How Should a Business Leader Understand â€œSustainabilityâ€?
How should a business leader understand the over-used term sustainability? What is and isn’t it in a business context? What does a global business leader operating in a world of ever increasing transparency and competition for finite resources need to think about?
I recently sat down with Thomson Reuters Sustainability to explore some practical questions around sustainability for business. With their kind permission I am sharing the discussion.
Sustainability: How should a business leader understand the over-used term sustainability? What is it? What isnâ€™t it in a business context?
Lucy: There was a time when â€œsustainabilityâ€ was looked upon as a green washing exercise for corporate marketers. It has evolved significantly to denote things that are fundamental to how successful businesses function. Environmental, social and governance issues are critical to the long term value of a business. For example, there was a recent article about Coca-Cola, and how it has evolved its thinking about climate change and global warming, realize that it dramatically affects their business particularly water risk. No matter what kind of business you are in, any sector in any part of the world, you have to think about sustainability and the environment in which you are operating, and the environment you are creating through your operations â€“ that is quite a real business issue. Itâ€™s not a superficial feel good issue. Itâ€™s a dollars and cents, yen, pound and euro issue.
Sustainability: So are we really talking about a shift in emphasis? Businesses have always had to worry about the environment, and governance and social issues. So is sustainability really about just more focus in those directions?
Lucy: Businesses are being held much more to account on those issues. There was a time in the not so distant past when oil spills, chemical spills, or other manufacturing disasters where covered up and under reported. Transparency, social media, active investigations, and more vigilant governments, means that businesses can no longer operate in that manner and must be transparent. They really have no choice.
Moreover, itâ€™s in everyoneâ€™s best interest for businesses to operate in a transparent and sustainable way. Whatâ€™s more, investors care. Many investors, and not just those classed as â€œactivist investorsâ€ but any investors care about how you are running your business on a day to day basis. If you are doing things which are detrimental to the health and well-being of your workers and to your community, that impacts your business. Itâ€™s bad for reputation and itâ€™s bad for your business as a whole, and your investors care. When we look at news about labor practices as in the stories about Apple and Foxconn, or in the retail sector with fires in garment factories in Bangladesh, these highlight fundamental business issues of corporate responsibility and sustainability issues, and moreover, they fall under the risk agenda for the board.
As a board member, I’m asking questions such as: How are we building things? What materials are we using? How much energy are we using to build them? Will it work better in the future? How is it impacting our workforce? How long will it last? What impact is it having on the community? And that is just the start.
In the past, businesses were left to get on with things on their own, but now there is an entire ecosystem of stakeholders who care. Governments care. Investors care. Employees care. The entire ecosystem of stakeholders care about how we conduct business. And there is no hiding from that and nor should anyone running a business want to, because in the end, if we are doing business well, in a way which benefits everyone, then it also benefits the business as whole.
Sustainability: So, sustainability is without doubt a much bigger issue now. What are the repercussions of not taking it seriously and acting on it?
Lucy: Sustainability has become more important because it is all about future proofing the business so it really lasts. It is not about having a marketing strategy to make sure that everyone knows you are doing the right thing, but rather actually doing the right thing. Importantly, if you do not behave in a responsible and sustainable fashion, the repercussions are large. From violating government regulations to breaching the trust of workers and your community, the businessâ€™s reputation will be tarnished and you risk losing a lot, including a negative response from the investor community. The issues around behaving as a responsible and contributing member of the community are important, and we are living in a much more transparent world where information is more readily available. So rather than trying to hide from it or find ways around it, the best companies are rising to meet the challenge, meaning that even if it is more of an up-front investment to do businesses properly, they know that it will pay off down the line. Doing the right thing has never had so much benefit for the bottom line.
Sustainability: So when you say â€œdo the right thingâ€ are you implying that there is an ethical dimension to this discussion?
Lucy: There is an ethical dimension â€“ there is a right and wrong way to conduct business, though sometimes the issues can be knotty ones. The repercussions for not doing the right thing are very high for all the stakeholders involved. Some might think, â€œoh, I’m a small business, and I canâ€™t afford to jump through hoopsâ€, or for a big business you might hear, â€this is just so that people will think we are doing the right thingâ€, but itâ€™s really essential to get across the message that there is a bottom line benefit to doing business in an ethical way and in a way which benefits all of the people involved with the company. Whatâ€™s more, when competing for the best people to work for your company, you will not be able to attract people to work for you if you are not an ethical company. Itâ€™s part of the reality of the labor market. So with governments, investors, and employees, there is a real bottom line issue here in the short and long term. The repercussions for not conducting business in an ethical manner can be very big, very expensive, very uncomfortable and can do real damage to a companyâ€™s ability to functions.
Sustainability: What are some best practices you see for business success in the sustainability space ?
Lucy: Improvement in corporate governance and the way sustainability is addressed in the boardroom is important. It is vital to have independent directors who are able and willing to ask hard questions around issues of sustainability. A chief executive might think that it is a lot easier to have a board of people who will just agree with them, and with whom they are personally comfortable, but in the end youâ€™d rather have those hard questions being asked in the boardroom than asked in the public. If you are able to run the gauntlet of a board which asks tough questions and challenges you, then your business is much more likely to be successful.
Sustainability: So a robust corporate board is critical to running a sustainable business?
Lucy: Absolutely. The rule for chief executives is to always surround yourself with smarter people than yourself, and with deep knowledge that you might not have of your own. That can sometimes be very hard for a chief executives to accept within their management teams, but you need a bunch of smart people around you who challenge and support you. If you donâ€™t have that then both you and the business will suffer. Surround yourself with people who have genuine expertise around sustainability and long term thinking. If you donâ€™t, your cutting off your nose to spite your face, because the market is not going to be forgiving.
Sustainability: We hear a lot in the sustainability context about the importance of diversity. Is that what it means to have â€œdiversityâ€ in a company? Diversity of thought?
Lucy: Yes! Diversity gets pigeon-holed into meaning one kind of diversity, be it gender, race, etc., but fundamentally diversity is about diversity of thought and experience and having people around the table who think differently but are all trying to achieve something for the greater good of the business. I mean for all of us, itâ€™s a lot easier to hire people with whom we feel comfortable. If I could fill a room with a bunch of people just like me, and it would make for a very nice brunch, but it doesn’t make for a very good board meeting, management team, or business.
Sustainability: It sounds like you are connecting the idea of diversity with resilience. Is that right?
Lucy: Yes, thatâ€™s absolutely right! Diversity in a natural ecosystem makes that ecosystem more resilient. Itâ€™s that same way with corporate boards and management teams.
Sustainability: In terms of tracking performance, how do you find out who is doing well and not so well from a sustainability perspective? Do you look at indices or rankings?
Lucy: Iâ€™m a big fan of primary source material. I like to judge for myself. A lot of indices and rankings are very subjective. Iâ€™d rather judge on outcomes. Iâ€™m very results oriented, and donâ€™t put much credence in the marketing material, but rather like to dig into the numbers and the concrete examples of genuine examples.
Sustainability: Finally, what advice would you give to a global business leader heading into the next 10 years in a world of ever increasing transparency and competition for finite resources?
Lucy: There are no short-cuts. If you genuinely want to future proof your business, you need to make sure sustainability is in the DNA of your business. Also, the world is getting smaller and there is less differentiation in who is making your products and who is buying them, so if you are to be successful you need to be accountable and responsible. Distinctions between developing markets and developed markets are disappearing. There is no escape from your stakeholders, be they customers, employees, investors or regulators. Itâ€™s a lot wiser to do the right thing, than not to.
Note: My thanks to Thomson Reuters Sustainability for letting me share this conversion. It is a great global resource of information on sustainability from experts in climate, energy, health, law and corporate governance.