Business and societal failures have arisen from flawed economic and financial theories, and a skewed, systemic, perspective of purpose and value. A new book argues that we can create a socio-economic system in which all organisations are encouraged and incentivised to generate lasting value for all human stakeholders
‘Total Stakeholder Value’: is this a new purpose that can drive necessary, systemic change?
A new book, The Mature Corporation – a Model of Responsible Capitalism explains how
Back in 2011, I wrote a piece for the Guardian, and argued that the sustainability agenda had largely ignored people; the human systems that are fundamental to long term business and societal value. My argument put forward the premise that those firms who manage people within their ecosystem as a source of value, as opposed to a cost of doing business, generated better societal outcomes and superior financial performance. ‘Doing good’ can benefit everyone.
Since that time, environmental and human problems arising from business and economic activity have continued to surface at an alarming rate. Poverty, human rights, slavery and growing inequality have become more acute, as the spectre of climate breakdown emerges around us. Meanwhile, a soup of plastic swirls around our oceans, contaminating ecosystems, while the toxic air we breathe undermines our health on a daily basis.
Society’s response to these problems has been to set new laws, targets and guidelines. We generally seek to curb damaging actions and behaviours through imposition, often in punitive and restrictive ways. Or we encourage voluntary change through ‘guidance’. For example, the UN’s effort to promote sustainable outcomes, which has now been co-opted by many investors and companies. The UN launched its set of Sustainable Development Goals (SDGs) in 2015 and identified critically important objectives; detailing broad aims for a number of very real problems, including issues of gender inequality, poverty, water use, education and labour rights. However, the usefulness of the SDGs has been questioned, primarily because they cannot be easily reconciled with market driven business models. In effect, the UN is asking the corporate sector to behave responsibly, knowing that its main motivation still arises from other drivers.
The SDGs have no direct connection to long-term value creation but represent a minimum bar that should be reached in order to show adherence to core sustainable practices. They are also guidelines, not standards. The SDGs can help to encourage better social actions but they will not drive outperformance, either corporate or societal. In reality, they have already become part of a compliance agenda, so they do not easily reconcile to the whole, global business and financial system. They are not seen to be a mutually inclusive value factor, that seamlessly fits with, long-term, business strategy.
Alongside these developments, my work with colleagues at the Maturity Institute has enabled us to distil an underlying framework, together with a compelling evidence base, that shows very clearly that a human centred, responsible business model that underpins long term business and societal value, is not just possible, it is already being practiced by a small number of exemplar organisations. Our consolidated model is voluntary but amounts to a coherent and measurable value proposition for all stakeholders. This should make it more appealing as it integrates conventional measures of corporate success. The problem we now face is in encouraging its widespread adoption, on a global scale.
So, how are we addressing this challenge? Our approach is primarily through education, to provide a practicable method that can be understood and applied across all types of organisation’, for all actors within the system.
Our starting point is to define organisational purpose. Our exemplar firms aim to generate the best quality products or services at the lowest possible operational cost, while explicitly managing out any external harm i.e. environmental or human. These firms have also been able to build sophisticated human value systems to realise their innate human potential. They understand that an organisation can never maximise its value unless it maximises the value of everyone connected to it. Child labour, human rights violations and slavery are simply anathema to this value proposition. It is not a legal, compliance or ethical decision to manage people in this way, it is all about sustainable value.
Figure 1: The Total Stakeholder Value System
By carefully managing people and Value (the net result of Output, Revenue, Quality, and Cost) over time, while continuously mitigating any undue external harm, mature management practice affords the organisation the best possible chance of generating more value and the best societal outcomes. Mature organisations are more likely to deliver better financial performance alongside sustainability, in both human and environmental terms. For example, Toyota has been the most valuable car company, in financial terms, for many decades. It has produced the best and most reliable cars for 80 years, and is widely recognised as the one of the few global multinationals leading the way to a sustainable future.
Firms that design-in these characteristics have created what we identify as a Total Stakeholder Value (TSV) system (see Figure 1), one that embeds a virtuous cycle of mutually inclusive value creation. With this cycle in mind, you might imagine how a collective goal of TSV, embedded across all organisations e.g. corporate, investment, regulatory, and academic, could begin to play out in practice. We believe that in the same way that a shareholder centric paradigm, focused on purely financial results, has created significant damage for all human stakeholders, except for those who manipulated and exploited its inherent flaws, a TSV paradigm can bring reparation and the greatest benefits for us all.
Stuart Woollard is Council Member at the Maturity Institute. The Mature Corporation – a Model of Responsible Capitalism, co-authored with Paul Kearns, is available from Cambridge Scholars Publishing https://www.cambridgescholars.com/the-mature-corporation