The year started with a call for “better business”
Right before the Covid-19 pandemic turned the world on its head, leaders from the private sector, public sector and civil society all gathered in Davos for the World Economic Forum (WEF) annual meeting in January 2020. The focus was on “better business” and a move away from shareholder capitalism to stakeholder capitalism.
The backdrop for this has in part been growing inequality, decreasing levels of trust in institutions, and the rising threat of climate change. As a response, stakeholder capitalism calls on business to help solve these challenges. It requires business leaders to act as stewards in the interests of all stakeholders, not just shareholders.
However, immediately following events in Davos, the global health and economic crisis caused by Covid-19 has dominated headlines and public mindshare. Company boards and leadership teams have had to prioritise the health and safety of employees, serving and protecting customers, and ensuring business continuity. Despite this, rather than detract from the messages echoed at Davos, the crisis has served to highlight them. In fact, in a survey of Fortune 500 CEOs, 48.2% believe that the pandemic will accelerate the move towards stakeholder capitalism.
From crisis response to build back better
The crisis has tested businesses’ ability to balance sometimes competing stakeholder needs, as well as deal with dilemmas and trade-offs between short-term pressures and sustainability over the long term. Coopers Brewery is one of many examples of companies that have stood by employees, customers and other stakeholders through the crisis, protecting not just lives, but livelihoods. We’ve also seen businesses step up and respond to the crisis in wonderful and inspiring ways, from repurposing production to create ventilators and personal protective equipment, to improvising new models to support displaced workers and struggling small businesses. Some may say it is too soon to see whether companies making such efforts will emerge stronger after the crisis. What is clear, however, is that they will have the trust and support of their stakeholders.
As the world now looks to recovery, the question of how we “build back better” arises. Several national governments looking to jumpstart their economies, see an opportunity to make the recovery a green one – creating new jobs, while reducing greenhouse gas emissions and pollution. And it isn’t just the public sector that thinks this is a good idea. In May 2020, 155 companies, with a combined market capitalisation of more than $2.4 trillion and representing more than five million employees globally, signed a statement urging governments to align Covid-19 economic responses with the latest climate science.
If health, economic and environmental crises aren’t enough, another inflection point for businesses in this year (so far) has been the Black Lives Matter movement. Reignited by the killing of George Floyd in Minneapolis, the movement is a clear example that we are living through unprecedented times, where technology and globalisation have not only brought us all closer together, but have also helped to embolden voices from across all parts of society to speak up and call for change. The lesson for business, boards and management teams is that they will be held to account not only at quarterly reports or annual meetings, but every day by employees, customers and society.
Navigating the storm
The current situation may seem overwhelming. It certainly isn’t smooth sailing for businesses right now. However, the concept of stewardship can help business leaders to navigate the current uncertainty and change, and avoid getting lost at sea. Firstly, the tide has shifted; whether it is stakeholder capitalism or a movement under another name, businesses’ relationship with and their role in society are constantly evolving. Proactively engaging stakeholders has always helped build a company’s reputation and licence to operate. However, now more than ever, it is an opportunity to gain insights about what matters to your stakeholders and the trends shaping your business. Good stakeholder engagement drives better strategic decision-making, and helps the business stay relevant to society’s needs and expectations.
Secondly, a fundamental part of being a good steward is long-term risk management. The global pandemic was not an unforeseen event, but it was one we weren’t prepared for. Businesses need to review their approach to risk management, to ensure they are taking a long-term and wide view of potential risks. Building resilience also requires incorporating scenario-planning, to test their preparedness for different potential futures. Risks posed by climate change remain an unknown for most companies at the moment. This is very concerning, given that according to CDP, 215 of the biggest global companies that have started to assess climate-related risks, report almost US$1 trillion of risks. A significant proportion of which will fall within the next five years.
Finally, rebuilding trust requires writing a new social contract between business and society. One that rests on the principles of being a good steward and balancing the interests of all stakeholders. As the fog from Covid-19 clears, business leaders must turn their focus to the challenge of sustainable development, which still awaits on the horizon.
Thomas Milburn, Director, Singapore