By André Hoffmann, vice-chairman, Roche Holding Ltd
Business has shaped the world in pursuit of profit and growth with an apparent disregard for consequences, other than financial ones. The process of value creation has been extraordinarily successful in creating wealth through satisfying consumers’ needs and wants. The world’s fortune is at a historical peak: its economy has never been so highly valued. So, by some measures, the model can be considered a success. But at what cost?
It is increasingly evident that the focus on profitability has led to the neglect of two other dimensions: the environment and the fabric of society. We are rapidly losing species and natural areas. Income inequality is rising, with the latest figures showing a historic high. The world is getting richer, but its wealth is not properly redistributed.
The UN millennium goals were successful at lifting more than a billion people out of extreme poverty, and have been succeeded by the sustainable development goals, which provide us with a framework for building a better world. But, while such goal setting remains a successful mechanism, there is more to do.
A sole focus on short term gains will not drive the change we need. We must think in the longer term. This is particularly important in a one planet system. Where will growth come from when planetary boundaries have been reached?
Nobody likes business any more. The profit motive, once a desirable incentive to wealth creation, is now seen as something evil, and a source of injustice and inequality. There is a need to change the model, an imperative to reassess the purpose of business, not just to satisfy shareholders and accountants but also to work in tune with all relevant stakeholders.
The successful company is no longer one that just makes money. A financial return is a necessary condition, but it is not sufficient. Dividends will keep shareholders happy but what about other stakeholders?
We have to remember that a company is not just a balance sheet. It is also customers, local and global communities and society – and the natural environment, the world in which we live. These long neglected factors must be carefully considered.
So, there is a need for change. True sustainability will only be assured if there is a proper investment return in the three dimensions of business: financial, social and environmental.
This intuitive finding has long been around, but few companies have been able to implement it. Financial markets focus exclusively on financial reporting. If all that matters is immediate profitability how can one justify investing in long term projects? In a family-owned enterprise, trans-generational value creation may come naturally. But this is difficult to replicate in a publicly quoted company where the voice of owners is only answered in term of dividends.
Companies and their performance should be evaluated in terms of their net contribution to society, giving back at least as much as they take. There are many ways in which they can do this. Training employees, promoting ethical values, integrating ethnic minorities and ensuring fair pay for all are only a few of the obvious activities which need to be recognised and valued. In environmental terms, reducing ecological footprints and better managing consumption and the natural resources cycle could work as useful metrics, among many others.
None of this is rocket science, but it is usually met with stock answers such as “we cannot afford it” or “shareholders would not approve, as it has an impact on the margin”. I would argue that we cannot afford not to make the change if we care about people and planet as well as profit.
These transformational changes will not take place without the emergence of a new generation of leaders able to change the current management paradigm. Under such enlightened stewardship, companies will again be able to thrive in the dual and common interest of humanity and the planet and evolve a more appropriate response to the current world challenges.
The new technology tsunami, currently underway, could provide an opportunity for a successful reboot. Its disruption to the existing business model must be harnessed for good. If instead it is just seen as a new opportunity for business as usual the situation will become even worse. Company management should be rewarded along the lines of people, planet and profit.
This would encourage companies to repair part of the damages sustained to the global commons since the beginning of the industrial age two centuries ago – and to develop a stable growth engine which will produce the necessary return on investment without, literally, costing, the earth. Let us look towards the corporate sector as a part of the solution and no longer as the problem.
Today, as in the past, growing wealth and prosperity is needed for a properly functioning system where humans can live sustainably and in harmony with nature. Providing this could be the new purpose for business – especially if we truly realise that it is not the way you spend money that matters but the way you make it.