Wednesday 29 January 2020 7:18 am

Has the business world found its purpose? Trust, but verify

Dr Joe Zammit-Lucia is a co-founder and trustee of Radix, the think tank for the radical centre

Last week’s Davos carnival was an orgy of virtue signalling. A group of senior executives flew in on private jets to talk about how to tackle climate change. 

Leaders of companies that have been highly active in lobbying for corporate tax breaks signed a letter calling for higher taxes on the rich if we are to avoid the proletariat marching onto the streets with pitchforks. 

Blackrock boss Larry Fink issued another letter calling for a massive shift to a stakeholder economy, even as an executive from a major company let slip that, in meetings with the investment management firm, they were never once asked about ESG issues. 

Goldman Sachs, which has a worse record than its peers on board diversity, announced that it would no longer participate in IPOs where there was not at least one woman on the board — except in Asia, where such a stance might lead to far too much loss of business. Nor did organisers step back from the usual bacchanalia of celebration and consumption — even as they wrapped it all in sustainable, recycled packaging.

It is so easy to be cynical about the latest Davos parade. But it is also easy to be cynical about initiatives like Extinction Rebellion — a group that makes extreme “demands” safe in the knowledge that they don’t have to take responsibility for turning those demands into practicable action.

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In fact, compared to the climate protesters, the efforts from those in Davos have a far greater chance of actually making a difference. So instead of being cynical, should we instead be optimistic that the issue of the wider purpose of business is now high on the agenda? Is this the start of a major turning point in business culture? Does the corporate world now understand that radical change is essential?

My suggestion is that we should be cynically optimistic. 

Optimistic, because it is positive to see a major focus on issues other than pure economic growth, to the exclusion of all else. There has been a real shift in popular culture, and the business community is responding, if not out of altruism then out of enlightened self-interest.

Cynical, because we have seen it all before. The greenwashing and social impact trends began decades ago. Yet CSR initiatives rarely became much more than window dressing, while environmentally-friendly initiatives were evaluated primarily on their ability to be converted into marketing platforms to sell more product and boost the bottom line, rather than on their actual environmental impact.

Is this time any different? The cynical optimist would buy into the old mantra “trust, but verify”. Yes, let us welcome the change in tone. But let us not simply trust that it will automatically translate into meaningful action. Corporations are still primarily evaluated on their financial performance, and internal incentives are geared to delivering earnings.

There may well be willingness in the business world to change, but without public policy initiatives, such change will be slow at best — at worst, it will not happen at all. Within the current public policy framework, companies that stick their neck out and move fast will put themselves at a competitive disadvantage.

We therefore need public policy change that favours those at the forefront of responsible change and puts the laggards at a disadvantage. Only then can we hope to make progress. The rest is just lip service.

Standing out in the general virtue signalling fest at Davos was President Donald Trump. His focus was on economic growth, American superiority, and casual dismissal of the climate change “prophets of doom”.

We shall see over the coming years whether Trump was simply a reactionary outlier, or the only honest person in the room.

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