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Defining the New Business Covenant
The context of business in today’s world has changed dramatically in recent decades: just as the impact of companies on society and the planet has increased, so too have companies’ responsibilities. Business leaders, investors, civil society and a range of stakeholders have recognized the global demand for new business models; however, mechanisms for creating and sustaining these new models have not succeeded in meeting demand.
At a time when the world is experiencing momentous changes, members of the World Economic Forum’s Global Agenda Council on the Role of Business believe that there is an urgent need for business to rethink how it interacts with society and that there is an enormous opportunity for it to play an active leadership role in building a better world. In today’s resource-constrained environments, the challenge of providing prosperity to 7 billion people can only be accomplished if business aids in the creation of new models for sustainable growth. By broadening its approach to value creation in a way that serves society and bottom lines, business can demonstrate its commitment to responsible global citizenship.1
The Global Agenda Council on the Role of Business seeks to define the new covenant of business in today’s world and offers a range of concrete actions that can renew the business license to operate.2 Members of the Council collaborated with other thought leaders and executives to develop the main principles that should guide businesses towards playing a greater role in building a sustainable future, and they invite business leaders to subscribe to the basic thoughts and recommendations presented below.
Outlining the Vision
The turmoil in today’s world has generated greater scrutiny of business and sometimes even scepticism about whether companies benefit society. That is why the behaviour of business, including its potential to lead in tackling some of the world’s toughest problems, must be grounded in a redefined social contract, or, even better, a social covenant.
The Council’s vision of this new covenant extends beyond just legal compliance; it includes a wholehearted commitment to generate value for society, while respecting rights and responsibilities. These rights include the freedom to make a profit, to be taxed fairly, to be regulated as efficiently as possible, and to trade and make contracts freely.
Responsibilities – which are instilled in ethics more so than in legislation – include honest and transparent behaviour and a focus on sustainable, long-term wealth creation, rather than short-term profit maximization. They include a commitment to measure the full financial, social and environmental benefits and costs of its actions, and to avoid decisions that increase financial profits but leave society as a whole worse off. They include a willingness to tackle social challenges such as income inequality and climate change. And they include engagement in helping educational systems meet the demands of today’s world.
In practice, Council Members expect that many of these partnerships would be win-wins over the long run for people, the planet and profitability. Mechanisms such as transparent communication, better quantification of impacts and greater engagement with stakeholders can help realize the shared goal of more responsible business behaviour.
Promoting the Transformation
The Council on the Role of Business began its work two years ago by mapping the new environment for business and assessing the threats to the business license to operate. Following a number of discussions among members of the Council as well as interviews with business leaders and academics, the Council identified a range of actions that could improve the climate for businesses to contribute to solving social problems. This first year of work culminated in the publication of the Final Report of the Global Agenda Council on the Role of Business 2011, a substantial white paper that presented this conceptual overview and outlined a range of suggested action areas.
In its second year of work, the Council built on this foundation by creating a succinct call-to-action for business leaders and other stakeholders. The report, Defining the New Business Covenant,3 focused on challenges that need to be addressed through collaborative action between all stakeholders.
Other channels of the Council’s work focused on engaging related Global Agenda Councils. In particular, the Council identified shared concerns with:
- The Council on Long-term Investing, which addresses the need for dialogue between business and investors
- The Council on Values in Decision-making, which affirms the need for a new social contract
- Sustainability-related councils, which stress the need for making a business case in sustainability and green growth
- Values-related councils – such as the councils on New Models of Leadership, Human Rights, Emerging Multinationals, Social Innovation – which underscore the need to reframe the role of business.
Collaboration with these councils amplifies the discussion and creates more opportunities to achieve consensus on solutions. Council members have also engaged in targeted outreach, both formally and informally, by working with particular individuals and groups with goals relevant to the Council’s work.
Further, the Council identified strong resonance in its work and that of the B20 taskforces, organized around the 2012 G20 meeting in Mexico. The Council’s work has helped identify areas in which regulatory, political, social or commercial changes could promote a more responsible role for business. The B20 taskforces offer concrete, actionable recommendations that, if implemented, would help realize many of the goals outlined by this and other Global Agenda Councils. The resonance of these messages indicates the urgent need for business to reclaim its role as a leader in creation of social value.
Identifying Challenges Ahead
Enhancing the role of business in society cannot be accomplished by the private sector unilaterally. Instead, coordination from stakeholders ranging from consumers to governments to investors is needed. In its two years of work, the Council has identified several key relationships that have tremendous influence on the role of business. The tendency of different stakeholders to work in silos has led to tensions on which the Council will focus in the coming year. In particular, these groups are:
- Investors – Given the re-examination of the role of investors following the financial crisis, the Council sees a large opportunity to engage with these stakeholders from a macro, strategic standpoint to talk about mutual steps that could be taken to realize better outcomes for the planet’s citizens. In particular, the Council envisions identifying ways to reduce the short-term focus prevalent among business leaders and to broaden perspectives beyond generating shareholder value to maximize stakeholder value.
- Governments – As issues such as income inequality and education rise to the fore in national contexts around the world, there is a clear opportunity for businesses to partner with governments to seek solutions to these problems, as well as a host of others.
- Corporate boards and their leadership, in particular non-executive chairmen – Corporate boards play an essential role in determining the culture, goals and modes in which businesses operate. Improving dialogue with this group of stakeholders can play a vital role in ensuring that businesses serve as engaged corporate citizens.
In the upcoming term, the Council will build on its already strong foundation to improve partnerships with these groups, engage businesses seeking to embrace corporate citizenship and promote these issues across a wide range of platforms. The scale and the scope of problems facing today’s world demand this engagement; the Council plans to work toward the realization of a new social covenant in which business is a central part of the solution.
The opinions expressed here are those of the individual members of the Council and not of the World Economic Forum or any institutions to which they are affiliated.