Business accountability would be nice... but exploitation, pollution, profiteering and employee conflict seem just as ugly today as ever. Perhaps there is a little more restraint than in the expansionist days of the 1980’s when business was rampant and got away with anything. There is still a big question mark over wether it is enough.
We do have corporate social responsibility [CSR] principles in place so there is no longer any excuse for no knowing how to do the right thing. There are many heavy-duty public relations departments working hard on the messaging. There are even some players genuinely trying to do the right thing.
Except that all companies walk a tightrope on CSR because commerce exists to create profit. Indeed if a company fails to make a profit it isn’t really viable in a competitive marketplace. other, more aggressive competitors will easily outmuscle it.
The requirement for profit is how we have allowed the capitalist model to drive wealth creation all across the globe. Making goods and providing services for sale requires funds for infrastructure, inventory, staff and cash flow management.
This money comes at a cost — a return on investment.
Even the intrepid entrepreneur who works for himself invests his own time and energy for the financial return.
Profit is what makes modern economies successful. Profit provides the incentive to mobilise capital and put in the funds that light the commercial fires. And always for a return.
This logic allows companies and their directors — who, in principle, carry the liability for losses and therefore own the business risk — to ignore everything that they are not obliged through law or a sense of propriety to pay attention to. In other words any accountability for resource use and impacts on the environment that are not directly legislated as pollution or an abuse of any right, pass out of the company. Accountants call them externalities.
Government and the collective social conscience manifest in the proliferation of non-government, not-for-profit organizations, must either deal with the externalities or let them slide.
Governments do it by setting the rules and the 'dot orgs' try to tidy up where the rules cannot prevent companies making a mess.
Professor Michael Porter of Harvard’s Institute for Strategy and Competitiveness has a different view. Whilst he agrees that there is some poor business behavior, he says...
“it’s only business and business profit that can solve seemingly intractable social problems such as pollution, sustainability and entrenched poverty”.
This is a big call.
A somewhat more famous professor, Albert Einstein, famously said...
“you cannot solve a problem from the paradigm that created it”.
So how does business accountability become a solution rather than something to be avoided to protect profit?
Here is what Professor Porter said in his TED talk
In short it is only business that has the grunt and scalability to tackle the major environmental issues. If fixing poverty, sustainability and loss of natural capital is a resource issue then there are not enough government and NGO resources to do the job — only business has the capacity because “business creates wealth when it meets needs at a profit.”
And, of course, “profit is the magic allowing these problems to be solved,” and Professor Porter suggests “profit is infinitely scalable, and the solution becomes self-sustaining.”
But surely this is the paradigm that got us into the mess — the pursuit of profit at the expense of business accountability.
Well Professor Porter believes in a new business thinking where the reudciton of externalities helps profit. For example, reducing pollution leads to greater efficiencies and the introduction of new, cleaner products. He says...
“There’s a deep synergy between solving social problems, but it means business can’t engage in short-term thinking... When we tap into the power of business, it becomes possible to scale. It’s a huge opportunity for business.”
view of the central business district of Melbourne, Australia
Personally I think this is bunkum.
Whilst I do agree that wealth creation will be critical to solve many social and sustainability issues [it is the best mechanism we know to slow world population growth] and much as I would like to believe that the corporate world can change, this so-called “new business thinking” is still about profit and not about business accountability.
And profit will create externalities and the abdication of business responsibility whenever it can, because that will lead to more profit.
But profit is not a given even if the pursuit if it is. There are times in every business when tough decisions are made because profits do not come.
So I am also reminded of this truism oft quoted by the farming community in Australia “it is hard to be green when you are in the red”.
When profit is made all may be well, funds flow and there is spare for philanthropy and social causes. When there are losses it is as though all bets are off. And with repeat losses, then it's back to the wall survival.
I do agree with the scalability argument. Only commerce has the capacity to grow to scale in a heartbeat but in that capacity for growth there is as much risk as there is opportunity.
My hunch is that future environmental issues will still have business accountability on the list.
Confused Confucius spurned the monastic life for the world of work, moral conundrums and mobile devices. His sayings, questions and incongruous idioms on the environment and modern life bring delight and bafflement in equal measure... check out more Confused Confucius sayings.
central business district, Sydney, Australia
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