Over a 3-week period, three events were held by Humanity in Business, a series of in-depth panel discussions with senior leaders and change makers, challenging the role of big business in our society. Why are these conversations so relevant and why now?
The Australian Ethics Index has fallen six points since 2017 from 41 to 35, dragged down by the poor perception of ethics in the banking and insurance sectors.
According to the Edelman Trust Barometer, trust in big business is at an all-time low.
Australia is one of the worst performing countries on the UN Sustainable Development Goals (SDGs), and the worst on Climate Action, profit over purpose seems to be the prevailing norm.
So, it’s the right time to question the role of big business in our society, the rights of stakeholders and ultimately ask the question, what needs to happen now?
These events were not about finding all the answers but starting the important conversations.
WEEK 1 - Shifting from shareholder value to stakeholder value
The panel this week was, Intrepid CEO, RACQ, Darrell Wade, Chairman, The Intrepid Group, Vaughn Richtor, former CEO, ING Australia, Leona Murphy, Non-Executive Director, RACQ and facilitator: Judith Fox, CEO Australian Shareholders Association.
Summary of the discussion
The first session focused around the theme of shareholder vs stakeholder value, and questioned - has the balance of power shifted to the shareholder at the expense of the common good?
Unfortunately, the feeling in the room was yes, it has shifted to the detriment of stakeholders. Currently, many boards and companies say that their purpose is maximising shareholder value. Yet it’s been said that shareholder return should be the outcome of the company fulfilling its purpose, rather than the purpose itself.
The panel started a discussion on ‘Enlightened self-interest’. This is a philosophy which states that persons who act to further the interests of others ultimately serve their own self-interest.
Most companies still need a ‘business case’ to do the right thing. With increasing consumer, stakeholder, shareholder and societal expectations of business – this concept of enlightened self-interest is far too one dimensional, and what is needed is deeper stakeholder engagement.
The discussion circled back to one thing - PURPOSE. What is the purpose of the company? Why do you exist? And how is this embedded in the day to day?
Purpose is more than enlighten self-interest
Putting purpose at the core is about delivering long-term value for stakeholders and long-term return for shareholders
Actively seek out where your organisation is not aligned to your purpose, do a sense check, which departments are misaligned?
Develop systems, beliefs and values that outline the importance of listening to the voice of the customer and to staff.
Examples such as a B-Corp are good for building a culture around multi stakeholder engagement.
Leaders need to be engaging in the big conversations that matter to stakeholders, e.g. gender pay gap/ climate change and not hiding from them.
WEEK 2 – Is business only about profit?
This week’s panel Robert Johanson, Chair, Bendigo Bank, Michael Adams, former Dean and Professor of Corporate Law & Governance, Western Sydney University, Susheela Peres Da Costa, Regnan and facilitator: Judith Fox, CEO Australian Shareholders Association
Summary of the discussion
The key debate at this event was shifting the view from business as a profit-making entity. Is the purpose of business to make money with social service or philanthropy added on, as a bolt on, not integral to its core? Are companies just there to make money? Is it possible to shift our view of what the company is?
The most dominant power in the world are corporates, some of these companies are bigger than countries. As we’ve seen, if that force is used solely for profit, it’s creates winner and losers.
The panel talked about the shareholder vs stakeholder dichotomy being a false one, in that it distracts from the important conversation of not do stakeholders matter, but which stakeholders’ matter most?
There are many terms to describe how a company might move away from a profit only model such as ‘Social Licence to operate’, ‘Shared Value’, they questioned whether or not these all just buzz words of the day or a real attempt to capture and measure success past just profit. There are a number of different models that have sought to do this such as, triple bottom line TBL or B-Corp.
Economist, Milton Friedman was quoted: "There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud". But what if the game itself has an inherent rule that causes us all to stumble? That is GROWTH, growth at all costs? We are all complicit in the story of growth, people, companies, government.
The idea of sole responsibility to shareholder HAS evolved, and this must continue.
Consider balance in measurement and reporting, what are you measuring and why? Does it speak to more than profit? How do you measure value beyond your borders?
Social licence must be built by building relationships and being willing to proactively listen to stakeholders, this in turn builds trust.
Build the voice of stakeholders into processes, and don’t just collect this data, use it.
Use your Purpose as a guiding star to understand ‘trade offs’ between different stakeholder interests.
Remember the four pillars of good governance, transparency, integrity, stewardship and accountability.
In today’s complex world, it can’t be all about profit, expectations have changed and we now have to put a price on externalities that were never priced before.
WEEK 3 - LEADERSHIP IN ACTION – SHIFTING THE DIAL INTERNALLY
This week’s panel included Alison Watkins, CEO Coca Cola Amatil, Andrew Cairns, CEO, Community Sector Banking and Phil Vernon CEO, Australian Ethical Super, with facilitator: Meegan George, Acting CEO Governance Institute of Australia.
Summary of the discussion
This week’s conversation focused on shifting the dial internally, if you recognise your company is off track with its purpose, notice warning signs, receive feedback from stakeholders that you are favouring profit above all else, what do you do?
The discussion began with organisational culture. A large bank recently said it would take 10 years to change their culture. Is this because ‘size matters’ when it comes to turning around a toxic culture? The panel talked about embedding ethical frameworks and ORGANISATIONAL VALUES across the entire organisation. Once more, these values need to be truly espoused and believed. They must be embedded in the narrative of the company and bought to life. Unless you know how integrated these values and ethical frameworks are in your culture, you have no way of knowing when you are off track.
The Banking Commission directly linked poor decisions and behaviour to remuneration frameworks. There was a discussion around renumeration, and the economics of ethics. How do incentive structures need to shift to better serve the greater purpose of the company, and a world beyond the profit only dominance? One answer was a balance between intrinsic and extrinsic motivations when it comes to pay and doing away with sales only cultures to the detriment of customer service.
In the complex world of business as it stands today, the role of the CEO, board and wider management in shifting the dial was also discussed:
For the CEO we questioned, is it realistic that one person can oversee and be responsible for such complexity? Is our old school approach to traditional leadership working? Clearly not. A move to ADAPTIVE leadership is required.
For the board, the panel talked of them using hindsight, oversight and foresight to manage, but what about blind spots? This is where a proactive approach to stakeholder relationships can help, to not only navigate the complexity, but see the blind spots. The board has a key role in setting the culture, they need to be asking the right questions, and using their moral compass.
Whilst there has been much talk of the banking sector in this event series, they are not alone in this. The issues discussed are relevant to ALL businesses.
For steps to create a better culture, start with changing the conversation, and engaging your people.
Remember the four pillars of governance, integrity, transparency, accountability and governance.
Be an organisation that is receptive to feedback and openness. Embrace your stakeholders and your critics. Learn from the feedback good and bad.
Embrace the imperfection – this means being open about failures, courage to speak up and speak out - when we see warning signs that we are off track from our purpose.
A company is an eco-system, operating within a wider and complex eco-system, therefore a systems view is needed for blind spots and real transformational change.
Given the complexity of the environments that businesses now operate within, the old school of leadership does not work. We need a new kind of leadership, not just conscious or authentic, those are equally as important but ADAPATIVE LEADERSHIP, Harvard Business School calls it ‘the handbook to meeting the demands of leadership in a complex world’.
In summary, there is a fine balance between culture internally, the expectations of those external to your company and your purpose.
What’s next for Australian Business and leadership?
There may be a Banking Commission 2.0 , with some arguing it didn’t go deep enough, let’s hope this is the case.
There is a Modern Slavery Act in place, hugely important, from a transparency and accountability view point.
Look out for further events from Humanity in Business events in the new year to continue these important discussions and move from words to action.
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