The EFMD business magazine

The EFMD business magazine

Sustainability = Purpose + Prosperity + Innovation

We would argue that to date, and due to COVID-19, sustainability as ‘the new way of doing business’ has been side-lined and largely ignored. The clock is ticking, and short-term business thinking still prevails.

“We won’t have a society if we destroy the environment” noted Margaret Mead (1901-1978), an American anthropologist.

Instead of innovating, we are hell-bent on pursuing old business models, turning to layoffs and cost savings to ensure the survival of the business. There is nothing wrong with that, but by doing so we have lost the perspective of the bigger picture.

Our proposition – “Sustainability = Purpose + Profits + Innovation” – will require a mindset shift in behaviours and leadership. It is about having an optimistic view of the future. Embracing a circular business model, for example, will bring us plenty of fresh and exciting business opportunities – but to get there will require us to embrace innovation and take a positive and opportunistic view of what lies ahead.

To achieve these objectives, we will need to optimise our current operations, by improving cash flows and EBITDA out of the current business instead of maximising shareholder value by paying dividends and by ceasing share buy-backs, which add short-term value only to shareholders and executives with share options. Reinvesting the money in a circular business model through innovation from products and services is, in our view, the only way to go.

The result will be recurring sustainable EBITDAs and cash flow coming from a business that is not only sustainable, but has also embraced sustainability.

Furthermore, a Purpose-driven business will be more profitable, create prosperity for all stakeholders and prove satisfactory for shareholder value creation due to recurring EBITDAs and improved cash flows.

Business owners might even gain market share and see a better bottom line compared to sticking with traditional business models. A business that is creating a Better Business and a Better Tomorrow contributes to the survival of humanity and makes our planet a better place to live.

So what is needed, now? Five key leadership factors

We feel that a particular set of leadership factors working together – namely Purpose, Plan, Culture, Collaboration and Advocacy – are what will underpin the best approaches we could take now and into the future. These will be, without a doubt, the essential qualities for corporate sustainability through to 2030 and beyond.

Let’s take a closer look at these five key leadership factors, with a focus on Purpose.

Purpose: WHY we do what we do? Why does the business exist? For too long we have followed the mantra that profit maximisation and shareholder value were the only reasons for the existence of a business.
This way of thinking elicits a vehement “No” from us: for a business to exists, it must be Purpose-driven – in order to maximise stakeholder prosperity and value. Purpose also must be real. An expert on Millennials, Generation Z and the impact of purpose and sustainability, Jeff Fromm pointed out in an article in Forbes (16 January 2019) that: “Purpose isn’t profitable when it’s disingenuous. It must be real. In this age of digital transparency customers can see through it and will redirect their spend elsewhere.”

He cites Unilever as a good example where its “Sustainable Living” brands – such as Knorr, Dove and Lipton – are growing 50% faster than its other brands and make up more than 60% of the company’s growth, thereby showing that it is certainly possible to balance Purpose with Profit.

The evidence also shows that people who work for organisations with a purpose that they believe in, and buy into, will stay longer, be happier and perform better. 2020 Glassdoor data for Unilever in the UK gives the company a rating of 4 stars out of five, with 86% of employees saying that they would recommend the company to a friend. The Glassdoor average is 56%. Purpose makes a huge difference. So organisations that link their Purpose to sustainability – and who can prove that they are genuine in doing this – stand to benefit more than those who don’t.

Purpose – and with it the idea of purpose-led organisations – is emerging once again after a surge some ten or so years ago following the Global Financial Crisis. What’s important for us to notice is that the presence of purpose centre stage in corporate strategising today might be the start of a repeating pattern akin to what happened in the aftermath of the Global Financial Crisis.

At that time, people welcomed the potential to do things differently and for a year or two it seemed that might happen. But for the most part, in fact, organisations didn’t change or mend their ways. So if the pattern were to repeat itself, we might start to see purpose waning in intensity in about five years’ time. We need to make sure that doesn’t happen.

To do so will require advocating for a different kind of leadership – and different kinds of behaviours – to ensure that purpose stays at the heart of organisations and that we continue to agitate to make the workplace more human while at the same time achieving our organisational and business objectives.

As a Deloitte Insights article (“How brands that authentically lead with purpose are changing the nature of business today”, 15 October 2019) puts it: “Purpose-driven businesses truly embed purpose in every action, aiming to leave an enduring impact on people’s lives. Increasingly, customers are looking to engage with companies that help them achieve their goals. Whether it’s Kellogg’s aim to ‘nourish families so they can flourish and thrive’ through nutritious breakfast cereals; Patagonia being “in business to save our home planet”; or Sumo Salad aspiring to “make Australia a healthier and happier place”—orienting business around purpose can help companies drive their operations toward outcomes people value, and in turn, deliver what stakeholders value.”

Certified B Corporations are also a new kind of business that balance purpose and profit. They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This is a community of leaders, driving a global movement of people using business as a force for good.

New beginnings

We propose that we can all benefit from starting afresh. This means recognising that old behaviours are unlikely to achieve what we need to them to achieve as we move into a potentially very different type of existence, one characterised by more frequent and quite possibly more destructive global disruptions. We believe that putting purpose first – and underpinning it with deeply human values such as altruism, compassion and empathy – is the way to go.

Plan: WHAT do we do, and what do we aspire to do as an organisation?
Culture: HOW do we do things around here?
Collaboration: WHO should we work with in other businesses and in other sectors of society in order to be more effective? We believe this will require partnership in all aspects of civil society, business and academia.
Advocacy: WHERE we use the authority of a given business to encourage others to act in the interests of advancing sustainable development.

You could decide to be passive and adopt a “wait and see” approach, a “this movement will blow over” position. “Wrong,” we would say. Procrastination cannot be the order of the day. Why? Well, the transition from maximising profits to satisfying stakeholder value will require us to embrace a different type of leadership.

The models from the last century or even the last few decades will not do it for us. The revolution and force of disruptive innovation, insurgents and upstart market entrants will only accelerate. The time to act is now.

The scale and systematic nature of the sustainability challenges thrown up by the global forces of change de facto make individual approaches to problem-solving obsolete. To address them we have to become the ‘genius of the “and”’ when it comes to realising the best businesses can offer in terms of co-operation – and that means both collaboration and competition.

Whatever form of advocacy we go for will not be effective if we do not collaborate and form partnerships across businesses, sectors, academia, civil society and policymakers.

We need to recognise that some of the future change-critical leaders may yet not exist and that new, innovative, entrepreneurial businesses we can’t yet foresee will eventually displace some of the best-placed and well-respected companies and organisations currently in existence.

Therefore, sustainability is more than a marketing, feel-good exercise. It is about disruptive innovation and defining new recurring EBITDAs. And there will be winners and losers. The losers will be the ones that hang on to old, obsolete business models of the past century, such as the “make to waste” model, while the winners will be the ones that see sustainability as a new way of doing business, combining purpose with profit and challenging their value chains to embrace circular business models from cradle to cradle.

Sustainability is more than a marketing, feel-good exercise. It is about disruptive innovation and defining new recurring EBITDAs. And there will be winners and losers. The losers will be the ones that hang on to old, obsolete business models of the past century, such as the “make to waste” model, while the winners will be the ones that see sustainability as a new way of doing business.

This will be a balancing act between short-term gains, survival versus long-term perspectives and recurring gains in the future. It will also require us to invoke a sense of altruism too – in order to push home the message. The efforts we make now in furthering the sustainability agenda and in encouraging strategic thinking around sustainability will ultimately benefit the people of the future who don’t even exist yet. Our descendants.

So, on which side of history would you like to be?

Sustainability will challenge the future of business leadership, which is why we need to move fast to model new behaviours.

Failure to do so will effectively put the survival of humanity itself at stake. The planet will regenerate itself with or without humans and while we have still the keys to our success in our hands, the clock is ticking.

See more articles from Vol.15 Issue 01 – ’21: Human approach to leadership.

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