Fifty years ago, Nobel-winning economist Milton Friedman published an article in which he analysed the relationship between business and corporate social responsibility.
The commentary was driven by the principle that the sole responsibility of business was “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”.
Fast-forward to today, and the rules of the game have changed. We are experiencing a fundamental shift in attitude towards corporate responsibility, with more companies considering how to maximise shareholder value without losing a deeper sense of corporate purpose.
As sustainability engulfs popular culture and responsible investing becomes mainstream, companies are racing to remain commercial, competitive, and current. We have seen a proliferation of new sustainability products emerge across all industries, from climate change funds to bamboo toothbrushes, as companies scramble to offer solutions for hungry investors and consumers.
However, in the race to meet demand, organisations are forgetting to consider their own sustainability credentials, risking their reputations as well as jeopardising their commercial and community relationships.
For many companies, achieving these new expectations, while continuing to meet traditional performance benchmarks and uphold robust governance standards, has proved challenging. Companies are falling over themselves to talk about how they are tackling the climate emergency, but adopting a simple “box-ticking” approach to corporate responsibility is not enough.
Those caught “greenwashing” will increasingly be shunned, and in the worst instances, named and shamed for their actions. We have already seen environmental law charity ClientEarth issue a complaint on an advertising campaign launched by BP — expect other activist groups to also take a tough stance in the years to come.
Organisations must instead deliver a comprehensive, inside-out solution to corporate responsibility. Failure to do so could risk losing commercial partners, alienating current and prospective employees, destroying community relations, or damaging external reputation.
Unsurprisingly, such factors could, individually or collectively, negatively impact a company’s profitability.
Authenticity and transparency are key components of corporate purpose and must be integrated within all businesses. Companies can no longer simply rely on glossy pictures and polished words to evidence their sustainability commitments.
Instead, there needs to be impactful and measurable action, underpinned by clear objectives and realistic timeframes. Organisations must demonstrate to all stakeholders that they are part of the same journey, collectively working towards a common goal.
Employees, for example, are a critical internal audience and can be valuable ambassadors, helping to embody a company’s sense of responsibility. More and more people are actively looking to work somewhere that has successfully integrated responsibility and purpose within the workspace.
Some organisations have moved into new sustainable-by-design buildings, with rooftop gardens and solar panels, whereas others have made operational adjustments, like removing single-use plastics or developing internal sustainability committees. Aside from the obvious environmental and recruitment benefits, these changes are tangible and can help demonstrate an authentic, holistic commitment.
As we enter a new decade, now is the time for organisations to consider how they want to contribute to the next 10 years and beyond. How we invest, consume and go about our daily lives is fundamentally changing.
If the purpose of a corporation is to benefit all stakeholders, not just its shareholders, organisations need to start the 2020s with a period of self-reflection.
Ignore the significance of corporate purpose, and you run the risk of alienating all your stakeholders, damaging your reputation, and making your company less profitable in the long term.
Main image credit: Getty