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UpFront/Special | Dec 24, 2012 | 2658 views

Losing confidence and changing business are two different things

Companies can no longer pretend they don't have, and aren't expected to have, a positive role to play in the general wellbeing of a society

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ccording to several global surveys, consumers are losing confidence in the leadership of the private sector. Just last month, the Indian press reported that consumers are cutting spending as confidence in their economic futures drop.

This is good in that it stimulates the kind of robust debate that is needed in emerging economies, and the world, about the true purpose of business. And hopefully this will all amount to something important and meaningful.

The findings in the Reputation Institute survey tell us two things. Companies can no longer pretend they don’t have, and aren’t expected to have, a positive role to play in the general wellbeing of a society. And people are beginning to notice that business has had, for a crucial part, a negative impact.   
 
It’s almost as if overnight people, have started to see through the cloak of PR and are now demanding more from business. All of a sudden it’s clear where a large chunk of the blame lies for the situation we find ourselves in.

The world is in trouble. The Federation of Indian Chambers of Commerce and Industry’s survey indicated a drop in the business confidence index from 60.3 in Q4FY12 to 51.8 in Q1FY13. Indian consumers have become progressively more pessimistic about future prospects over the last two years. The seas have been poisoned. Masses of people have been exploited for the profit of a few. Europe is collapsing. The worry is that other economies will go the way of Greece; a sudden draining of blood and complete shutdown followed by a raging internal combustion leaving nothing but ashes.

People have lost their patience with business and its exclusive focus on shareholder value. And so the time has come for a serious discussion that, if handled correctly and if followed by action, could revolutionise business.

The problem with a survey like this is that often it leads to the same discussions about ethics. And my experience has been that fundamentally, people are ethical at home, or alone with themselves, but as soon as they enter the business environment they change. They become unethical because the environment demands it of them. The corruption is in the design; in the model.

It is therefore important that we change the model. While the Reputation Survey is based on perception, it is important that businesses do not respond simply by seeking to shift that. Perception is, after all, a malleable thing with the right marketing budget. If the discussion goes the usual way and the aim is to change nothing but perception, then corporate marketing teams will be going mad to green and social wash what they do. They’ll put forward very agreeable, convincing leaders to sing about how their respective companies positively influence the socio-economic standing of a country. But ultimately nothing will change. A few people will be dragged out in front of the crowd for unethical practice. There will seem to be a shift in business, but the shareholder will, by design, forever be put ahead of society when the time comes to enjoy the spoils.

And herein lies the interesting opportunity. If we steer clear of the easily-manipulated ethics/ perception debate, we can start to talk honestly about business, to really look at it, dissect it, keep it naked in our critical scope and truly figure out what it is, how it works, what its purpose has been, and what value it brings to the world. Then we can start to redefine it; change how it works; give it a new purpose; and rethink what we consider to be “value”.     

For me, business today should not be about making money. It should be about creating value and not just for a favoured few shareholders but for all stakeholders. That is a huge shift in thinking, and could lead to an astonishing shift in the business model. The problem is none of us, including business schools, have any idea of what this alternative really looks like.

It has been called inclusive business, but how would it work? What needs to happen? Who needs to be involved? How will it be sustained?

The space for innovation in terms of finding new inclusive business models that actually create value for society at large, and possibly even starts to tackle some of the tremendous social and environmental problems that confront us, is wide open. This is the challenge for us now, to define a new road, a new role for business.

If consumers are losing confidence in business leaders, it’s because they assume that the right leader will make all the difference. That is true if that leader has come to dismantle a faulty yet extremely resilient business model, and to explore more innovative business models that create more value for more people. But it is not true if that leader is merely there as a PR decoy to make subtle changes in people’s perceptions of business, while nothing fundamentally changes.

Walter Baets is the director of the University of Cape Town Graduate School of Business, in Cape Town, South Africa.

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