CEO of Australian Ethical, Phil Vernon, explains why the days where business is concerned purely for profit are long gone. He argues that we need to move beyond the debate as to whether business has a social purpose and onto how it will be exercised.
For over 30 years Australian Ethical has been advocating for a better financial system – one in which financial outcomes are achieved while being conscious of their impact on the world around us.
We advocate this because the alternative is unimaginable. A system based purely on maximising profits and returns without regard to their social and environmental impact paints a bleak and dystopian future. This is particularly so, as business is increasingly the force having the most impact in protecting the future of our planet and shaping the future of our society.
So a new model is needed, one with empathy at its core and one in which business leaders are the stewards of our future as much as our politicians.
Do these leaders want the responsibility?
In many cases no, but recent events should be a source of optimism.
In January of this year Larry Fink, the CEO and Chairman of Blackrock an organisation with more than $US6.2 trillion under management, wrote to CEOs of major corporations asking them to explain how their organisations contribute to society, saying “society is demanding that companies, both public and private, serve a social purpose”.
Closer to home comments from the recent Australian Institute of Directors conference focussed on similar themes. Dr Ken Henry, Chairman of NAB gave a speech advocating “getting really serious about the social purpose of business”.
And more than just rhetoric, we’ve seen action. Following the school shooting in Parkland Florida, the business community responded independently of government, by applying their own restrictions on gun sales, distancing themselves from the National Rifle Association and removing discounts for its members.
The evidence of increasing community expectations of business is overwhelming.
Recent results of the Edelman Trust Barometer showed a deterioration of trust in all institutions in Australia (Government, NGOs, Business and Media). Most critically though, 65% of those surveyed want business to take the lead on change and not wait for government to impose it on them.
This expectation will only accelerate over time. Seventy-two per cent of millennials have an expectation that business is a force for positive social change according to Deloitte. And this group will comprise 75% of the workforce by 2025 (UBS).
The shift in expectations is translating into a real shift in the allocation of capital, with nearly half (44%) of Australia’s investments now being invested through some form of responsible investment strategy (RIAA’s 2017 Responsible Investment Benchmark Report).
In the case of Australian Ethical we were the fastest growing superannuation fund last year having tripled our funds in just over three years to $2.6 billion.
Discussion of the social responsibility of business inevitably comes with the usual objections that the sole purpose of business is to maximise profits, and that business leaders have no business speaking out on social issues. We saw this commentary recently during the marriage equality debate in our country and from Warren Buffett in the context of the gun debate in the US
But these voices are sounding increasingly out of touch.
Our business leaders are important stewards of our future. We need to know how they think so that we can make conscious choices in our interactions with them and ensure they align with our values.
As consumers we want to know that the product we buy has not been created by damaging the planet or exploiting human rights. As employees, the culture of an organization is a critical factor in deciding how we want to earn our livelihood. And as investors, before we provide our hard earned capital for them to apply we want to know where it is going.
But their obligation is broader than that. Well-functioning democracies rely on open, constructive discussion of the issues of the day to help shape the society we wish to create. These voices need to include a cross section of our society – politicians, journalists, civil society leaders – and business.
We want our leaders to think and act with empathy, conscious of the impact of their actions on the world around them. We want them not only do this in a reactive sense but to pro-actively care. We want them to embrace responsibility for their actions. And this means they need to have an opinion and express a view.
Gone are the days when we need to justify being ethical only if it fits a commercial agenda. The Parkland shooting showed the dangers of this. Companies responding to consumer pressure found there was no neutral ground. Such a decision is not a commercial one but should be based on what the organisation considers is right. This is often objected to as being too subjective, too hard to measure. Yes it’s hard. Having a framework for thinking about it is critical. But it needs to be done.
Authentically purpose-aligned businesses lead to far greater engagement among staff. A focus on profits only and self-interest leads to gaming. Is it any wonder we have a Royal Commission?
And so are we optimistic about these trends? Words are easy. Actions are what matters.
It’s easy to be cynical. Many organisations will adopt the social license rhetoric and continue to behave in ways that support unethical businesses. And far bolder action is needed particularly where the protection of the environment and climate change is concerned.
Mr Fink and Mr Henry each run businesses that continue to allocate capital to organisations that fall outside their definition of meeting community expectations.
But the significance of their statements and similar ones by others cannot be overstated. The tone is a shift from the old ESG/CSR perspective of considering ethical issues only if they can be quantified as a financial risk or opportunity. They are saying you have not just the permission but the obligation to consider them in their own right.
And when the largest asset manager in the world nudges the entire corporate sector to think differently a shift is inevitable.
The days where business is concerned purely for profit are long gone. We need to move beyond the debate as to whether business has a social purpose and onto how it will be exercised. Business has the permission and the power to act. It needs to do so.