These articles have been written by the first cohort of the Practice Makes Unperfect programme – a course that helps women find and finesse their public voices.
By Tia McPhee, Global Brand Director, Financial Times
Responsible business is a work in progress: why social accountability needs to be better understood
As marketers, we sometimes talk about being in a post-purpose era – there’s been a lot of rhetoric that with businesses behaving more responsibly, the argument for a more inclusive form of capitalism has been won. But new research suggests many businesses don’t really know what difference they can make to society, and that performance is still tied to financial returns irrespective of the broader social costs.
Milton Friedman told The New York Times magazine in 1970 that ‘the social responsibility of business is to increase its profits’. Some say that when US Business Roundtable CEOs announced their decision in August 2019 to abandon the view that corporations existed “principally to serve their shareholders” and that they also “share a fundamental commitment to all of our stakeholders” it was the last nail in the coffin of Friedman’s philosophy.
And when the World Economic Forum declared in January 2020: “we do not need to rehearse further here the arguments about “shareholder capitalism” – except to note that for all practical purposes, the argument is over”, this was further reinforced.
Then along came a 150 nanometre viral particle that posed the greatest threat to businesses imaginable. Curious as to how the existential threat posed by Covid-19 had affected the good intentions of business, the Financial Times asked its readers to share their views on business priorities and governance. Almost 750 responded to this detailed survey whose results found that, for many, their actions during the pandemic were guided by a desire to be a responsible business, but that they now need a plan that goes beyond short-term crisis-mitigation. In some vital areas, they have none.
If crises make reputations and, in the words of Paul Polman, “trust arrives on foot and leaves on horseback”, then how brands, and organisations, respond to the pandemic matters. Businesses recognise that customers are watching their behaviours intently, and a large majority used a ‘responsible business’ approach to guide their response. Just under 70% of respondents said that their organisation’s response to the pandemic had increased trust in leadership among employees. The same number said that the crisis has helped to build their reputation as a trusted organisation with customers.
The mixed news, however, was that ‘responsible’ was defined by company values rather than value to society. A majority (71%) of respondents expect their organisation to show responsible business leadership for their industry. But ask about motivations, and the business community appears to look inward to their own reputations and needs, instead of outward to the needs of society. Commercial concerns still come first.
Businesses are focusing on revenue growth and financial resilience. A third say their organisation would deprioritise making a greater share of profits available to community/societal causes if it was going through a period of poor financial performance. 60% say that their organisation’s main focus is on profits and shareholders, while also keeping the interests of society in mind.
About a third (36%) say that it is much easier for start-ups to incorporate responsible business practices than it is for large, established corporates. Other aspects of responsible business remain neglected. Investment is in the firing line, and action on inclusion is lacking, 41% agree that they will fail to attract the best talent unless they improve their record on diversity.
But it’s not that business doesn’t care. The key point about all of this is that only viable, profitable companies are in a position to make a difference – therefore healthy businesses and healthy societies are entirely interdependent.
The research does suggest two areas for improvement: measure success in different, more long-term ways, and increase the dialogue with stakeholders – especially investors. More than half those surveyed say they need a more sophisticated dialogue with shareholders about the balance between financial performance and social value. And 50% say that leadership incentives must change but 38% saying they have struggled to find these new ways to measure their value as a business beyond traditional financial measures
Businesses recognise the value of responsible business practices – particularly in a crisis. But although they have seen its positive effects this year, they are still failing to fully embed responsible practices in their business models: priorities are short term, diversity and the environment are mostly overlooked, and the workforce feels insecure. It seems the debate, far from being over, needs to be relentlessly pursued through this period of economic rebuilding.
The research shows two ways to improve:
1. Use more non-financial metrics and think long term
35% say they are not very effective at reporting on their progress on non-financial metrics
38% say that their shareholders demand stronger performance on non-financial metrics
38% say they have struggled to find new ways to measure their value as a business beyond traditional financial measures
50% say that leadership incentives must change in order for profits to be distributed more equally
72% say that policymakers need to do more to encourage long-term decision-making in businesses
2. Consult more widely and forge a new relationship with investors
Who has the greatest influence over your organisation’s approach to responsible business?
Board members 40%
The evolution of responsible business survey was conducted by Longitude on behalf of the Financial Times- this research is the first in a series that aims to track sentiment and behaviour over time.