Will businesses find their raison d’être?
President Biden agrees with United Nations Secretary-General Antonio Guterres when he said Guterres had “rightly called Code Red for Humanity” at the United Nations General Assembly on September 21 2021. Extreme weather events observed around the world confirm the predictions of the Intergovernmental Panel. on climate change (IPCC). In August, when the last IPCC report was released, Guterres said that “the alarm bells are deafening, and the evidence is irrefutable: greenhouse gas emissions from the burning of fossil fuels and the deforestation is suffocating our planet and putting billions of people in immediate danger. risk. Global warming affects all regions of the Earth, with many changes becoming irreversible. “
Scientific evidence for the impact of human activity on Earth’s climate has long been compelling, but this understanding has only become mainstream opinion more recently. Another related change in understanding is underway right now: the role that business plays; and in particular, the broader understanding of what their purpose should be. This parallel trend of the climate crisis has the potential to take human understanding and intervention in another direction.
Ask the average executive or board member today, “What are companies for?” And most likely they can say, “Enjoy!” “
The problem with this response is not only that it can lead to declining profits even in the short to medium term, but that it is likely to worsen the climate, loss of biodiversity, pollution, social inequalities and more. other current crises instead of contributing to much needed solutions.
The assumptions do not hold
A little over 50 years ago, Milton Friedman published an essay in the New York Times magazine titled “Corporate Social Responsibility is to Increase Profits”. He claimed that the owners had motives for profit that had to be satisfied, that businesses had no comparative advantage in solving social problems, and that it was wrong in principle to solve social problems by other means. than the democratic system and regulation.
The problem with this view is that experience and research have shown that the assumptions on which Friedman’s doctrine is based are patently incompatible with reality and therefore go primarily against his original arguments.
One of the assumptions of the Friedman Doctrine is that governments function well enough to reflect the democratic will of citizens. As such, he argues that it would be wrong in principle to go against the democratic will of the people, as expressed by governments through “the rules of the game” they create, even if these executives irritate. What if governments don’t work well, what we all know is a common occurrence? What if governments do not reflect the will of the people? Friedman is not offering us any help here. Indeed, it can be said that there is an opportunity for private organizations to have a goal that advances the public good, and that by exercising this in-depth knowledge, private organizations can set useful, beneficial and exemplary goals for themselves. .
Well-being is the real goal
We can think of an organization as a machine that a group of humans are building to solve a fundamental problem of well-being in the world. Usually, the problem is big enough to motivate people to find solutions that make the world a better place.
To be successful, the solutions must be so effective and desirable that people are willing to pay for them. Solutions must impact people and improve their lives. The products and services created by organizations are tools they provide to customers, clients or citizens to solve their problems. Companies that make products that are more effective at solving problems will be more successful.
Using this analogy, a product cannot be the goal of an organization. The product is a means to an end, a tool that an organization uses to achieve its goal of creating well-being.
Take the example of an insurance company. It would make no sense to say that the purpose of the insurance company is to sell insurance. Insurance is only a means to an end.
The raison d’être of the insurance company is the impact it has on well-being when it helps its customers to solve a security problem, for example. The challenge could be to help clients ensure their future is safe and secure. Insurance is a tool for ensuring safety and security, but it is not safety and security per se. Insurance, in itself, is not the goal. Well-being or peace of mind is the goal.
Using this logic, making money or profit can never be seen as the real goal of an organization. Profit is realized when customers pay an organization for the tools it has created to achieve its true purpose. In the insurance example, customers pay premiums in exchange for the assurance that the insurance product provides them. In this sense, making money is an essential by-product of the pursuit of a goal. This is not the goal itself.
Money, capital, is one of the essential fuels to drive the goal, but making money is not the goal itself. Indeed, making money cannot be the goal of an organization’s existence any more than breathing air can be the goal of human existence.
Determined companies are needed to respond to code red
Businesses that don’t focus on the real impact they have on people and nature, businesses that aren’t determined, add fuel to the fire. The tide is turning. We are now all aware of the precariousness of our Red Code for Humanity. Citizens, consumers, governments and very soon regulators will demand that companies stop fueling the fire with the mistaken and irresponsible attitude of profit by all means. Above all, businesses must realize that their real goal is to find cost-effective and sustainable solutions to the problems of people and the planet that enable the transformation into a regenerative, net-zero global economy. Only then could mankind stand a chance.
Dr Axel Kravatzky is Managing Partner of Syntegra-ESG LLC, Vice President of ISO / TC309 Governance of Organizations, and Co-organizer and Editor of ISO 37000 Governance of Organizations – Guidelines.
The opinions presented are those of the author and do not necessarily represent those of any of the organizations with which he is associated. Comments and reactions that advance the regional dialogue are welcome at email@example.com