What do India’s Ratan Tata, Canada’s Ed Clark and Paul Polman of the Netherlands have in common? Aside from their extraordinary business successes, they are believers in responsible capitalism. For these global executives, the driving focus for Tata Industries, Toronto-Dominion Bank and Unilever NV revolves around balance sheets that not only calculate financial results, but the environmental and social impact of business as well.
I, too, am a believer in responsible capitalism, not only because it is the right thing to do, but because I know that the adoption of corporate social responsibility practices is the only road back to a sustainable national and international economic recovery. What’s good for sustainable capitalism is good for us all. The more companies focus on the triple bottom line – people, planet and profits – the more successful those businesses and the economy will be for all stakeholders, not just shareholders.
The global financial crisis – fuelled in part by the pursuit of short-term profits at the expense of long-term business sustainability – has proven we cannot take our continued prosperity or even the future of capitalism for granted. The greed-is-good mentality that tied bonuses and outlandish salaries to quarterly financial results has given capitalism a bad name, but it is not capitalism in itself that is the problem.
As executives, we need to steer our corporations back on course to continue the virtuous circle that represents responsible capitalism at its best. That means aspiring to meet the highest standards of corporate behaviour involving the people we work with, the communities we work in, and the environment that sustains us.
This will require a return to a long-term management perspective, a recognition that we are all in this together – as executives, employees, shareholders, pensioners, voters, taxpayers and governments.
Mr. Tata, Mr. Clark and Mr. Polman stand as living examples that giving due attention to the triple bottom lines of business helps to bolster the traditional bottom line.
Since 2009, when incoming CEO Mr. Polman launched Unilever’s revolutionary sustainability plan, the global consumer products company’s share price has surged – it now trades at a higher price-to-earnings multiple than its main competitors – and it has become less volatile. The future looks even more promising: Unilever’s revenue in emerging markets has been increasing at double-digit rates for the past two years and now makes up 55 per cent of total revenues, far ahead of its major competitors. The company is literally helping to grow its own markets by investing in the communities in these emerging markets.
The Jantzi Social Index, launched in Canada in 2000, also shows that, as a group, companies that rank highly for environmental, social and governance factors outperform the Toronto Stock Exchange, year after year. Clearly, responsible capitalism is paying off for Unilever and other companies around the world.
Practising responsible business is no longer an option. There is growing evidence that companies that ignore their social responsibilities will continue to do so at the risk of their continued viability. Here’s why.
In today’s world, publicly listed companies can no longer maintain a healthy market capitalization by simply attracting investors by reporting good quarterly returns. It is the big institutional investors – and in Canada, some of the biggest are the Canada Pension Plan Investment Board (CPPIB), the Ontario Municipal Employees Retirement System (OMERS) and other pension funds – that largely move the markets up and down.
The good news is that those big investors, which by their very nature represent “patient capital,” recognize the wisdom of investing long term in responsible companies that will continue to do well. In its 2012 Report on Responsible Investing, the CPPIB – which manages $166-billion on behalf of 18 million Canadians – states: “We believe that better corporate management of ESG [environmental, social, governance] issues is a strong indicator of, and contributor to, superior long-term financial performance.”
At an operational level, executives wanting to attract and retain the best and brightest employees know that this will only happen in a workplace that pays more than lip service to corporate social responsibility. Today’s youth are motivated to work for socially responsible companies like no previous generation. As an executive-in-residence at the Schulich School of Business, it is clear to me that the rising number of students taking MBA-level courses, such as “business strategies for sustainability,” are looking to make a difference in the world. Employers can’t afford to ignore this trend.
Educators, too, are responding to this demand for curriculum focused on responsible business. Schulich was first out of the gate about 25 years ago in offering courses on the “triple bottom line” approach to management and it now ranks No. 1 in Canada and among the top three business schools in the world in this regard.
Social responsibility is the way of the future for all of us: as business people, as investors, as citizens. It is not only the right thing to do, it is the most certain path to a healthy triple bottom line and to greater prosperity. Here’s to profits, people and planet: the holy grail of today’s ambitious executive.
Paul Tsaparis is executive-in-residence at York University’s Schulich School of Business, former CEO of Hewlett-Packard Canada and a director of numerous private and not-for-profit boards, including Indspire.
Editor's note: An earlier version of this article incorrectly said the Jantzi Social Index is now partnered with the Dow Jones Sustainability Index. In fact, while Sustainalytics contracts support services from Dow Jones for its JSI index, the two sustainability focused indexes, the Dow Jones Sustainability Index and the Jantzi Social Index, are not connected. This version has been corrected.