Positive action for dealing with change

Positive action for dealing with change
10 Sep, 2007, 0019 hrs IST,Nandan M Nilekani,

As Global business leaders, we operate at a time when the need to address larger issues such as climate change and poverty is becoming more urgent. Questions are being asked about the role that large companies play in addressing these challenges. This is why the inquiry into Tomorrow’s Global Company, initiated by the Tomorrow’s Company think-tank, has proved so timely and relevant.

This writer co-chaired the inquiry that brought together representatives from businesses based in Asia, North America and Europe as well as people from non-governmental organisations (NGOs) and not-for-profit groups. They came from ABB, Alcan, Amnesty International Business Group, BP, Dr Reddy’s, Ford, The International Institute for Sustainable Development, KPMG, Leaders’ Quest, McKinsey, Standard Chartered etc.

Given this diversity of backgrounds, it was interesting to find a remarkable degree of consensus in our views. We agreed that the market economy has proved a powerful force for innovation, growth, employment and development. Today, the market’s power is most dramatically seen in the process of globalisation, which is driving up productivity and creating prosperity.

However, we also agreed that the world is undergoing unprecedented change, characterised not only by economic growth but by increasing pressure on the environment and continuing social, political and cultural divisions. The positive power of globalisation is not touching many lives.

Global companies — with their scale, power, capabilities and experience — are uniquely placed to deliver practical solutions to resolve these issues. They can develop new technologies, create jobs, raise skill levels, set benchmarks in working conditions and provide goods and services to improve living standards for the world’s poor. In other words, companies can make a positive difference.

Going beyond our current efforts, we need to envision a world in which companies make profits and create shareholder value while tackling large global problems. There is no simple answer. But we have agreed on specific priorities — actions we believe companies should take to realise our shared vision.

Our three priorities were: redefining success, living by strong values, and deeper engagement with governments, etc., to create stronger market frameworks. We saw these as critical factors for changing businesses from wealth creators to agents of social change.

First, we agreed that global companies must redefine ‘success’. It isn’t only about delivering short-term returns to investors but about creating lasting positive impact for society and the environment. If companies can make such contributions, the profits will follow.

Investors are increasingly judging companies on their prospects for sustainable success — looking hard at performance against environmental, social and governance indicators. They want companies to be clear about their goals for building value and prove that they are achieving them. The onus is on us to define specific measures of long-term success and demonstrate that we are on track to meet them.

Our second priority was for companies to articulate and live by strong values. Global businesses are diverse in many respects — geographically, culturally and linguistically — but they cannot afford to be so in regard to ethics and behaviour.

Strong values — put in practice through codes of conduct or charters — bind a multinational together, providing motivation internally and building trust externally. For example, if a company says it believes in education and backs that belief with investment, people will make the connection that wherever that company operates it will support education. This association becomes integral to the company’s brand. While helping people develop skills, the company also attracts customers who value its reputation for encouraging learning.

Our third priority related specifically to directing the power of the market for social and environmental ends. In many areas there are no international rules laid down by governments, which means that there are serious failures in the frameworks that should constrain the market. Over the past two decades, NGOs have highlighted these areas — from the environmental damage caused by construction projects to corruption that prevents the proceeds of global companies’ work from benefiting citizens of developing countries.

Progressive businesses have evinced interest in tackling such problems both to avoid negative outcomes and being undercut by less scrupulous competitors. Such issues can only be resolved by strong national regulation and international agreements. However, one cannot simply shift the responsibility onto governments.

That is why companies must continue to implement voluntary agreements. Examples include the Kimberley Process, which seeks to prevent the sale of ‘conflict diamonds’; the Equator Principles, which make banks’ funding for major projects contingent on social and environmental responsibility; and the Extractive Industries Transparency Initiative, which combats corruption by encouraging greater openness about the use of revenues from oil, gas and mining operations.

While they are a good start, these initiatives must be followed up by stronger frameworks of agreements, laws and regulations to ensure that the power of the market is unlocked to address the problems of our time. And companies must work with governments to create such frameworks.

In the last decade there has been emphasis on doing business in a ‘responsible’ way, i.e., avoiding negative impact on society and the environment. We must now focus on doing business in a ‘sustainable’ way — delivering positive impact to society and the environment. This also means doing so in a way that assures our own sustainability, without which we can do nothing.

Global businesses have huge resources, deep capabilities and extensive reach. They also have front-line experience of key problems such as poverty, environmental issues and human rights dilemmas. We have shown that we understand the problems. We must now be part of the solution.

(The author is co-chairman, Infosys Technologies)