green@work : Magazine : Back Issues : Sept / Oct 2003 : Single Bottom Line Sustainability

Single Bottom Line Sustainability

Doing Business on Purpose
Defining a company's social purpose helps define its business strategy as well.

by paul gilding

In a global survey of trust in institutions conducted for the World Economic Forum by research firm Environics, companies ranked almost at the bottom, just above politicians and below lawyers! In the same survey, key critics of companies—community groups and NGOs—ranked at the top alongside the armed forces and educational institutions.

This is by any measure a serious problem for the corporate sector. But why is there this deep lack of trust; why this assumption that companies will not act in the best interests of society? There are two reasons.

First, it’s true. In recent decades, many companies have acted in their own short-term self-interest at the expense of the society that feeds them. They have pursued gain with an approaching of “taking” value from society and their customers, rather than creating value and taking a fair share of what they created.

Secondly, the perception has been driven by the internal and external rhetoric of companies. The obsessive focus on shareholder value has become a mantra of sorts. It has been painted as a reason for existence of companies, rather than as a critical outcome and measure of success.

The answer to this problem is not, however, more effective communication. Spin won’t fix this one. Yes, the problem is partly one of crosstalk, but it is far more importantly a problem of intention. The reality is that most companies are organized around the intent to create shareholder value, and this permeates the entire corporate apparatus, including language, incentive structures, culture and strategic focus.

Now let’s be clear, creating shareholder value is a good thing! It is an essential outcome if we want companies to flourish and build value for society, and in doing so create opportunities for their employees and communities. But, ironically, focusing company strategy on creating shareholder value is actually a lousy way to create it over a sustained period of time.

It’s the same at a personal level. Money and material possessions are definitely good to have. But if your life revolves around acquiring them, rather than seeing them as useful contributors to a good life, then you’re likely to end up a very unhappy person.

At a personal level, knowing why you’re here—what you stand for, what you hope to achieve, what values you hold and what’s important to you—provides an important framework for your life. It provides a context for making sound decisions and balancing competing demands on your time and resources.

It’s no different at the corporate level. A company needs to know why it exists. What is its purpose in society? What does it want to achieve? What does it believe? How does its existence improve the quality of life for the people it interacts with?

Once a company knows the answers to these kinds of questions, it has the framework it needs to make decisions and run its business—and, therefore, the framework it needs to create value for shareholders.

Another way of thinking about it is this: a company’s role is to create real value for society (not only financial value, but more broadly improving quality of life). In return it receives a fair share of the value it creates, by making a profit.

For example, does an auto company exist to make a profit by selling cars? Or does it exists to provide people with safe, clean, convenient and fun transport—and because doing so is good for society and for customers, the community wants the company to succeed and is happy for it to make a profit?

So by defining a company’s social purpose, we are really defining its business strategy. Why? Because it answers the question: What real and sustained value will we bring to society, through the hard and inspired work of our people, and how will we gain our fair share of that value?

Sounds like a sustainable approach to business to me.