By Guy Dauncey, March 2018
If we are to live in a fair, just, ecologically sustainable world, many things in our economy will need to change, from the way banks create money to the way environmental losses and gains are accounted for and measured.
Let’s start with the businesses that grow the food, manufacture the products and provide the services we all depend on and enjoy.
It’s almost impossible to imagine a successful economy without its businesses. The Soviet Union tried, and Cuba is still trying, but neither has had much success. It’s hard to have success when the spirit of enterprise is not allowed to flourish.
A pretty horrible history
Historically, privately owned businesses have a pretty horrible history of cruelty, exploitation, trickery, deceit, and environmental abuse – and yet at the same time, they have a praiseworthy history of making an essential contribution to the world’s wealth and wellbeing. Today, thanks to the struggles and efforts of labour organizers, young children in the developed world no longer work long hours down a coalmine, and health and safety regulations protect most workers from losing their health in a Dickensian factory.
But the abuses continue. Private businesses still profit by stripping fish from the world’s oceans, clearcutting the trees from forest lands, selling junk food that undermines our health and vitality, and charging outrageous prices for drugs that were developed with public money. And there’s certainly no shortage of businesses offering crap jobs and insecure gig jobs in demeaning conditions. Do we need to write more regulations at every turn, or is there a broader, more comprehensive way to achieve the better world we all aspire to?
A steady stream of effort
Over the past hundred years there has been a steady stream of efforts to develop more socially responsible forms of business. Cooperatives achieve it by sharing ownership among their workers and making decisions democratically. Social enterprises achieve it by making it their purpose to tackle and solve a social problem, with profit being needed but not the driving principle. Social businesses use the inspsiration and wisdom of business in a non-profit context to tackle some of the world’s biggest problems, inspired by Muhammad Yunus, founder of the Grameen Bank.
Britain’s John Lewis Partnership, whose 84,000 employees operate department stores, supermarkets and banking services, does it by being owned by a trust on behalf of its employees, who have a say in the running of the business and receive a share of annual profits. Its partnership’s constitution actually states that its purpose is to support ‘the happiness of all its members.’
Community Interest Companies, of which there are 11,000 in Britain, do it by having a social objective in which they reinvest their surpluses, rather than maximizing profit for their shareholders and owners. British Columbia has some forty Community Contribution Companies that follow the same model.
Business as a force for social good
In 2006, in an attempt to wrestle the problem to the ground, three young Americans formed the B Lab and started certifying the world’s first B Corporations, a new kind of for-profit company that uses the structure of business as a force for social good and is certified to meet rigorous standards of social and environmental performance, accountability and transparency. By March 2018 there were 2,441 B Corporations in 50 countries around the world, including 208 in Canada and 55 in British Columbia.
In January 2018, Larry Fink, CEO of Blackrock, with $5.7 trillion dollars under management in 100 countries, wrote to the CEOs of some of the world’s largest companies saying that if they wanted to continue to receive Blackrock’s support they would need to contribute to society as well as making a profit. “Society is demanding,” he wrote, “that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
For the active funds it manages Blackrock will sell a company’s shares if it is doubtful about its strategic direction or long-term growth. For its index funds, it will engage as an activist shareholder to pressure company boards to become more socially responsible.
There has also been great progress with socially responsible investment. In 1996, $600 billion was invested in the US with a social investment screen. By 2016 this had risen to $8.8 trillion, representing 20% of all managed funds in the US.
But is it enough?
But is it enough? It feels as if there’s a sea change underway in the human psyche in response to our fears about the future, but we’d be crazy to believe that voluntary change – great as it is – will be sufficient to change the ways of business, tackle the climate and ecological disasters, and restore the trust that’s needed.
A Social Business Transition Act
So here’s my proposal: that somewhere in the world, in a country whose political leaders feel supported and determined, the government will pass a Social Business Transition Act establishing a requirement that within ten years every business must state its social purpose, report on it annually, and keep social and environmental accounts, just as it does with its financial accounts.
Businesses that fail to do so would not be allowed to bid on government contracts. They would pay a higher rate of interest on bank loans, and risk social censure and the loss of customers. Similar legislation would apply to all banks, with those failing to do so losing their government-financed deposit insurance.
There was a time when businesses were not required to publish annual financial reports. We need to imagine a time – and soon – when it will be considered normal for every business to publish an annual social, environmental and governance report, submitting it for certification by an honest third party.
There will without doubt be cries of opposition. Milton Friedman’s followers will most surely jump out of the woodwork to insist that maximizing profits is a business’s sole and only purpose. In their world, nothing else matters. But in the world that most people live in, these other things matter immensely.
Guy Dauncey is author of the novel Journey to the Future: A Better World Is Possible. (‘Brilliant’ – David Suzuki) See www.journeytothefuture.ca.
But wait – there’s more!
Some supporting data, thanks to Coro Strandberg:
- 2/3rds of consumers try to support companies that have a social purpose, and refuse to buy a brand if it doesn’t.
- Nearly 70% of Canadian consumers believe that companies should show how their products and services make the world better.
- 70% of North American organizations take social and environmental factors into account in their buying practices.
- 60% of millennials want to work for companies with a purpose.
- 41% of young people say that when considering job opportunities, a sense of purpose and positive impact on society is their top criteria.
- 77% of Canadians agree that “a company can take specific actions that increase profits and improve the economic and social conditions in the community where it operates.”
- 89% of Canadian consumers believe business needs to place equal weight on society’s interests as on business interests. Less than 25% think business is performing well in addressing societal issues.
- Companies that operate with social purpose outperformed other companies in the stock market by 206% between 2006 and 2016.
- 73% of business executives agree that having a social purpose helps their company navigate today’s turbulent environment.
Source: Social Purpose Business Case, by Coro Strandberg and United Way, 2017.
First published in The Watershed Sentinel, March 2018.
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