The pandemic has demonstrated that some business challenges are so overwhelming that they can’t be surmounted – In the first half of 2020, over 1 in 4 MSMEs had to close according to a joint study by the OECD and World Bank. But it also revealed that with the right levels of agility and resilience, a competitive edge can be maintained to weather even the harshest storms. But where should a leader begin when cultivating keen instincts in business? Can the mysterious “gut feeling” be learnt or developed?
Whether you're a business owner or aspiring to lead a high-performing team, a good grasp of how your business relates the world can help you to accurately identify and make clear decisions. It drives you to always examine your business model critically as conditions change, which can come in the form of evolving consumer expectations or shifting policy landscapes. If you want to inspire trust when communicating with stakeholders, be it clients, suppliers, media, your employes or the community, this learning process is necessary for you to make a meaningful appraisal of your company's impact on society- both positive and negative.
Below, you can find six examples of different ‘roles’ of business in society.
"On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy... your main constituencies are your employees, your customers and your products.… Short-term profits should be allied with an increase in the long-term value of a company."
- Jack Welch, Legendary GE CEO
Maximising Shareholder Value is a Result, not Strategy
Legendary General Electric CEO Jack Welch had met or beaten forecasters’ expectations 46 out of 48 straight quarters during his 20-year tenure in the company. However, 8 years into his retirement, he denounced the long-held view that a business’ sole purpose is to maximise shareholder value.
As this Forbes article points out ,the difference between managing expectations and managing business outcomes (via products and services) is that the former consists of shares and stock, while the latter is considered the ‘real market’. Yet the former is more valued, and how a leader chooses to manage an organisation (expectations market vs real market) has big impacts on the company, its employees and society. Stock-based compensation, versus real market metrics, changed the narrative on why business exists, confusing many in the process.
While profit ensures the viability of the enterprise, making bottom line your only KPI can blinker you from potential backlash or from more profitable opportunities in the long run.
“Innovate to Drive Social Progress”
It is almost impossible not to hear it at least once in every session at major conferences that business can innovate or drive new innovations.
While this may not be an obligation of a business, it is how business improves its processes for producing, selling or adding value. In the August 2019 Business Roundtable Statement, CEOs of the largest companies in US agreed that delivering value to all stakeholders as part of the "Purpose of a Corporation".
But what does this all mean for you? For innovation to be more than an empty slogan, you and your team need to start building the mental muscles for creativity to flow. Skills and behaviour such as conceptual thinking, curiosity, reflection and collaboration are key to unlocking your teams potential. Here are some examples of how addressing social gaps with innovative ideas have made businesses successful.
- HappyTap : Private Sector Solutions for Public Health Challenges
- Wave Money: The Future of Finance for Myanmar's Unbanked
- MTTS : Providing Neonatal Care in Emerging Markets
Paying Taxes to Fund Public Services
Business also supports a well-functioning government by paying tax to fund public services. Although paying tax is not its primary role,tax avoidance has nonetheless been called an abuse of human rights by the International Bar Association because it deprives poorer countries access to resources for healthcare, education and essential infrastructure like water and sanitation.
Taxes don't only serve the public but also help to provide enabling infrastructure for business to thrive.
Providing employment and fair compensation
Stakeholders such as employees rarely have any say in decision making, despite their indispensable role. Following the rise of algorithms, automation and artificial intelligence, all of which have penetrated deeper into mainstream operations, business are now changing the way they think about labour.
The ever-expanding supply chain in MNCs has put downward cost pressure on its production, which often creates problems for workers’ rights i.e., the right to a fair wage and benefits. Those that hide behind complex supply chains and continue to exploit their labour are now faced with increasing risk of worker strikes and PR nightmares.
Learn more about the discussions surrounding universal basic income:
- A recent Brookings Institute post offers arguments in favour of UBI
- This piece on Huff Post argues against UBI based on our neeed for meaning in life
- Silicon Valley is experimenting with a basic income, via Y Combinator
Fair Dealings with Suppliers
Similar to employees, suppliers are an important stakeholder to ensure your business run smoothly. A strong and healthy supplier relationship is built on trust and transparency in your dealings, which includes, fair competition, good procurement processes as well as accurate terms and conditions. As supply chains become more complex, business leaders tend to reduce suppliers into mere stats and figures. Rather than seeing suppliers as cost to be minimised, treat them as partners to share your success with.
Protecting Nature
For centuries, businesses have enjoyed a free ride via externalities, by exploiting environmental resources. It is not in the nature of business to limit itself, which is why the regulatory role played by government is often viewed as the enemy of business. But it is the government that builds vital infrastructure like roads, water pipes, and electricity lines, and also supports education and health, as well as investing in core R&D, which are all critical for your company's survival. Therefore, rather than looking for loopholes, you as a business leader should prepare by interrogating your current business models, and core products and services as if they were to face strict regulatory restrictions, or navigate through another global shock such as the COVID-19 pandemic.
Upholding one's end of the social contract
Business provides goods and services in response to our needs or desires and therein generates profit for the continued viability of the business and the benefit of owners and managers.
In addition to rewarding owners, managers and shareholders, business activity contributes to economic development, creates wealth and provides gainful employment to workers. Severely unequal distribution of wealth is now a major threat to the continued stability of modern societies.
A license to operate is granted by the government on behalf of society, requiring adherence to all applicable laws and regulations. If a business transgresses these laws, its license may be revoked.
Beyond formal laws, there exists a social contract between business and society: an agreed set of acceptable norms and behaviours which, while not legally binding, offers tacit approval of business activities. When conditions change, business must adapt and in the process actively uphold this contract, not ignore it. Business leaders thus must have their “finger on the pulse” of society’s evolving expectations.
