What is the role of business when the rest of the world is changing?

To break the impasse on how businesses can contribute to a viable future, it is companies’ societal purpose that requires urgent redefinition. Companies are called to radically invest in non-existent markets, transform their supply chain, adapt to change fast, increase social capital, build stakeholder value, and become activists. All of these calls point to a gap between business’ defined role in society and civic demand for something more — or something else. While these transformations are demanding in their own merit, businesses and society should first address the root cause of this gap: can the role of business remain unchanged when the rest of the world is changing?

 

Business is not optimised for societal transformation

The operational environment has changed, and not just for businesses. Consider some of the many tensions that are currently shaping the future of economies, markets, trade, and living conditions, and which companies are expected to “adapt” to:

• Will the world privilege the resiliency of interconnected local supply chains or the higher efficiency (and fragility) of global ones?
• To achieve environmental viability, what will be the mix of free market and planned state-driven approaches?
• Will cities be seen as havens of social support and innovation or vulnerable constructs gradually struggling to supply basic needs (like food and heating)?

 

As new paradigms emerge from these tensions, business decisions made at the top are not simply “business decisions”. Indeed, companies have a clear mandate: to build shareholder value, provide products and services, and solve problems. But when a company chooses to move its supply chain or build a product, it’s making a direct contribution to a particular future in which it believes (even implicitly). This way, industry leaders are already societal shapers with sufficient agency to impact the fundamentals of our social organisation. (Some, like big tech, have recognised this role and are actively pursuing it.) However, this role is not explicit, leading to increased pressure on companies to admit responsibility for their actions and more public pressure on governments to regulate business behaviour.

 

Two observations indicate the urgent need to redefine the explicit role of business in society: First, in the interregnum, CEOs increasingly expect leadership from governments. Recently, reports of private sector representatives asking governments for direction and risk mitigation have increased. The need for climate financing and adaptation, shaky supply chains and high inflation create too uncertain of an environment for business. Just a few weeks ago, BlackRock‘s Vice President, Philipp Hildebrand, represented the company in the Building Bridges Summit. He called for “politicians to do their job” because the private sector cannot finance suitable investments alone. It is indeed a legitimate and democratically elected government’s role to be accountable for society’s wellbeing (and much of our work at Demos Helsinki addresses governments directly). But, imagine for a moment that the regulatory frameworks come in too late. What happens then? Certainly, other things being equal, all relevant actors should behave responsibly.

 

Second, companies expect signals from markets. But there are no mature markets for societal transformations, no markets for radical energy transition, no markets addressing socioeconomic inequalities, and no markets for responsible technology development — to name a few. Still, industry leaders are called to exit lucrative markets that prove detrimental to society and lead the creation of new ones that have a societal purpose. But the need to increase shareholder value and ensure viability in uncertain market environments can prevent companies from making such bold moves. Again, the ability to make bold moves is a matter of perspective: what is a firm’s purpose in the 21st century? What market failures turn into successes depending on different answers?

 

Why business-as-usual is not enough

Many would argue that business should only do business. On the one hand, firms already have a clear role in society: they have an articulately argued vision of increasing shareholder value, providing products that respond to needs, and solving problems. However, we live in a world that is the outcome of this approach. In this world, bad actors at the top remain unaccountable for their profitable but harmful business decisions. It is why only 3% of the coal industry has announced coal exit plans, why platforms don’t take responsibility for the social harm they may cause, or why leading consulting firms can legitimately “turbocharge” opioid sales*. Unfortunately, business is never only business.

 

On the other hand, profit and shareholder value are not legitimate vehicles to steer what is socially desirable. Admittedly, there is no mechanism to ensure that what is good for society will also raise profit and vice versa. Moreover, a more abolitionist approach can declare the very form of business obsolete. Indeed, a world with companies as key organisational actors is not a given, and we could imagine alternatives. Even so, we cannot dismiss that companies still structure much of our collective producing capacity. Their contributions are, therefore, essential.

 

From corporate social responsibility to explicit societal accountability

In the presence of clear market inefficiencies, everyone should be able to act responsibly: corporates, governments, and citizens. Given the huge resources, expertise, knowledge and power the private sector wields, it would be a shame for them to passively await the white smoke of clarity to stream out of the public sector or markets. After all, there is no parallel universe in which governments have all the missing information. By perpetuating a world where liability is systematically limited, companies contribute to a world where responsibility is treated as a hot potato. In other words, they implicitly leave the biggest problems to others — the biggest inefficiency of them all.

 

To unleash any industry’s contributions, corporations and society must come together to redefine what corporations exist for. Beyond crafting purpose-driven approaches, companies and their boards first need to decide if they want to keep adapting to an uncertain future or if they want to steer a societally desirable one. The latter will require a more imaginative rethinking of essential tools — like strategies and business models — or even redefining the perimeter of markets and sectors. Not to say that this is an easy task. In fact, figuring out the how should only come after we have explicitly discussed the why. At Demos Helsinki, we believe in the power of groups (companies, literally) to deliver meaningful solutions to collective problems.

 

Today, society’s problems are very different from what they were one hundred years ago. The critical problem to solve is how our systems change, and that question is being much more explicitly posed today than over the previous decades. Corporations are currently deciding their role in this transformation, whether they know it or not. We urge them to choose wisely — and explicitly.

 

We are currently making this conversation more explicit in the work we do with our corporate partners. Whether it be through strategy, foresight or organisational transformation, we make sure to also find ways for corporations to define for themselves a clearer role. If your own organisation is struggling with a particularly challenging question or has developed an especially brilliant answer, please be in touch and let’s discuss — explicitly.

 

Vincent Lassalle
Team Lead, Expanding Agency
vincent.lassalle@demoshelsinki.fi

 

Read more

• The world needs corporate activists. With these 5 steps you can become one. — A 2020 article by Demos Helsinki on World Economic Forum.
• Rethinking the social contract in the post-pandemic world examines some of the tensions businesses are facing today.
• An introduction to Skopegy — Strategy in the 21st century lays out Demos Helsinki’s 17 years of experience in building societal purpose in companies’ strategies.

 

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*Incidentally, said company recently published a paper exploring whether we are at the “cusp of a new era”. In it, they promise to explore how CEOs should respond to tensions (by steering them). This still lacks the societal aspect and will, therefore, still limit the purpose and subsequent contributions of companies in the 21st century. What we propose is a holistic rethinking of business’ purpose in society, unleashing immense transformative potential for the most visionary and perceptive CEOs. 

 

 

 

Feature Image: tatianazaets/iStock.