It is hardly news to say that the social purpose of business is to create jobs and wealth. This has always been – and remains – the main daily motivation in management for the vast majority of the country’s entrepreneurs. But there are enough new factors at play in the current context, in which companies’ social licence is at stake, to say that we are entering a new era for the modern corporation. An era in which business leadership and corporate purpose are two sides of the same coin whose integrated implementation is the main challenge for the transformative managers that the new digital society demands.
The global environment of uncertainty and the recalibration of priorities that the pandemic has ushered in are an opportunity to reformulate firm performance and redefine the business environment. There is no debate about Milton Friedman’s theory, the one (allegedly) claiming that the sole social responsibility of business is to maximise shareholder value. Almost no one shares these postulates today, and, when they do, they forget that the doctrine was complemented by a dimension of respect for the basic norms of the society in which the business was being conducted.
Therein lies the change: people are asking companies to be profitable, but also to contribute to improving the quality of governments and public policy, and to the welfare of society. In light of the dwindling credibility of institutions, political parties and social organisations, companies have an historic opportunity to become vehicles for the positive transformation of their communities, for both institutions and individuals.
In light of the dwindling credibility of institutions, companies have an historic opportunity to become vehicles for positive social transformation
What is new is that, in the current context, their survival – and bottom line – depends on it. In her book ‘Reimagining Capitalism in a World on Fire’, Rebecca Henderson, a professor at Harvard Business School, notes that CEOs are taking an active interest today in the big issues of our time in order to address their own strategic challenges. There is a mutually dependent relationship, she says, between strong institutions and business and social prosperity. ‘I believe that strengthening democracy is the only way to ensure the widespread survival of free-market capitalism’, she writes in a long article in the Harvard Business Review.
In practice, this expectation of a visible commitment by companies to collective issues today extends to an urgent universe of new public policies covering sustainability, climate change, equality, the future of cities and the 2030 Agenda, amongst other things. Any one of these topics, were we to set aside the pandemic and health emergency, could be the big issue of the decade for corporate senior management.
Long-term returns as a new competitive advantage
The big investment funds have already expressed their interests in the capital markets. JP Morgan, for instance, has joined Black Rock in calling for the integration of ESG (environmental, social and corporate governance) dimensions into business management. In a context of abundant capital, with very low interest rates and liquidity in the system, companies’ long-term performance is seen as the key to new competitive advantages. Investors view actions related to sustainability or decarbonisation as decisions that make a difference in the market.
This path should not be confused with the generational dreams embodied by the iconic image of Greta Thunberg. It is simpler than that: companies that incorporate these ideas into their operations and financing channels will be able to offer different goods and services. Which explains why the major consulting firms are rewarding orderly transitions that link ESG criteria to business plans, performance indicators and executive compensation.
It is time, then, to review leadership models at companies and respond to this change in expectations with new corporate cultures. To learn more about the transformation strategies and initiatives already at work in the Spanish market, we interviewed more than twenty top executives, CEOs and managing directors at firms seeking to give an honest and feasible response adapted to the Spanish economic reality. Based on this still ongoing research, we have already identified several keys for putting ideas into action.
Four keys to transformative leadership
1. Understand the changing mindsets in today’s society. Whether conscious consumption or investment fund activism, senior management should ask itself what its role is in the new landscape, that is, what employees, customers and suppliers are demanding of it. Active listening makes it easier to understand and anticipate social demands that, in the long run, will become legislative obligations. Today they are still business and investment opportunities.
2. Leverage the communication of purpose in value creation. The answer cannot be to whitewash operations or incorporate an empty vocabulary devoid of action. A firm’s purpose arises within it and irradiates its values outwards, so that employees and management feel they are part of it, defining the corporate value proposition at the source.
3. Constructing the purpose is the defining exercise of transformative leadership. The genuine articulation of the social mission and transformative mission affects all dimensions of management: operations, labour and investor relations, business decision-making, and the ruling out of investment projects. Predicating the purpose on facts and in a sustained way over time is what guarantees that the social licence feeding the business will survive economic crises and emergency situations.
4. Purpose is action plus story. The umbrella of ESG criteria can be used to coordinate management, meet regulatory and supervisory requests, and guide change. But it must go further. Transformative leaders are transcendent and aspire to leave their mark. Their management style must thus embrace purpose in order to bolster both the bottom line and the storyline.
These four premises open up a range of business decisions that are every bit as demanding today as the profit and loss statement. The new management model adds corporate purpose to the new parameters for managerial innovation and measuring success.
This article is part of the research project ‘Transformative managers in the digital age: the compass of purpose’, coordinated by Professor Juan Luis Manfredi for the communication and public affairs consultancy Kreab. The project aims to explore the impact of the transformation agenda on business leadership and to analyse how CEOs and managers in Spain interpret it. Specifically, more than twenty top executives at companies in the Spanish market have been interviewed about civic ‘activism’, the drive for corporate purpose, and the economic cost of these measures.
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