Is conscious capitalism the answer to corporate sustainability?

The future of business… are business leaders in the US ahead of the game compared to their New Zealand counterparts?

For corporates to be sustainable they need to evolve with society.

Corporate governance, leadership, culture and behaviour are under the spotlight and rightly so. Headlines have been dominated with high profile corporate failures such as BHS (British Home Stores) in the UK and Dick Smith in Australia and New Zealand. Global companies like Google, Apple and Starbucks have been lambasted for paying little or no tax in many countries.

The emissions cheating in Volkswagen and the opening of two million fictitious bank accounts at Wells Fargo raise serious concerns about corporate culture and behaviour. CEO pay is also under the scrutiny. A 2016 US survey of CEOs of big American and European banks showed a high of US$27.6 million and an average of US$13 million – and yet the Global Financial Crisis and bank collapses are still fresh in many minds.

As incoming UK Prime Minister in July, Theresa May, called for an overhaul of corporate governance. Two months later Parliament launched a corporate governance inquiry that will focus on executive pay, director duties, board composition including worker representation on boards and gender balance in executive positions.

The Nielsen Global Corporate Sustainability Report released late last year, showed 66 per cent of respondents were willing to pay more for products and services that come from companies with a proven commitment to positive social and environmental impact.

Consumers and stakeholders want greater transparency about corporate activities. They want to know about the origins and composition of products they buy, about employee conditions and treatment. That they are not buying products of child labour or environmental damage, and that their choices contribute to social good.

Many are looking for more meaning and purpose in life and expect it in the companies they work for and support. There is growing support for companies to have a broader focus than profit. That to be successful, businesses have to think longer-term and consider social and environmental risks and impacts.

At the IoD we think it is important to track global trends in our sphere. These trends raise important questions about the future of companies in society. How do we build trust and confidence? How do companies balance shareholder and stakeholder interests? Who should a company exist to serve?

Growing support for conscious capitalism was evident last week in Washington at the USA’s largest annual summit of directors and business leaders. There was a resounding message that companies needed to catch up with our changing society. Business leaders there were talking about a way forward through conscious capitalism – described by its champions as a style of capitalism in which trust, compassion, collaboration and value creation are as essential as competition and freedom to trade.

Conscious capitalism exists to elevate humanity. The not-for-profit organisation, Conscious Capitalism, says it builds on the economic and legal foundations of capitalism with four underlying tenets for businesses.

1. A higher purpose recognises that every business has a purpose that is about more than making money.
2. Stakeholder orientation is about businesses needing to create value with, and for, various stakeholders.
3. Conscious leadership is about inspiring others to create value.
4. Sustaining culture is the ethos – the underlying values, principles and practices of the business.

Although it might not yet be on the agenda of many business leaders, it should be.

NZX’s recently released draft Corporate Governance Code is a step in the right direction in raising governance standards. Key areas of focus included, board diversity, environment, social and governance (ESG), health and safety, and remuneration reporting.

The next step is to go beyond compliance, to maximise the value that a more caring and holistic approach to business will bring to the long-term sustainability, not only of their business, but of the place of business in society.

The challenge for business leaders and directors in New Zealand is to prioritise trust and confidence in business. They can do this by leading organisations that focus on a higher purpose, not just profit maximisation.

By Felicity Caird, Manager Governance Leadership Centre.

A version of her opinion piece was published in the Sunday Star Times (2 October)