Being in business while having values makes us sooner or later ask ourselves some questions. Is profit generation the only purpose of all our efforts?
A friend of mine who is very right-wing tells me that the only mission of a company is to generate profits for investors. He thinks trade unions and environmentalists are obstacles that should be minimised. Another friend, who is very left-wing, says that the only mission of a company is to generate profits for investors, and that is why businessmen are enemies.
And Nobel laureate Milton Friedman said in 1970 that the only mission of a company is to generate profits.
But…
What if generating profits for investors were not the only mission of a company?
“ESG is dead”
You may have heard it several times in recent months: ESG (environmental, social and governance) criteria for assessing the quality of a company are dead. It was said in the Financial Times, and it has been repeated a lot in financial circles.
But does this mean that there is no room for the common good in capitalism? Or just that the criteria need to be revised and replaced by more credible indicators?
No doubt, funds labelled as sustainable have lost popularity. They have failed to convince purely economically minded investors of their safety (you don’t change the world without taking risks), but on the other hand they have not won the confidence of conscious investors due to the abuse of sustainability claims. The assessment of the ESG (environmental, social and governance) character of companies has lacked clear and unique regulation. This lack of a single, reliable criterion has allowed companies in fossil fuel and other high carbon print activities to be included in supposedly ESG funds based on some vague statements.
Green washing
Greenwashing has not only happened in the financial segment.
We have all seen “eco” vegetables in the supermarket, neatly wrapped in plenty of plastic and transported on oil-fuelled ships from the other side of the world.
Apparently when God told George Clooney “we recycle”, he did not warn him that it was virtually impossible to find a specialised collection point for aluminium coffee capsules, which have long been refused entry into recyclable packaging circuits.
Several clothing brands embarked on a campaign to reuse clothes. A very positive project… if it were true. Some 75% of the clothes received ended up burned, buried or, at best, sent to countries where they could be expected to be reused, without any follow-up.
These washing attempts are very frustrating, and leave the impression that no one can be trusted. Based on these stories alone, one would think that companies are operating at a very low level of social and environmental awareness.
Levels of consciousness
The first level of business awareness is the one where we do right thing just because the law requires it. These companies comply with regulations only to have social permission to do business, compensating society for possible negative impacts. This level of commitment is often accompanied by constant complaining and lobbying against regulations, because these companies do not see themselves as responsible for their impact.
The second level, which is the one in the examples above, happens when companies create an image of sustainability to get the trust of conscious consumers. It has a positive side: if consumers are concerned, they will force companies to improve some practices. The problema is that at this level of awareness appearing is often more important than being or doing. This is where greenwashing comes in.
Now we are trying to understand whether there is really a third level, in which companies are driven not only by their seek of profitability – which is essential to any business- but also by a sincere vocation to have a positive impact.
Conscious capitalism
In the 1990s, Nobel laureate Muhammad Yunus set up a microcredit bank in Bangladesh that defined itself as a socially conscious capitalist entity. He was probably the first to use the term conscious capitalism.
This movement is based on the belief that, in a capitalist world, companies are the actors with the greatest capacity to positively influence and make the world more just and sustainable. Companies which embrace this purpose should be willing to measure their success by their impact on three directions, all starting with P: profit, but also planet and people. This was ellaborated by John Elkington, in The triple bottom line.
The European Commission took up this challenge in its Industry 5.0 proposal. It is about putting innovation at the service of the transition to an industry that is: sustainable, people-centred and resilient.
The first thing you need to create a conscious company is a founder who believes in it. And there are some. Among the best known examples are the sportswear brand Patagonia, seriously committed to sustainability, or the dutch Tony’s Chocolonely, which was born out of activism against the new slavery. Also interesting is the case of Ben and Jerry’s ice cream and its strong commitment to the Palestinian people. And in Spain we can highlight Ecoalf, committed to making clothes from recycled materials and not encouraging unnecessary mass consumption.
Why would an entrepreneur choose to devote his efforts to improving the world around him, when it is easier to focus only on financial gain? To answer this question we have to ask ourselves how human beings act.
Homo economicus, or social human being?
In The Future of Capitalism – a very interesting and provocative read – Paul Collier questions a limiting belief about human behaviour: the economic man.
The concept of homo economicus as it is usually understood asumes that human beings move exclusively in pursuit of their own profit.
Liberal economists believe that a positive equilibrium for the majority can emerge from the sum of many selfish behaviours as an effect of the market. Socialists, on the other hand, believe that this does not happen spontaneously and that states must intervene to limit such selfish behaviour.
But Collier denies both. He says that selfish, individualistic economic man is not real. He defends that the search of common good is inherent to human beings.It is part of our pursuit of happiness. The sense of belonging to a community is inherent in our biology. That is why most of us like to be good members of the community to which we belong, and are happier when we believe we are doing the right thing for it.
To decide whether we agree with this assessment, let’s look inwards. Do you move exclusively for your own benefit?
I don’t.
And if you and I behave ethically and care about the common good, why should it be different in companies? Aren’t boards of directors made up of people like us?
It could be objected that even if these human beings have a conscience, this does not guarantee that the organisation has one.
Ethics in organisations
In order to transfer the sense of ethics from individuals to organisations, it is necessary that this impulse overcomes the obstacle posed by the complexity of business decision-making. In their book “Companies with a conscience“, Oriol Iglesias and Nicholas Ind set out some of the conditions necessary to achieve this.
According to their analysis, the conscious company needs, in addition to a purpose, very concrete actions to embed the principles in the culture. Objectives and metrics, innovation and communication have to be aligned with the founding principles. It is no good announcing an environmental or social purpose but rewarding only internal initiatives that generate cash.
We have seen some examples of companies that were born with the vocation of improving their environment. But can we do something constructive from companies that were created in the traditional way, with the sole initial objective of generating profitability?
Transforming the company
While the profit motive has been at the heart of business from its origins, introducing the pursuit of the common good is disruptive and complex. But we know that good companies are not afraid of disruption or complexity.
The UK supermarket chain Tesco decided to set measurable targets to reduce its carbon footprint and improve its social impact. To do this, they worked with their supply chain, involving their suppliers, and included in their balanced scorecard a specific dimension to measure community impact with the same priority as financial, customer, process and innovation impacts. Even without data about the depth of their impact, this seems an interesting example of gradual transformation.
Leading the transformation of existing companies is not reserved for founders. As managers and leaders we can do our part. It is all about changing that old attitude of leaving one’s conscience hanging at the entrance of the boardroom. It is about being human in the office as well.
Shall we take a stand?
Challenges such as mitigating global warming and inequality seem to me a moral obligation. But I don’t think we can make much progress if we try only from activism, universities or NGOs. Change will only happen if it is wanted and promoted by the agents with the greatest capacity to influence: companies and their consumers.
Achieving this requires continuing efforts to reveil green and social washing so that sincere commitments can shine through.
I personally believe in committed companies, and I believe there will be more and more of them. I believe that making a profitable living has to be compatible with leaving the world a little better than we found it. That is why the word responsibility is in my statement of values and why, from a critical point of view, I like to work for companies.