Posted May 25, 2017
The Role of Business in Society is part of the core curriculum in our executive leadership programmes.
A clear understanding of this topic enables leadership talent to:
Following sessions on the Impacts of Globalisation, Reshaping Capitalism and the Role of the Government, we turn our attention to the commercial sector and ask participants their views on the role of business in society. The most common responses include:
Most have spent their entire careers working in big companies (MNCs) which can obscure their perception of the realities of business activity in the world. Facts which may be overlooked include:
This conventional wisdom has dominated management thinking since 1976 but has lately been called into question. It is still top of mind for many, espeically those who don't read widely or think critically.
"On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy... your main constituencies are your employees, your customers and your products.… Short-term profits should be allied with an increase in the long-term value of a company."
Jack Welch, Legendary GE CEO
The above quote was from 2009 for the Financial Times, 8 years after he retired from a 20-year stint of growing GE shareholder value to the highest in the world - meeting or beating forecasters’ expectations 46 out of 48 straight quarters.
As this Forbes article points out, the difference between managing expectations and managing business outcomes (via products and services) has big impacts on the company, its employees and society. Stock-based compensation, versus real market metrics, changed the narrative on why business exists, confusing many in the process.
Good idea or a dumb idea, it is not the role of business.
Most overused buzzword in today's business lexicon? Officially defined as a new idea, device or method. Almost impossible not to hear it at least once in every session at major conferences. Business can innovate. It can be innovative. It can drive new innovations.
But these activities are not in and of themselves the role of the business. They are how business improves its processes for producing, selling or adding value. A Wired article cites skills and behaviours to become more innovative, which are more useful than trumpeting an empty slogan.
Tech is the new finance
Business supports a well-functioning government by paying tax to fund public services. Paying tax is not its primary role. Tax avoidance has been called an abuse of human rights by the International Bar Association because it deprives poorer countries access to resources for healthcare, education and essential infrastructure like water and sanitation.
Apple has been fighting with the European Union over what the EU claims is a $15bn unpaid tax bill, the largest tax claim in history. If the role of business were to pay tax, the most valuable company in the world (Apple) would not be fighting. Nor employing so many very innovative managers to avoid it.
Business has always employed people. This is becoming less true as algorithms, automation and artificial intelligence penetrate deeper into the mainstream. Count the robots.
Evidenced by the fear of technology eliminating ever more jobs in years to come, it is clear that business does not exist to employ people, although it has historically done so. Work however, is a social activity and many wonder what we will do with our time if machines make us all redundant.
A universal basic income is actively being debated:
Corporate Social Responsibility (CSR) has distorted our understanding of the role of business. In spite of high profile communications on sustainability, community investment and engagement, most of these efforts bear little relevance to core business activities. Public Relations does not address externalities of the business.
Business should abide by the laws of the land, including paying tax, and manage their social contract with the wider society. Without such basis, CSR is irrelevant. Apple is not the only one dodging: 90% of the top 200 largest companies invest in tax havens, according to Oxfam. CSR initiatives like charity and volunteerism undoubtedly help certain segments of society. Yet it should not obscure the need for a more honest appraisal of costs externalised to society.
Business provide goods and services in response to our needs or desires and therein generates profit for the continued viability of the business and the benefit of owners.
In addition to rewarding owners and shareholders, business activity contributes to economic development, creates wealth and provides gainful employment to workers. Severely unequal distribution of wealth is now a major threat to the continued stability of modern societies.
A license to operate is granted by the government on behalf of society, requiring adherence to all applicable laws and regulations. If a business transgresses these laws its license may be revoked (recent exception being "sharing economy" companies who have ignored and technically broken laws they disagree with).
Beyond formal laws, there exists a social contract between business and society, an agreed set of acceptable norms and behaviours which, while not legally binding, offers tacit approval of business activities. When conditions change, business must adapt, and actively uphold this contract and not ignore it. Business leaders thus must have their “finger on the pulse” of society’s evolving expectations.
Mobility is the new Urban Dream
In spite of powerful tendencies to obscure the narrative, the fundamental role of business in society remains consistent - it is something all business leaders, current and future must consider.
Stay tuned for future related posts:
Call us to learn how a session on the Role of Business in Society can be designed into your next leadership learning programme.
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Karim joined GIFT in 2010 after participating in the Global Leaders Programme and has since designed and facilitated dozens of experiential programmes for high potential executives and government officials. In his current role Karim leads the ASEAN office and is responsible for GIFT’s regional activities and programmes across Southeast Asia. Prior to GIFT Karim spent a decade in Mainland China where he was a partner in a successful nationwide food and beverage business. Karim’s articles on insights gathered through GIFT programmes have appeared in a range of publications. He has an MBA from the Cheung Kong Graduate School of Business in Beijing and is a proficient Mandarin speaker.
In addition to leading GIFT’s dynamic team and business, since 2008. Eric has facilitated more than 50 experiential leadership programmes in fifteen countries. He is well versed in introducing new ideas on governance, business and sustainability and coaching participants to think critically about their role as leaders. Before joining GIFT, Eric spent several years managing multi-stakeholder partnerships between global brands and civil society groups in the United States and China. He writes and speaks regularly on topics related to leadership development and the changing role of business in society. Eric is an alumnus of Standford University and holds a Masters from Hong Kong University.
For more than three decades, Chandran has advised governments and MNCs on strategic management, leadership issues and sustainability, and is often invited to facilitate for top corporate education providers including Duke CE, INSEAD and NUS. He was previously Chairman of ERM in Asia Pacific, helping establish it as the world’s leading environmental consultancy. Chandran is on the Executive Committee of the Club of Rome and is a member of WEF’s Global Agenda Council on Governance for Sustainability and Experts Forum, where his thought leadership is sought for its fresh insights and intellectual honesty. He is the author of the best-seller – Consumptionomics: Asia’s Role in Reshaping Capitalism and Saving the Planet, and The Sustainable State: The Future of Government, Economy and Society.