Sustainability: From Corporate Citizenship to Corporate Statesmanship

Martin Reeves, Senior Partner of The Boston Consulting Group and Director of the BCG Henderson Institute
Martin Reeves, Senior Partner of The Boston Consulting Group and Director of the BCG Henderson Institute

Georg Kell is Vice Chairman of Arabesque and Founding Director of the United Nations Global Compact. Martin Reeves is a Senior Partner of The Boston Consulting Group and Director of the BCG Henderson Institute. This piece originally ran here on the Thompson Reuters Sustainability Blog. 

Low growth and high uncertainty across the globe make the current environment for global businesses far from ideal. More critically however, the political will and public support for open markets is waning. Nationalism and skepticism towards free markets are both on the rise.[1] They undermine globalization, a major driver of wealth creation in the post-war era. At the same time, they also threaten to jeopardize another key driver – technology – the advancement of which is becoming increasingly colored by people’s fears of social dislocation.

Governments’ ability to ensure a fair level playing field for trade – and conditions conducive to the spread of technology – is weakening. The great experiment of creating a global marketplace based on rules is now seriously under threat. It is time for business leaders to realize that their firms’ continued ability to thrive is at stake. Fortunately however, leaders have it in their power to change course by embracing what we might call corporate statesmanship.

Why do we find ourselves in this predicament? Globalization and technology have brought us unprecedented prosperity, but we have collectively failed to ensure a fair distribution of benefits, especially within countries. A rift has emerged between elites and other groups, who have seen their wages stagnating and personal insecurity increasing. Economic and social inequalities are threatening to divide societies not only in the US and Europe, but elsewhere too.

Georg Kell, Vice Chairman of Arabesque and Founding Director of the United Nations Global Compact
Georg Kell, Vice Chairman of Arabesque and Founding Director of the United Nations Global Compact

Addressing economic and social inequality has traditionally been the domain of sovereign states and their governments. But trust in governments is low,[2] and governments’ monetary and fiscal room for maneuver in times of high debt and low interest rates is severely constrained. Can corporations fill the void? Four out of five people now expect business to take the lead.[3] Encouragingly, trust in business has substantially recovered since the financial crisis, not least because a growing number of corporations have embraced corporate citizenship and sustainability to better connect with stakeholders and communities.

A continued evolution towards greater emphasis on social, environmental and governance issues is certainly necessary although insufficient to change our current course. Over the past two decades, thousands of companies have started the journey. The UN Global Compact, for example, started in 2000 with just 47 companies. Today over 8,000 companies from more than 130 countries are on their way to reshape strategies and operations to achieve better societal outcomes. Evidence is also mounting that material sustainability performance goes hand in hand with financial performance.[4]And financial markets are now offering products that systematically combine sustainability analysis with financial methods which will reinforce the adoption of sustainability.

But global businesses now need to adopt a bolder, more activist approach to address the challenges to continued prosperity. They need to embrace corporate statesmanship, which emphasizes collective leadership and not just responsible individual participation. Our societies need the voices and efforts of corporate leaders around the world to deal with inequality and technological dislocation, and to create a new vision for the future.

Leaders need to directly address the distributive challenge in order to shape the collective conditions for inclusive prosperity. Fortunately, finding actionable solutions to complex problems is precisely the forte of business. And we believe focusing on eight concrete measures could make an enormous difference.

1.    Support smart policies that tackle the root causes of inequality. The voice of business leaders is now critical to make public policies work again. A new social contract will need to be framed that is fit for the future, and supporting quality education for all is a good way to start overcoming divisions.

2.    Shape the next wave of globalization. The biggest threat to global prosperity is the abandonment of free trade and a shared responsibility to tackle problems. Business leaders now need to step up and remake the case for open and fair markets while also leading with solutions that tackle key global challenges, such as climate change.

Business leaders now have the opportunity to create a new narrative, moving beyond a notion of globalization that is centered on accessing low cost resources and off shoring. The new story can be about building markets and networks with technology playing a key role. New customizable manufacturing technologies and digital supply chains could bring production closer to target markets, turning global supply chains into two-way streets.

3.    Create participative business ecosystems. Several decades of economic progress have resulted in a concentration of economic activity in larger enterprises and a general decline in startup activity. The emergence of platform businesses, which facilitate the collaboration of thousands of individuals and enterprises in dynamic ecosystems, could help restore balance and sustainability. Such ecosystems make it possible for individuals and small firms to participate in technological progress, catalyzing both employment and innovation.

4.    Deploy technology from front to back. Technology’s human impact depends on how we choose to develop and use it. If we leverage it from the back office forward, focusing mainly on increasing efficiency and optimizing internal processes, then our use of technology will result primarily in the rapid displacement of labor. We will likely miss opportunities to enhance human activities and ends. Instead, businesses should start from the front, with a clear focus on solving unmet customer needs and delivering tangible new value.

5.    Invest in renewing human capital. Rapid technological change also means that people need to adapt their skills at a faster pace. This includes their ability to take part in the production as well as the consumption of new goods and services.

Finding effective and affordable ways to help people acquire skills during their careers, not just before they start out, is a key social challenge. It takes too long for new work skills to become codified and diffused in the education system. Education is critical in creating career mobility and equality of opportunity, which are both at least as important as — and closely tied to — income gaps.  Firms can help to address the challenge. For example, by working with online education providers and deploying new technologies to promote re-skilling, both with their own staff and in the communities in which they operate.

6.    Apply a social business mindset. Businesses need to be deeply embedded in society to positively affect it, and also have their activities sanctioned and supported by it. Business leaders can achieve this by placing social value at the heart of their business models. This puts them in a position to solve some of society’s most fundamental problems by treating them as business opportunities, not as tangential and ultimately unsustainable philanthropic contributions. Social business models can also create valuable new capabilities inside sponsoring corporations and surface innovations that can be deployed more broadly.

7.    Rebalance and align rewards. People’s sense of self-worth is closely linked to the nature of their work and their relative compensation. This is especially true when we consider not only wages and benefits but also career mobility, merit-based recognition, and the intangible value of purpose (often related to some higher social goal) in work.

Re-aligning performance with rewards – at all levels – presents an opportunity for corporate leaders to directly shape people’s perceptions of self-worth, fairness, and access to opportunity.

8.    Renew and own the narrative. The current crisis is as much about inspiration and ideas as it is about hard economics. The case for free trade, capital, and labor is a hard sell if it doesn’t address the obvious distributive side effects of overall economic advancement. The same goes for technology, in which the absence of a more inclusive narrative has already sparked vigorous backlash, for example towards new mobility solutions. In the absence of such a narrative, stories appealing to instinct, fear, and emotion take hold.

The future is ours to shape, but the current default path appears to be a dangerous one. To save globalization and technology from themselves, and to secure greater global prosperity, business leaders need to embrace a new corporate statesmanship agenda.

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[1] See for example Pew Research, April 2016.
[2] See Edelman Trust Barometer – trust is particularly low among the so-called non-elites in populations across the globe.
[3] See Edelman Trust Barometer. 80% of global respondents agree that “business must play a role in addressing societal issues”.
[4] A recent Oxford University/Arabesque meta study of 51 academic articles found strong empirical support (88% of all cases) for a positively relationship between firms’ sustainability and operational/financial performance.