Profit with Purpose – The Key to Building Sustainable Businesses
[Keynote speech by Professor Emeritus, Singapore Management University and Chairman, Stewardship Asia Centre, Arnoud De Meyer for Singapore Management University’s Business Families Institute (BFI@SMU) event, "Building a Sustainable World – The Role Business Families Can Play". The virtual conference was held on September 16 in partnership with Knowledge Partner, Federated Hermes, which set up the world’s first SDG (sustainable development goals) Engagement Fund.]
Good afternoon to all of you. It is a pity that we cannot meet face to face, but I hope there will be other occasions to interact with each other.
Sustainability and ESG have become more important in business decision-making
Incorporating sustainability, better governance and social responsibility in the decision-making in our companies is not new. More than twenty years ago, BP already redefined itself for a few years as ‘Beyond Petroleum’, and Paul Polman set in 2009 Unilever on the path of decoupling its growth from its overall environmental footprint and improve its social impact through the Unilever Sustainable Living Plan. He argued that, in a volatile world of finite resources, running a business sustainably is vital for its long-term growth and also mitigates risk and reduces costs. Many observers were wary about the real intentions of these companies and characterised some of these activities as ‘greenwashing’. They wondered whether such moves were genuinely shared by all employees, shareholders, and some other stakeholders.
Recently we saw a significant and perhaps more genuine and widely supported rise in the attention paid by society at large and business in particular to the issue of ESG or, more general, stewardship. For me, stewardship is the mindset and practice of creating value by integrating the needs of stakeholders, society, future generations and the environment. There are three very important components to this statement. It is first and foremost about value creation. But it is about creating value in such a way that companies take their full responsibility towards society. And they have to commit to being a steward of the resources of our planet, thus preserving them for further generations.
Why this increased interest?
First and foremost because in the lead up to COP 26 or the 26th UN Climate Change Conference in Glasgow we have heard many well-researched warnings about global warming. And these sometimes somewhat abstract warnings have been reinforced by the experience we have all over the world with more extreme climate events that seemed to be linked to this global warming. Society is finger-pointing, perhaps unfairly, to companies as the culprits that create global warming.
The pandemic is a second reason. One of its consequences is that societies all over the world require more than ever that companies exercise responsible leadership. Governments demand from them that they be a good steward of all the resources that society makes available to companies to pursue their mission. For example, when governments were asked to help companies bridge the crisis, they often imposed constraints such as improving health and safety for the workforce, investing in the human capital through skills enhancement, reducing environmental impact and energy consumption or strengthening the robustness of the supply chains. The conditions that some European governments have imposed on the airlines to reduce their carbon footprint, in exchange for their financial support, was a very visible example of this.
For these and other reasons, societies will take a very different view in the future of how companies deploy resources. They may consider that companies do not own these natural resources. They are mere custodians of these resources and therefore some societies will require companies to return these resources in the same or even improved shape and form than the one in which they were made available in the first instance. Avoiding air or water pollution, implementing reverse logistics and a closed-loop supply chain will become ‘de rigueur’. For example, questions have been raised about the sharp increase in shipping and logistics that were a consequence of global production networks. They will also expect companies to make contributions to society beyond producing goods and services and returning dividends to shareholders. Companies will need to be good corporate citizens.
Is this good for business?
In my experience yes! There may be some short-term hiccups, but in the medium and long-term early adopters of good stewardship will be better off. Organisations that make stewardship a priority clearly benefit from a greater acceptance by their environments. They have an easier way to operate, and will have to overcome less resistance. That ultimately will benefit them in creating new opportunities for business and lower their costs.
We also witnessed in some of the 2021 shareholder meetings of large public companies that independent shareholders demand a greater commitment to stewardship, in particular ESG. The well-documented difference between the shareholder meeting of ExxonMobil, which ran into serious opposition of a large group of shareholders and had to accept the appointment of two activist directors and that of Total (now Total Energies), which got a 90% support vote from its shareholders for its energy transition programme.
Thus, putting ESG and stewardship as a priority is ultimately a good business decision.
The need for local examples and good practices?
The good news is that we here in Singapore and Southeast Asia can learn from successful experiments in Europe and to some extent the USA. Most of what we know on how to implement stewardship finds its origins in continental European and Anglo-Saxon studies. This is very useful, but we also need to be able to adapt these good ideas to our local circumstances and to how companies operate here in East and Southeast Asia. For example, we have many more government-linked companies who in their mission statement do have the development of the societies in which they operate. And we also have many more first-generation family-owned companies that are rapidly maturing. We will actually see in the coming ten years a wave of transitions to the next generation throughout the region. Today is an excellent occasion to reflect on how these maturing and transitioning family-owned organisations can contribute to a more sustainable world.
Of course, we already have a number of excellent examples of family-owned companies that are fully committed to ESG and Stewardship. Some of them are a member of BFI and I am sure you can learn from each other.
What should we do?
Based on some of these experiences we know that it is not about greenwashing or talking about sustainability without concrete actions. And it is more than having a strong position at the strategic apex of the organisation, but without rolling out the processes and procedures that guide decision-making by middle and junior management. And it requires the alignment of incentives and rewards with the ESG and stewardship commitment of the organisation. At the Stewardship Asia Centre we have developed a Stewardship Core Compass that can guide your decision-making. We see four core values to stewardship, and I quote from our website:
- A long-term view: steward leaders are long-term thinkers. They are willing to forego short-term gains to achieve enduring returns. They also build organizations that make the world a better place for current and future generations. Family-owned companies have usually no issues with committing to this.
- An ownership mentality: steward leaders, imagine an inclusive better future, and take it upon themselves to create it. Driven by the mantra of “If it’s to be, it’s up to me,” they take responsibility and make things happen.
- Recognising the interdependence between our actions and the society: steward leaders see the world as an integrated and interconnected web in which the success of each constituent is coupled with that of other constituents. Rejecting the notion of a zero-sum game, they develop the win-win habit and view their own success along with others rather than against them
- And creative resilience: because they are hugely ambitious about giving something useful to the world through their work or business, steward leaders continually challenge themselves to innovate. They also become more resilient compared to others who strive for a narrower self-centred purpose. They stumble and fail often, but their ambition to create a better future beyond themselves keeps them going.
These four stewardship values need to be integrated with your personal and organisational values. Based on this set of values you then need to define a purpose for your organisation that creates a better future for a variety of stakeholders and society at large and with which your stakeholders can connect emotionally. The most difficult challenge is probably the consistent implementation, i.e. ensuring that you and your organisation adhere to this purpose and values in calm but also in turbulent times. Some of you may follow the current court case against Elizabeth Holmes, the founder of Theranos. She and her organisation had a great purpose: to make actionable medical information accessible to everyone at the time it matters. But as we can learn from the current court case (and from the book “Bad Blood” by John Carreyrou) she was not able to implement this purpose in a consistent manner.
Profit with a Purpose
If you do this well you may be doing well financially, but besides the wealth you’ve earned, you will also be proud of the legacy will you leave behind for your children? What stories (with great pride) will your children tell about you? Will you leave the world slightly better than you found it? In other words, are you a steward leader?