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The role of shareholders in purpose-led business
Catalyst or catastrophe?“A really stimulating discussion”“honoured to be part of this” “Amazing insights”
‘Blame who you like, but if we are honest with ourselves this is all about greed. About our own personal greed’
catalyst or catastrophe?
“ “Talent will drive the change. Ultimately, no-one wants to work for an asshole“
“Businesses that are not purpose-led are already obsolete. They just don’t know it yet.
“ “
© Contexis 2016
Contexis House of St Barnabas Debates are a unique forum for Leaders of global corporates, financial institutions and international consultancy and advisory firms to meet with charity heads and inspiring entrepreneurs to discuss, under a strict Chatham House rule, the critical business issues of the day; to exchange knowledge, expertise and ideas from widely differing perspectives.
None of this would be possible without the contribution of a wide range of exceptional organisations and we are grateful for their time, candour and insight. A small number of Contributors were represented in the debate whose output you are about to read. Nothing that follows is attributable to any one organisation.
If you would like to join a Debate we are always open to interesting and challenging new Contributors. I’d welcome an email or tweet.
John Rosling
[email protected]@jrosling
© Contexis 2016
to discuss this question…
Under a strict Chatham House rule, we brought together Leaders of• Some of the largest corporations on the planet
• International financial institutions
• Global professional service firms
• Leading charities
• And top entrepreneurs
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
?“Shareholders in purpose-led business: catalyst or
catastrophe?”
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
What they said was quite remarkable..
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
But first we agreed what we meant by ‘purpose’ in business.
Luckily we had an academic in the room. We agreed that purpose was
A transcendent (social or environmental) external motive
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
first the good news..
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
According to this group of financial and business leaders, the idea that business is responsible for the good of society and the planet and not just for shareholder return has become widely accepted.
A gradual shift to a more purpose-led model seems inevitable.
It’s not a question of why anymore but of how.. and when
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
There is plenty of evidence that, over time, businesses that score highly on the sustainability index also outperform competition commercially. We are beginning to see that we can also prove that socially responsible business offers a better long-term return.
““
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Pension Funds are changing our focus quite rapidly. We are now absolutely starting to look at environmental, social and governance factors in our investments. Of course, it’s about a sustained return but it may very well get us to the same place as a purpose led agenda.
“
“
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen “ “Profit is just a number; there are many more aspects to investment decision then just profit. What is the sustainable return for the business?
© Contexis 2016
There is a lot of talk around the G8 that we must legislate to ensure money goes into beneficial investments. We’re still seeing poor consequences; investment ending up in firms whose behaviour may be very poor. But it’s a start.
“
“
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Phew, we’re OK then?
The mood music amongst regulators, governments and institutional investors is towards responsible business.
And it’s increasingly clear that purpose-led business leads to better long term return.
It’s not quite that simple..
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
This is a vastly complex problem..
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
We still have a lot of people with good intentions doing bad things
““
It’s still a reasonable view for a CEO to say ‘we maximise profit and pay our taxes - that is our social good’
““
For a start it’s not always obvious what the priorities are between competing interests
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
“The real problem is, at the very top, a business might be purpose led but further down the behaviours driven by short term profit are so entrenched
“The system we provide is not serving the outcomes we seek. “ “
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
The long term might be clearer but on an average investor cycle of 200 days what is the incentive for the investor?
“ “
As a society we are giving the people who manage our investments conflicting messages
The asset manager is incentivised on setting a short term return. Until you change the incentives you will see them taking a short term view
“ “Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Pension law is clear; the duty of the trustees is to maximise the return on behalf of the beneficiaries. The only way to change this is through government action
“ “
Government and regulators send similarly conflicted messages
Pension funds may have good intentions but consultants tell them Fund X is outperforming Fund Y and to comply with their duties trustees must respond. This does not support long term responsible business
“ “Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Finally, it depends what you mean by investors..
The question is not whether the investor can have an influence
but who is shaking the tree. It comes down to private equity.
The growth of PE has been phenomenal and the culture of PE
is the ruthlessly short term. Nothing else is relevant.
“ “
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
And, in any event, it’s too simple to say that socially responsible business is always sustainable business
There are plenty of examples of successful, long-term businesses with appalling records.
“ “Slavery was a long term, sustainable business model!
““
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
The system we have allowed to develop is still weighted towards driving short-term, profit-led decision-making
Perhaps a fundamental reappraisal of what society wants is needed
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
We keep running back the comfort where there isn’t really a trade-off. There are lots of times when responsible business is acceptable to shareholders but we have to have the courage to admit that return to shareholders must be compromised if we are to protect people and the environment. To pretend otherwise it is dishonest
““
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
Are there alternatives?
For some in the room it seems the answer is clearly ‘yes’.
It’s not yet clear how quickly these will develop.
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Socially responsible businesses make decisions based on a wider definition of return. Instead of just paying a dividend to shareholders they pay dividends to the community
“
“Already there are 1 million people employed by social business in the UK. In India there is a dairy company bigger than Nestlé owned by 3 million poor farmers. Business models are changing. And changing fast.
““
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
We’re overstating the importance of companies here. The life-cycle of a company is only 15 years. The typical model is changing fast
“
“There are commercial alternatives. The exclusive focus on the shareholder return gives business tremendous focus; the unintended consequence is driving poor behaviours. So the alternative would be to focus on customer value or on social good and that could create a similar degree of focus.
“
“
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Businesses that are not purpose-led are already obsolete. They just don’t know it yet.
““Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
Under the current system, is there really any incentive to change; for investors to drive a more responsible approach?
Well, quite a lot actually..
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
The sentiment that this is not good enough is shared very
widely now. Institutional brands will increasingly be judged by
their actions. Nobody wants to be caught out.“ ““There is a talent time-bomb. Talent will drive the change. Ultimately, no-one wants to work for an asshole”
“ “
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Pension funds are trying to diversify all the time. That will drive change
““
The planet’s resources are drying up so we’re just going
to have to take a more responsible attitude, aren’t we?““
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
And would measurement drive this change?
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
The real problem is that there is no standardised view of how
purpose can be measured. But we know how to measure profit“ “There are means to measure social good but how do we persuade people to use these?“ “
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
The accounting industry is focused on the granularity of a fraction of the value range of business. The problem is we don’t really have any evidence or data on sustainable value of business. If there was an accepted metric for sustainable value that would drive change.
““
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
So, whose responsibility is it to change?
It’s easy to point the finger at institutions, regulators and government
But they are simply at effect of what society judges to be important
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
So the answer is remarkable simple..
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
This is about all of us – at every level - taking responsibility. It is about inspiring and far-sighted leadership and a big dose of courage
“ “Capital is increasingly concentrated in fewer hands; it is about wealthy individuals with so much economic power having a moral duty to drive change
“ “Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
And it is about individuals. About us. Even those who claim to care still make purchase and investment decisions based on laziness and narrow self-interest
“About people taking responsibility to buy what has a social good and to sometimes pay more. We must invest responsibly and sometimes accept a slightly reduced return
“ “Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
““Blame who you like, but if we are honest with ourselves
this is all about greed. About our own personal greed
““The solution will come when each of us, as individuals, simply say ‘this is not tolerable anymore’
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
““Change will come when consumers stop buying stuff -
whether products or investments - that is not purpose
driven““Of all of the people in the chain of business the buyer – us -
is the ultimate arbiter and influencer.
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
This is simply about stopping looking for excuses and taking responsibility
© Contexis 2016
‘As an entrepreneur I simply don’t get
why this is so hard. You just do the
right thing because it’s the right thing
to do.’
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Inevitably it’s going to be an alliance of the
socially responsible: socially aware consumers,
morally focused business leaders, investors with
a longer term view, talent voting with their feet
and academics all requiring government to act
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
This is a much wider issue than just blaming the institutional investor. What we must accept is that, as a society, our shared beliefs simply do not support the behaviours we seek.
Changing deep-set beliefs can happen; just consider the cultural acceptance of smoking
““
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Conclusion
And how will that ever happen?
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
It's about status and identity - what drives human behaviour? What if your identity was connected to your social responsibility. What if it was unacceptable to be paid ludicrous amounts or destroy the planet or not pay people fairly?
“
“What would investors be most worried about? What one stakeholder group has the most influence? People as consumers, as investors, as employees.
“ “Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Being seen to be evil hits your shareholder value much harder and than, say, changing your input pricing. Boards simply must be focused on being socially responsible.
“ “You simply don’t get away with poor practice anymore in a socially connected world
“ “
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Social media is the tool of the devil. It gives a voice to the ill informed and drives decision-making at government and Board level that can be irrational and ill conceived.
“ “
But there is a dark side.. Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
So, this group of finance, business and third sector leaders agreed that to create a sustainable future for all, change has to come
What steps are needed to achieve that change?
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
It is the duty of all of us to make the case that socially responsible business offers a better long-term return.
Pension Funds and institutions need to focus on environment, social and governance – and government and regulators need to support this
Investors that prioritise short term profit over long term value must be called to account.
Global tax structures should enhance the returns from socially beneficial business
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
CEOs and Boards must have the courage to make a clear statement of their Purpose and empower everyone in the organisation to base behaviours and decisions on that clear purpose
Can we admit that returns to shareholders must be compromised if we are to protect people and the environment?
We need to find a standardised view of how purpose can be measured.
© Contexis 2016
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
This is about all of us – at every level - taking responsibility. It is about inspiring and far-sighted leadership and a big dose of courage
The solution will come when each of us, as individuals, simply say ‘this is not tolerable anymore’
It starts with education and debate and informed social media has a role. Real change only happens when the company’s fundamental model is threatened. That is where consumers and social media drive the agenda
© Contexis 2016
“ “
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Conclusion
There is a whole spectrum off investors out there. Increasingly people are aligning with a view that you have to invest in companies that take the long term view
The asset manager community is aware of the problem. We are almost at the point of change
“ “Recently the regulator has said pension funds must consider an environmentally social and governance agenda. That is a catalyst for change
“ “
© Contexis 2016
“ “Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Conclusion
Is society ready to say it will no longer accept these negative externalities and punish business whose behaviour is unacceptable?
Fundamentally people want to work in a business that does good. People want to lead a business that does good
“ “
© Contexis 2016
‘As an entrepreneur I simply don’t
get why this is so hard. You just do
the right thing because it’s the right
thing to do.’
Purpose
Introduction
The good news
A vastly complex problem
The alternatives
Incentives for change
Measuring change
Responsibility
Making it happen
Join in?“As human beings we are hard-wired to seek a bigger purpose in organisations we choose to spend time in”.
Twitter: @contexis
Linkedin: Join the Purpose in Business Movement
Attend our next Roundtable: [email protected]
Get inspired: www.contexis.com/insights
© Contexis 2016
With grateful thanks to all our regular and occasional contributors
John Rosling
[email protected]@jrosling
