Company limitations that prevent them from taking an active role in global governance
While the influence of large non-state actors in improving societal and environmental issues is increasingly relevant, the ability to mirror such thinking is often hampered by a company’s developmental stage and geographical location. In this article, David Herbinet, Mazars’ Global Head of Audit & Assurance, and Julie Laulusa, Mazars’ Managing Partner in Shanghai and Mainland China help us to think big in big business.
In a more interconnected world, one of the key issues is “a lack of global governance”, according to Unilever’s Chief Executive Officer, Paul Polman. Tackling large societal issues is a commitment Polman has made since he took over the reins at Unilever in 2009. As a result, he has stopped updating the stock market on quarterly performance in order to foster a longer-term perspective and has launched initiatives like the sustainable living plan which focus on reducing calories in certain food products, cutting energy usage, as well as backing the call for a price on carbon.
The task of addressing societal and environmental issues is even more difficult when we factor in rapid global economic and technological development that call into question traditional conceptions of corporate growth and leadership. This is especially true in emerging economies where the economy is transitioning rapidly from heavy industry to service and e-commerce. Access to higher education and digital development is creating new shareholder expectations. Urbanisation in rural areas and the creation of middle-class consumers with greater purchasing power, as well as increased and more sophisticated product demands, means business leaders are constantly having to rethink their business models and readjust growth projections.
A fresh look at leadership
With such substantial change taking place, there is an increased need to develop and encourage leadership skills that embrace wider issues in a more sustainable manner, if short-termism is to be avoided. These skills can be inculcated and can help foster the appropriate values in the next generation of young business leaders. These young professionals are the most likely to be involved in start-ups and e-commerce ventures, while their older counterparts flock to the traditional business sectors. The younger generation instead, sees their roles in various businesses as lasting on average between five to 10 years rather than a more classic long-term position.
By looking at such issues through the lens of the boardroom business structure we can identify common values and tools that could be used to develop a successful and sustainable framework for company stakeholders, and society at-large. An important factor in establishing such a culture is challenging how leaders emerge by questioning the entire framework put in place for recruitment, rewards and promotion. It is about moving the focus away from rewarding short-term performance over long-term vision, to exploring systems that encourage the emergence of leaders that contain workplace qualities like vision, conviction, courage and respect. It is important to have diversity not only in gender but also in age, culture and experience at the boardroom level. It is important to also have variety in the workplace in order to identify and empathise with societal needs and environmental issues. Adopting a framework that embraces these issues is an important factor in a company’s ability to attract future talent and is more likely to look to good leadership and levels of diversity as benchmarks for what constitutes a good company to work for.
A focus on education
In this respect, executive education has an increasingly important role to play in such a narrative. A more progressive approach to executive education can help emphasise a deeper understanding of societal and environmental issues in order to equip leaders with appropriate tools conducive to long-term thinking and decision making. This approach holds particular resonance when taking into account the number of different tools used to measure company profitability, despite having no credible key performance indicators (KPIs) for measuring how well decisions were made. Certainly, an approach that favours quantity over quality does little to measure the effect of corporate decision making on peoples’ lives and the environment, both of which are important elements of sustainable business growth and board culture.
At the granular level, we can note that pressure on leaders for the purpose of improving short-term performance increasingly results in a trickle- down effect that creates a more stressful work environment and can have an adverse impact on the mental and physical health of employees. By refusing to nurture its human capital, a company’s effectiveness and its ability to compete is likely to be reduced. Developing a framework that encourages boards to adopt principles that can help them identify and deal with the wider impact of their decisions, including corporate governance codes, relating to areas such as tax transparency and social compliance, now more relevant than ever.
Articulating a shared value model
Finding a way to better articulate a model representing the competitive benefits of being positively active in today’s society would be a huge step forward. This is particularly pertinent at a time when the interplay between developed and emerging markets is becoming increasingly obscured and economies that have been driving global growth are slowing down. As a result, business leaders need to have a much clearer vision of how to achieve growth and identify future market opportunities. This is not only about identifying new markets, but leaders having the vision and courage to take risks. There is an argument that companies focus too much on managing risk, which often sees cash-rich companies buy back shares. The counter argument would be that not using cash to enhance long-term value is in itself a risk, as it minimises a company’s opportunity to grow. Good leaders understand there is no growth without risk, but also that market development and growth is the answer to societal needs.
Mazars is an international, integrated and independent organisation, specialising in audit, accountancy, tax, legal and advisor y services. As of 1st January, 2017, Mazars operates throughout the 79 countries that make up its integrated partnership. They draw on the expertise of 18,000 professionals to assist major international groups, SMEs, private investors and public bodies at every stage of their development.