Business doing good is doing good business

Tom spoke to a gathering of London Futurists at Birkbeck College, London, in September 2017. His theme – Why Business Doing Good is Doing Good Business – very much pre-empts The Company Citizen which will be published late in 2017.

This half hour video includes a 20-minute presentation followed by a Q&A. (Scroll down to the third presentation).

The talk complements a chapter Tom wrote for Derek Bates’ book ‘Agenda for the Future’, also published in September. Here’s that chapter:

The Case for the Company Citizen

Society needs ‘company citizens’ to be better engaged in our communities: fortunately, it’s in business’ interests to pursue the same agenda. However ‘better’ shouldn’t mean ‘more of the same’: rather business needs to rethink its role in society, at local and national levels.

There are moral, political and business cases for this change and pioneers from whom aspiring businesses can learn. There’s also a global framework for such activity – the United Nations’ Sustainable Development Goals – and ample evidence in localities across the world that engagement works in the interests of the companies, beneficiaries and nations.

The moral case

The moral case is that those who exercise power should do so responsibly, not simply to mitigate any negative impact of their activity on society or the environment but in a socially positive way. This collaborative spirit drove the formation of the United Nations, bringing together the world’s economic and political powers – 20 nations in 1939, over 50 by 1945 and 193 today. An early associate, from 1946, was the International Labor Organisation – whose mission to promote a human dimension to business practices dates from 1919.

That the UN is the principal voice of moral authority on a global scale is beyond question even if its impact may have underwhelmed on occasion. In 2000 it established 8 global Millennium Development Goals, based on ideas of community, fairness, dignity and basic rights, and surprising no one.

The MDGs set 15-year targets but their successor programme, the Sustainable Development Goals, are subtly different in that they challenge not just governments and communities but also businesses to ‘walk the walk’. By adding Goals on energy use, clean environments and the better management of (industrial) raw materials business has been irretrievably implicated in their implementation.

That moral charge on business, to accept some responsibility for achieving these UN goals, based on universal values, is supported by a stark statistic: 60 of the world’s 100 largest economies are no longer countries but businesses. How different is the 21st century from the mid-20th!

Whatever the countries of the world decide to do together, through UN conventions, the Paris Climate Change Agreement or other accords, they will not achieve their goals unless business is on board. Where once it was enough for business to co-exist with global society, not standing in its way, today the SDGs, the embodiment of decency, sustainability and fairness, absolutely rely on the active involvement of the corporate sector. This is a challenge that global company citizen pioneers like Unilever have taken up with relish.

People regard paying fair levels of tax as a moral duty and they do not understand why, on their modest incomes, they’re contributing more tax than some major multinationals which pay none, despite trading here. Nor do they accept that even top business leaders need to be paid so much more than the most accountable person in the country, the Prime Minister: shareholder revolts on top pay packages are becoming commonplace. For the first time in half a century business spending on dividends is growing at the expense of employee pay and people are naturally suspicious that companies who arbitrarily headquarter themselves offshore are ‘up to no good’. That the cost of a business’ ‘licence to operate’ is partly measured in moral terms has never been more true.

There’s an old saying ‘if you’re not with us, you’re against us’. As we explore the (small ‘p’) politics and the practicality of the case for greater business engagement with society, that case for engagement will be seen to apply as much in local communities – if not more – as on the global stage.

The political case

Britain is one of the world’s most generous countries. Charitable giving, volunteering and corporate philanthropy are all at a high, if static, level. Over the last 60 years a growing and increasingly professional voluntary sector, in particular, has shared with government and public sector the responsibility for delivering services which meet people’s basic and other needs. Recently a number of trends have challenged the dynamics of cross-sector relationships: ‘outsourcing’ of services has proved controversial; commissioning practices may have perverted charity missions and encouraged dependency on government funding; poor privatisation practice has allowed questionable profits to be made whilst reducing the accountability (and sometimes the quality) of such services.

On the other hand, there’s no doubt that cross sector partnerships can increase the qualitative value of services and that business efficiency can make them more effective (and even cost effective). Although these positive virtues are not guaranteed, cross sector working is here to stay. Indeed, we have seen businesses and charities voluntarily come together to work collaboratively without the need for fine print in a government contract.

A decision to outsource to a ‘for profit’, or an inaccurately labelled ‘not for profit’, company is a question not of economics but of values. Southern Cross was a private equity-owned company which grew to be Britain’s largest private provider of care home beds before its spectacular collapse in 2011, when it lost 98 per cent of its share value. The oft-quoted example is a case in point. How, it is asked, can a company whose mission is the maximisation of short term profit be trusted with the care of frail and vulnerable people? That is not to say that a ‘for-profit’ company with a different ethos and more nuanced values cannot be trusted with such a duty; is that really so different from a body with overtly social values which employs business tools to attain them?

This blurring of historic sector boundaries is permanent. So, it appears, are government austerity and its consequences, public spending cuts, the dependency of the third sector on government funds and the flatlining of charity income in the face of growing demand on their services. So are rising levels of inequality and the ‘poverty premium’, the phenomenon whereby elements of the cost of living are actually higher for the poor than for the rich. Official figures show more people in working poverty than ever before, despite legislation on low pay, and they’re employed disproportionately in the private sector.

It’s no surprise, therefore, that the poorest communities are often becoming, literally, more hopeless. Those least able to afford it have borne the brunt of spending cuts. This is a political reality in which it’s not for business to take sides, as all politicians are committed to helping the country achieve stability in a sustainable way, according to their vision of what is fair and possible, following that global financial crash. Aren’t they?

But neither can business stand idly by. The economic case for being involved in the relief of poverty is that poor people are poor consumers, a challenge central to the ‘shared value’ philosophy of Michael Porter. So too are sick people, and those who are isolated – geographically, digitally and socially. Those who lack dignity often lack capacity. Employees who are sick, stressed and unfulfilled are suboptimal performers – factors which will be influenced by the world outside the workplace. There’s also a business case for engaging with the community, to which we will return, but the political case is summed up by the concept of the ‘Company Citizen’.

A Company Citizen, like any other, cares for the welfare of fellow citizens; works with them to address common issues in the community; is generous with their time, skills and other resources. The Company Citizen is actively engaged, not in Party politics but in lobbying for what is right and helping mitigate what is wrong.

And yet in the most deprived areas there are fewer employers, even SMEs, compared to slightly more affluent areas. Ironically, research shows that those communities have fewer successful voluntary sector organisations too: they lack the social capital necessary to cope with poverty and social exclusion, withstand ongoing economic shock, even to organise at a basic level. Where business is absent, how can the Company Citizen help?

Community organisations are the key. Ask them what they most need and they will probably say money, but it’s not true. They need skills: skills to plan their operations, to strategise, to lobby, to even provide for themselves through sharing. These are essentially business skills that can be given away by a company at no cost, in the course of an ongoing and committed relationship with a community. Get these skills right and whilst the money won’t necessarily look after itself at least it will go further. Better still, skills transfer is a two way street and workers will become better employees, better people, through their involvement.

According to a 2016 report by Social Enterprise UK, one third of local authorities have chosen to implement the 2012 Social Value Act. This says that in commissioning the supply of services over a certain value a council may insist that bidders demonstrate positive values towards the community and the environment: reducing carbon footprint, increasing apprenticeship levels, encouraging employee volunteering and more. In Manchester and Birmingham the councils apply these values to all of their tendering for goods and services and can demonstrate benefits for the community as a result. In those cities a business that wants to trade with the council has to be a Company Citizen.

The business case

The business case for philanthropy per se is minimal. Philanthropy is too often regarded as donor-focused and paying little heed to the long term impact of the funded project. Many businesses give big sums from corporate coffers to charity as a matter of course, boast about it then forget it: currently £6 billion per year. This not insignificant sum is, of course, welcome but could be utilised better, as more sophisticated corporate donors are discovering. Philanthropy can undoubtedly enhance reputations but this falls apart when a company acts in ways which undermine the values associated with their philanthropic gestures. This is called ’greenwashing’.

Many community engagement activities are more sustainable than simply writing cheques:

  • employer supported volunteering can transfer, boost and extend employee skills
  • a business with value-led purposes better engages its employees
  • a values-led, ethical and sustainable supply chain creates a broader community and enhances reputation
  • employee-generated ideas can reduce carbon footprint and promote innovation and effectiveness.

An engaged employee is more productive and loyal than others; stays in post longer, reducing recruitment costs; and is a better informal ambassador. A company with CSR or ESG values integrated into its mainstream activity recruits a higher calibre of graduates, especially amongst millennials; and let’s not forget the marketing benefits of the best charity partnerships, too, like Boots with Macmillan Cancer Care.

SME start-ups with a social primary purpose, so-called social enterprises, have a lower failure rate than others. On a global scale investments in ‘ethical’ or ‘responsible’ causes produce higher long term returns than do mainstream FTSE indices.

A conventional business case in a new environment.

Conclusion

In the 18th century Adam Smith argued that a business could only sell what someone would buy and in the 1930s Milton Friedman argued that making a profit was the primary purpose of business. Essentially, both are correct: without a return on investment any business will fail and a company trying to sell a product that no-one wants is also doomed. But these are inward-looking values which don’t completely reflect today’s complex business world which, while not perfect, is in a state of flux.

That’s because over recent generations an appreciation has emerged of the external responsibilities that business has to all of its stakeholders – employees, customers, suppliers – and not just to its owners. Citizens accept that paying tax is both a moral obligation we all have to help those worse off than ourselves and the price tag of that ‘licence to operate’, so tax avoidance and evasion are increasingly frowned upon. Clearly not all companies agree; but contributing fairly through taxation is surely a hallmark of citizenship.

Most companies accept the stakeholder argument and would not dream of bending regulations to suit their own gains or, even worse, risk being discovered doing so – but the ‘external duty’ of company citizenship is not yet universally adopted.

Still fewer are the companies that adopt a philosophically global approach to citizenship. One of the two responsibilities enshrined in this duty is from history: it’s to the future. In the era of family-owned firms companies were driven by the desire to hand a thriving business over to the owner’s children. That generational perspective has been lost and short term thinking has come to dominate business practice: witness the shrinking time spans of share ownership and CEO tenure, the growth of impatient venture capital, the use of quarterly reporting and aspects of the bonus culture.

Let’s return to the positions of business and charity relative to each other. Britain has 5 million companies, 99% of which employ fewer than 250 workers and 2 million employ no one at all (witness the veritable army of self employed). The average company has an annual turnover of £500,000 whilst the biggest are mind-bogglingly large: a single supermarket superstore can turn over a million pounds each day, the same as the charity, Oxfam.

Of 180,000 registered charities in Britain only 14 have a bigger turnover than Oxfam. 80% turn over less than £100,000 per year and half have an income of under £10,000. So big are the biggest charities that charities’ combined turnover is £70Bn and average income is £400,000.

The American company Salesforce employs an ‘integrated philanthropy’ model, giving to charities roughly 1% of their turnover and time. If every company did the same this could generate £25Bn of value in Britain for charities (some of which is, of course, already available).

If we assume that each charity is not 1% but 75% effective, interpreting 75% of turnover as social impact – which may be generous – we find that they create £53Bn-worth of impact. In other words, 100% of charity effort at 75% efficiency delivers only twice the social impact that 1% of business effort could, if it was pointed in their direction.

Salesforce targets charities which are supported by either the company or its employees, to create new capacity. Now, if all of that 1% of business turnover, across Britain, representing the creativity, impact and passion of businesses were focused on increasing the impact, efficiency and effectiveness of charities and the good that they can do…

Our poorest communities are in crisis. They feel ignored, excluded, exploited. They lack the social capital that a vibrant voluntary sector creates – which is why the otherwise worthy concept of David Cameron’s Big Society was always doomed to fail where it really mattered. Business can make the difference, partnering with others in the voluntary and public sectors, but only if it adopts the garb and practices of Company Citizenship. In doing so they will find they become better places to work, better at what they do – and better citizens.