Rethinking business: conversation at the World Economic Forum

Rethinking the Role of Business

Panelists:

Carlos Labarthe, Executive President and Co-Founder Compartamos
Daniel Viederman, CEO, Verite
Vineet Nayar, CEO, Vice Chairman and fulltime member of the Board of Directors of HCL Technologies
Brian A. Gallagher, President, United Way
David T. Seaton, Chairman and CEO of Fluor Corporation
Sun Mingbo, CEO, Tsingtao Brewery
Robert Greenhill, World Economic Forum

Session Summary
Rethinking the Role of Business

In an era of economic uncertainty, how should the relationship between business and society evolve?

The following dimensions will be addressed:

- Strategic corporate responsibility

- Human capital formation and labour relations

- Redefining the borders between market and state

Key Points

Corporate social responsibility is a key component of achieving quality growth. Companies functioning without a moral consideration of their wider social impacts compromise their own long-term interests.
Companies that implement responsible practices – rather than merely pay lip service – often end up more successful, and are better protected from the possibility of damaging public relations or legal crises. Many companies have not learned this lesson.
Responsible business practices should start with the fair treatment of workers and paying attention to the company’s core business. More distant, bigger-picture initiatives should come later.
Leadership from executives, and a knowledge of corporate social responsibility guidelines among board members, is essential to making sure companies can implement their promises. Positive social impacts need to be made a core incentive for leaders and workers in the company.
Corporations need to do more work to convince a sceptical public that they are serious about producing positive social impacts.

Synopsis

The increasing spread of corporations around the world with globalization has led to a redefinition of the old boundaries between business, the state and society. Before, many companies operated within easily definable borders, with clear regulations and in an easily recognizable community. In today’s world, power – and accountability – is more dispersed, and corporations have often found themselves responsible for negative social impacts in far-off corners of the world.

Despite global economic uncertainty, the move to corporate social responsibility has remained a key focus. Many companies have come to see themselves not merely as entities for the pursuit of profit at the expense of all else, but also as social actors who, if they act strategically, can work for the social good. Unfortunately, many other companies have dismissed this, or have used corporate social responsibility as window dressing.

Merely paying lip service to corporate social responsibility is a strategy that does not work. A company might fund a worthy initiative in a distant part of the world, but it will run into trouble if it does not treat its own workers fairly. A company may pursue half-hearted forms of corporate social responsibility – as a way of hedging against the damaging effects of their business or as a way of trying to burnish their image – but, in the end, it will rebound against them.

A failure to implement strong internal controls and disincentives against corruption, environmental destruction or labour exploitation can cause serious costs if a scandal breaks out. Non-governmental organizations have also become increasingly sophisticated at examining claims by companies and exposing hypocrisy. While it can be difficult to control all levels of a company’s supply chain, it is easy enough to measure success: in better wages, happier workers, a better image and a cleaner environment. Companies should start by improving their own internal conditions and applying ethical standards to their own core business before broadening their focus.

Maintaining good relationships with societies and government, and implementing responsible practices, requires leadership from the top of a company. Merely implementing piecemeal programmes will not work. Instead, company leaders have to build incentives for creating social good into the fabric of how a company operates. At the same time, executives and board members need to all be aware of the company’s strategy for positively dealing with society and governments. If a company only rewards itself and its employees for profits, any attempt at social responsibility will almost inevitably be insufficient.

There is still much scepticism about corporate claims to be acting responsibly. Much work needs to be done to engage and inform consumers, governments and non-governmental organizations – in this, corporate transparency is a great help. Often, the best argument is being able to demonstrate results.

This summary was written by Aubrey Belford.