Sea Change – How the revolution in management thinking is reshaping business

Ideas can be as ephemeral as the ether and pack more punch than dynamite. Their influence can be powerful call to action or wrap around everyday activity like subtle gossamer thread
That’s as true in business as in any other sphere of life.

Right now, the ideas driving business appear to be undergoing what one industry commentator describes as “sea change”. It’s not accompanied by the sort of hullabaloo that surrounds political upheaval, but beneath the day-to-day buzz and scurry of commercial operations, the ideological ground has been quietly shifting
It shows up in the growing membership of such bodies as the NZ Business Council for Sustainable Development, or the increasing number of companies now adding social and environmental criteria to traditional finance-based performance in formal ‘triple bottom line’ reports.

It means industry captains no longer put their commercial credibility at risk by uttering “business” and “social responsibility” in the same sentence; that “environmental strategy” is more than useful marketing tool; and that being good corporate citizen isn’t measured solely by how many charities you support.
It could all be seen as part of the constantly evolving notion around what constitutes best management practice – except that underpinning these particular changes is fairly fundamental reassessment of the role organisations, and business organisations in particular, have in the wider world.
Under the new paradigm, they’re here not just to make money, but to make difference – to be more widely accountable for the state of the world around them. Which means wealth creation is no longer the only yardstick for measuring success.
A few years ago, that would have been regarded as the business equivalent of the loony left – the worst kind of woolly do-gooding.

The ideological battleground
It used to be that the only valid preoccupation for business was its financial performance; the only stakeholder it really needed to please was the shareholder.

That business should also start taking responsibility for social or environmental issues was considered distraction, even dangerous diversion from the real business of business.

Representing this view are people such as international economist and author David Henderson. In book entitled Misguided Virtue published by the New Zealand Business Roundtable (NZBR) last year, Henderson criticises what he calls the “false notions” of corporate social responsibility. He suggests companies that take their eye off the financial ball to pursue such notions merely risk damaging their own economic viability.

Similar views have been expressed by NZBR executive director Roger Kerr.

Those corporations that donate money to environmental groups whose campaigns are likely to damage long-term business interests are, he suggested in one speech, indulging in short-term survival tactics. They are “like the miserable figure Ronald Reagan described as the fellow who hoped the crocodile would eat him last”.
That style of characterisation was pretty much what cereal manufacturer Dick Hubbard was given when he started airing what he sees as new business credo few years back. “I had some pretty intense debates with Roger Kerr back in the mid-’90s when he was almost accusing me of economic sabotage.”

A founder and current chair of NZ Businesses for Social Responsibility (BSR), Hubbard is an ardent spokesperson for re-thinking the business role. “It is not cost to business but long-term investment in it. Evidence shows that companies which go down the [triple bottom line] path have greater sense of stability and more profitability as result of it.”

He is adamant that this thinking is not simply management fad. “I’ve been in business for over 30 years and have seen lot of fads come and go… This is different because it’s philosophical shift rather than new methodology for running your business.”

That debates between Hubbard and Kerr were once intense affairs is not surprising. To many observers, they and the organisations they represent characterise very different philosophical positions. They were certainly spawned in different times.

When the Business Roundtable was formed in 1986, reformist Labour government was in full cry, deregulating the economy, floating the dollar, dismantling and selling state assets. Behind this shakeup was the idea that unfettered markets provide much more efficient mechanism than State decree for creating wealth, generating economic growth and distributing necessary social services.

Money flows naturally toward areas of highest market demand, and healthy competition ensures that demand is met in the most efficient manner possible.

Take that notion bit further and pure market-led economy looks to be rational, responsive and value-free vector through which social, political and economic equilibrium can be attained.

The theory proved little messier in practice in part because money tends to flow even faster to where other money has already accumulated and several areas of market demand miss out altogether. But when cadre of New Zealand’s top executives got together and set up the NZBR, the rallying cry was the need to minimise state intervention, reduce taxes, dump protective tariffs and generally create conditions that allow markets to operate freely.

Their view is that the long-run interests of the business sector are largely consistent with those of most consumers, and that business opportunities are maximised by policies which encourage economic efficiency – such as open, competitive markets and smaller rather than larger government. The focus is on expanding the size of the economic cake because that tallies with general public interest.

OK up to point. Nobody disputes that the role of business is to create wealth and that the resulting economic growth is good thing for the whole country. What’s missing is an increasingly important sense of value around how that growth is achieved. Does it, for example, come at cost to the environment in which it operates, or the people that work in or around it?

Changing times
What has changed in the years since the formation of the NZBR and of both the BSR and the NZ Business Council for Sustainable Development three years ago, is an accumulation of evidence suggesting companies can’t afford to ignore the wider picture.

Environmental pollution has started to bite the companies that cause it, as has the “economic efficiency” of exploiting extra-cheap third-world labour. Consumers are exercising their own ethical preferences and brands that are green, socially conscious and ethically responsible are increasingly viewed as better buys.

Skills shortages have meanwhile focused managerial minds on how to make the best and most creative use of their human knowledge base. There is growing awareness that many of the companies which gaily shed corporate fat to become more efficient also chucked away some of their competitive advantage.

“Downsizing did lot of harm,” says NZ Institute of Management chairman, Doug Matheson.

“Companies thought people were expendable but they also lost lot of intangible assets, destroyed the organisational culture and broke the bond between employees and management. lot of things were cast aside in the interests of maximising profits.” The idea that companies should be socially responsible now has lot more currency in the country’s boardrooms, says Matheson.

The meltdown of ethical corporate behaviour in the United States is hastening progress of this line of thinking, according to Wayne Cartwright, professor of strategy with the department of international business at the University of Auckland.

“This [philosophical] shift is one I’ve been looking at for couple of years and I think it has accelerated even in the past month or so as events in the United States have unfolded. The time’s come to see substantial shift – sea change about to break.”

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