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Foundation Forum: Socially useful business – Necessity or nonsense?

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Originally published in The Foundation

Life was so straightforward when all that mattered was shareholder value.  By narrowing the purpose of business so neatly, the richness and complexity of a sizeable chunk of civilisation could be simplified into a convenient league table.  This was a powerful view, taught at business school, argued by intellectuals, the basis for capitalist government.

There were other opinions. Global warming, customer protection, the social impact of employment, the aggression of financial engineering, and work-life balance were all put forward as factors to include in the purpose of business. But these complicating voices sounded a bit, well, wet compared to the crunches of numbers.

Until the crash.

Suddenly the idea of being socially useful was a lot more than just interesting. In banking it was the difference between an organisation deserving to live or die.  The mood was swinging before our eyes.  In food retailing we found ourselves upset to be eating unexpected animals.  In media we got hacked off at methods used to get a story.  Even the church, the NHS and the BBC got in on the act, and they were supposed to be socially useful in the first place.  Had we completely lost all perspective?

To get a view we explored a range of opinions, all in the front line of the debate:

One from a bank at the epicentre of much of the above

One from a grocer that would run it a close second in column inches

One from a respected producer of such columns with decades of pendulum observation to challenge any flirtation with froth

The individuals were David Wheldon, Head of Brand, Reputation, Citizenship and Marketing for Barclay’s; currently tasked with embedding purpose and values across the business and discontinuing any activity with a negative impact on their reputation; Josh Hardie, Director of Corporate Responsibility for Tesco, playing a central role in rebuilding their reputation and earning the lifetime loyalty of their customers, and Anthony Hilton, recent winner of the Decade of Excellence award, the most prestigious award in business and financial journalism.

The discussion has been summarised by Simon Caulkin, former management editor of The Observer.

The Foundation Forum. Socially useful business – necessity or nonsense?

‘Socially useful business’ is in the air. But is it an idea whose time has come, or a mythical beast that on examination turns out to be not a yeti but ‘a blurry photo of some greedy little shit with a good PR company’?  This was how Foundation partner James Alexander put it in his introduction to an entertaining November forum, the last of 2014. Post crisis, when we are still digesting the consequences of past socially useless (or worse) behaviour by banks, media, retailers and more, is a good time to pose the question, and under diligent probing by participants it produced a crop of sharp and unexpected insights.

One of the most striking, remarked on by Alexander in his final summary, was the generally positive tone of the conclusions. Speakers David Wheldon and Josh Hardie left no doubt of their conviction, restoring their companies’ fortunes was only partly a matter of economic competence; re-establishing their social credentials was equally if not more urgent.

Wheldon noted that after losing its chairman, CEO and COO in a week (possibly a world record) Barclay’s immediate response under new boss Anthony Jenkins was to double up on its work on values, culminating last year in the introduction of a balanced scorecard including a ‘citizenship’ metric – ‘I was rewarded on that last year’. Like all the banks, said Wheldon, Barclays was undergoing a period of intense inward reflection on its social role – ‘what do we do that can help the world go round?’ – in which stewardship, the idea of leaving the world better than they had found it, was emerging as a key concept. It was a painstaking process which tended to get overshadowed in media attention to profits and bonuses, he admitted – but ‘we’re massively changing.’

Tesco’s Hardie was also unequivocal: this wasn’t a fad, he insisted. Hardie convincingly traced a progression of ideas about social value from minimal (shareholder value trumps all), to philanthropic (supporting causes dear to the chairman’s wife), to CSR, to today’s triple-bottom-line or balanced-scorecard metrics that seek to embed societal concerns directly in the business. The old-fashioned notion of corporate responsibility as giving something back was on the wane, he believed, caught in a pincer movement between imperatives that were both commercial and social. It had become clear over recent years that issues such as sustainability could not be tackled without involving business – ‘there was just no way to address issues of carbon emissions and the like if it wasn’t in a coalition of businesses’, Hardie pointed out.

‘Businesses are part of society, so are part of the societal issues we face, and part of the solution as well as the problem…Some businesses believe, and some individuals believe very clearly, that it is their business’ responsibility to act on that for societal benefit’.

But following commercial considerations rapidly leads to the same destination. In an interconnected, social-media-saturated world, reputations can be shaped, made, and destroyed much faster than ever before – ‘certainly at Tesco we know how quickly that can happen’. What has also changed, though, is that customers today act on the swirl of information, changing their buying behaviour according to how much they trust and respect the firms they interact with. ‘That means that being seen to have a soul, to care about stuff, to have a role in society has become fundamental to emotional loyalty, which is fundamental to sales’, Hardie said. The bald conclusion: it doesn’t matter too much whether the motivations are commercial or social: the only way, you might say, is ethics.

‘They would say that’, might be the cynical response to the sentiments of speakers with such lofty corporate titles. Forum audiences are not noted for bashfulness, however, and no such comment was forthcoming. Perhaps even more striking in this context were the reflections of the third speaker, the Evening Standard’s Anthony Hilton. In a notoriously tough trade, Hilton makes many of his colleagues look like milksops. Yet in a radical corrective to the usual view, Hilton suggested that for the 95 per cent of UK business that consists of SMEs, socially useful – being part of the community, sponsoring the local show or football team, giving all stakeholders a fair crack of the whip – was actually the norm, as it always had been. And that does not take account of the charities and overtly social enterprises that thrive under the surface in all communities. Spectacularly destructive as the fallout had been, Bullingdon-type bad behaviour was largely confined to big quoted companies, Hilton noted. Even that was relatively recent, the ‘loss of moral compass’ that was behind it, he suggested, being traceable back to Milton Friedman and the shareholder-value-maximising doctrine that had ensconced itself at the heart of governance in the 1980s. It was true that the issue rumbles on in the shape of debates over corporate tax evasion, but that only applies to a small number of admittedly large publicly quoted firms, ‘so we need to keep a sense of proportion here.’ Companies could go on behaving badly for some time, he conceded, but when they did get caught, their social performance became a survivability issue – ‘we want to survive, so we’d better reform.’

The implications were not lost on either companies or, increasingly, shareholders. Here again, social and commercial interests converged. Companies like Unilever that take a principled stand were finding reputational benefit that eventually materialised in a lower cost of capital and thus greater efficiency. Others – including Tesco and Barclays – were well aware that in an era where mobile talent rather than capital was key to success, reputation counted for a lot. Most people would prefer to work for something more than a profit-maximiser (and if they do want to work for a profit-maximiser, would you want to employ them?). Either way, in the long term companies that were both commercially and socially effective should be more resilient than those whose social shortcoming would eventually be found out. A few large shareholders were reasoning similarly, Hilton noted. In the perspective of delivering benefits to pensioners 20 or 30 years out, pension fund Hermes wants companies it invests in to take steps to ensure that that world is worth living in, by taking positions on climate change, energy usage and the living wage, for example.

There was unusually firm consensus, then, that socially useful was a both a socially and economically useful concept. But no one should think that the path ahead would be straightforward. Competition might be a more promising way forward than regulation – but that might mean breaking up the oligopolies where much of the socially useless behaviour was centred.

Other known unknowns concerned execution. ‘Does heart scale?’ asked one audience member. Wheldon and Hardie thought it did: ‘I think people hide behind “this is a big corporation” as though that’s some kind of excuse to do things incorrectly,’ said Wheldon. It had to be authentic, and that was about getting values straight. He pointed to the infectious example of social intrapreneuring: ‘One of the great joys is watching how smart young people are and the wondrous things they will do if you empower them and listen to them’. For Hardie it was a question of developing an issues-based approach across the whole business – not least, ‘our job is to make the sustainable, ethical stuff affordable, so people can buy it’. On the other hand Hilton doubted whether good social intentions were compatible with huge incentives and telephone-number salaries which provided irresistible temptation to game the system. As to unknown unknowns, Hilton wondered provocatively whether it mattered anyway: ‘I’m optimistic because I think the age of the big business has passed. I think the growth of technology and the internet and the pace of change militate against big businesses, and this is going to create a society where the life-cycle of business is much shorter but there are many more small and medium-sized businesses where the problems we’ve been talking about are much less’.

The Foundation’s view

We enjoyed the evening and learned or were reminded of (at least) three things:

1.  The first; that to be successful over the long term, organisations need to be a part of society – not apart from it.  This is because all stakeholders, not just the financial ones, need to be served in balance.  A triple bottom line or balanced scorecard can help keep the balance both visible and acted upon, thus increasing value for all stakeholders.

2.  The second, a derivative of the first; that organisations who do this well will also likely be more resilient and more adaptive, as they will inevitably be closer to understanding what is of value to each stakeholder audience.  Understanding this value and then innovating to find new and better ways to create value for each stakeholder will ensure the organisation grows sustainably.

3.  The final point was reinforced by the speakers in the stories they told.  That to earn trust from customers, and possibly win their emotional loyalty, requires an organisation to do – and be seen to do – the right thing consistently.  And in an increasingly transparent and networked world, exposing organisations, or individuals within them, who are doing the wrong thing has never been easier.  A critical building block of doing the right thing is to have in place solid values that are lived by employees, recognised and sometimes rewarded by the company, and valued by customers.

This post originally appeared on The Foundation’s website. Read more…

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