate disasters, worsening human and financial costs, and contributing to GDP reductions, certainly not a reputation-enhancing decision. So why not decide instead to change by being part of the solution?
In short, all four of these values matter, but it is critical that you build your business around the first three. Only then will sustained financial value occur.
ABOUT THE AUTHOR
John A Davis is an award-winning academic, business leader and author of ‘Radical Business: How to Transform Your Organization in the Age of Global Crisis’ published by Emerald.
