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Building tomorrow's company: A guide to sustainable business success

Bookcover

by Philip Sadler, Kogan Page, 2002.

A copy of this book can be ordered online via the Ashridge e-bookshop.

Abstract

This book looks at how to balance long term priorities and shareholder value with sustainability, corporate social responsibility and environmental accountability. Leaders are seen as stewards of values in ways crucial to the survival of the planet.

(Reviewed by Kevin Barham in October 2002)

(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.

We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)

Kofi Annan, the Secretary-General of the United Nations, recently told an audience in London that the way of life of people in developed countries must change. Annan was speaking in the run up to the World Summit on Sustainable Development held recently in Johannesburg. We lead immensely privileged lives, he said, compared to the vast majority of our fellow human beings. But we do so by consuming much more than our share of the earth's resources, and leaving a much larger 'footprint' of waste and pollution on the global environment. This way of life is not sustainable, he suggests, certainly not in its present form, for all the six billion people who already inhabit this planet - let alone the nine, 12 or 15 billion who will inhabit it, depending on which scenario you adopt. 'Sustainable development is not an abstract issue - it is a life-or-death issue for millions upon millions of people, and potentially the whole human race'.

That our way of life in the developed West has to change is one of the underlying messages of Philip Sadler's new book in which he looks at the corporate perspective on sustainability. He goes much farther than many other commentators on 'tomorrow's company' who often concentrate on the impact of new technology. According to Sadler, Vice-president and former Chief Executive of Ashridge, if businesses are to succeed in the 21st century, it is vital they take into account the social and environmental consequences of their activities. He believes we are entering a new and revolutionary phase in market-based capitalism which means that firms must adopt a new, 'inclusive' approach. This balances long-term priorities and shareholder value with sustainability, corporate social responsibility and environmental accountability.

Talent-intensive organisations

In the early part of the book, Sadler returns to the theme of a previous book and explores the implications of the new knowledge economy. Sooner or later, he says, all knowledge is obsolete. Talent is the only remaining scarce resource and is the true source of competitive advantage. Economic success will increasingly go to those societies and companies that are most capable of identifying, developing and exploiting the talents of their people.

This has implications for approaches to education and learning, says Sadler. The supply of people able and qualified to carry out the specialist tasks required in future by an advanced economy is not just the responsibility of national educational provision. Given the speed of change, it is only by lifelong learning that these skills can be adapted to emerging technologies. Successful companies will be those that see themselves as institutions of learning as well as producers and providers of services.

The death of distance

Sadler does not ignore technological change. He agrees that the 'death of distance' brought about by technological advances is among the most important forces shaping society at the beginning of the new century. There is hardly a company, he says, that is not vulnerable to the Internet's potential to diminish the significance of size, location, time distance and physical resources. Small companies can now do things that in the past only large corporations were equipped to do. As the cost of starting new businesses declines, more and more small companies will spring up. Many existing firms will develop into networks of independent specialists with more people working in smaller units or independently.

However, Sadler shows that tomorrow's company must not only respond to technological change, it must also encourage socially and environmentally responsible business conduct. Sustainability, he says, is the new agenda for firms. Business has important roles to play in all three dimensions of sustainability environmental, economic and social.

Economic sustainability

Economic growth, argues Sadler, does not by itself deliver a better quality of life. The process of wealth creation is concerned with broader goals than simply increases in per capita income. Rather, it must be measured in terms of the satisfaction of basic human needs - for a healthy diet, access to education and medical care, to clean air and non-toxic environments, and freedom from political oppression. This means that the test of successful government should lie in measured increases in the quality of life as perceived by citizens rather than GNP growth. It is this rather than economic growth as traditionally and more narrowly defined that is the essence of the economic dimension.

Social sustainability

A sustainable society needs three things - social cohesion, strong social institutions, and a sound social infrastructure. For social cohesion to be strong enough to support the social fabric, individuals and groups must see themselves as having a real stake in society, so that they would be fearful of having something to lose if the social fabric disintegrated. Strong social institutions - the family and the local community in particular - are the building blocks of a society, and to the extent that they crumble away so will the whole social fabric be in danger of disintegration. For the sake of social sustainability, the links between business and the community may need to be revived, if in a less paternalistic form than in the past. Societal sustainability also requires an adequate level of investment in the social infrastructure - housing, education and training, healthcare, sports facilities, youth clubs and the creation of employment opportunities.

All these things, but particularly strong community ties and a sense of civic engagement, constitute 'social capital'. Whereas physical capital refers to physical objects and human capital refers to properties of individuals, social capital refers to connections among individuals and social networks and the norms of reciprocity and trustworthiness that arise from them. The fundamental question is what contribution can business make, acting independently or in collaboration with governments, to the maintenance and improvement of social capital in terms of social cohesion, strong social institutions and the quality of the social infrastructure.

Socially responsible investment

Sadler notes the recent growth of socially responsible or ethical investment, which aims to combine investors' financial objectives with their commitment to such concerns as social justice, economic development, or a healthy environment. This rise has been partly driven by the large increase in share ownership by unit trusts, pension funds and insurance companies. Sadler believes the pressure for socially responsible investment will be a powerful movement in future and that shareholder influence to change corporate behaviour is likely to be a key future trend. Investors should ensure that companies are evaluated against inclusive criteria. Sadler calls for such measures as an inclusive scorecard by which to assess the relative social and ethical risk of different sectors and a new charter for judging remuneration policies for directors and senior executives, with less weight given to short-term share price movements.

Corporate governance

Sadler recognises that power is always vulnerable to abuse, no matter what checks are put into the system. Good governance requires two things. First, it require models and examples of good practice provided by socially responsible businesses with a long-term success records (such as 3M whose board has a Public Issues Committee which is responsible for reviewing and evaluating company policies and practices on a range of CSR issues, including community relations and environmental performance.) Secondly, it requires leadership with vision, based on sound values and moral principles.

If significant progress is to be made in such areas as climate change and the conservation of non-renewable resources, the scale of change will be huge. Such massive changes can only come about as a result of large-scale movements initiated by visionary leadership. We shall need many leaders at all levels of society to put the case for sustainability and to demonstrate by their own actions what it is possible to achieve. Inevitably, a growing portion of the sustainability agenda will fall to business. Certainly people have a right to expect industry to behave responsibly. It cannot exercise this right with conviction, however, if it does not simultaneously demand the same standards of its other institutions - its political parties, agencies of government, the media, as well as of its individual citizens in their roles as employees, consumers, shareholders and parents. Society increasingly demands a socially responsible industry. At the same time, a socially responsible industry cannot exist without socially responsible stakeholders - employees, customers, suppliers and investors - together with a government that treats economic growth and quality of life considerations in a balanced way.

The end of shareholder value?

Sadler looks at the debate concerning shareholder value versus the wider idea of stakeholder value. Tomorrow's company is clear about its distinctive purpose and values, he says. The choice of a purpose reflects the organisation's values, and an exclusive focus on the bottom line reflects only materialistic and economic values. By contrast, the adoption of a wider purpose, one that embraces benefits to mankind and obligations to stakeholders, reflects a set of humanitarian values and a desire to be of service to the community. Such a purpose both gives greater legitimacy to the corporation in the eyes of the public and makes it more attractive to potential employees who would like to feel they are making a contribution to society over and above making the shareholders richer.

Leadership and organisation

Sadler looks at the new, inclusive style of leadership that will inspire and enable tomorrow's company to compete successfully in tomorrow's world. The organisations of the early decades of the 21st century are likely to depart quite radically from the traditional hierarchical bureaucratic structures of the past. Top-down leadership provided by people in positions of formal authority is increasingly irrelevant. The 'learning leader' will nurture people's commitment to, and capacity for, learning at all levels of the organisation. This is about willingness to learn and to facilitate the learning of others. The leader will also act as 'steward'- as custodian of the organisation and its reputation, resources and its future. The 'servant-leader' sees leadership as service - to the community at large as well as to the organisation. This also implies a willingness to share the leadership role with others.

At the heart of the inclusive approach to leadership is the adoption of a set of values, which places human relationships centre stage and which defines the purpose of the enterprise in more than purely financial or commercial terms. These values include respect for the individual, the elevation of service above self-interest, restraint in the use of power and a concern for sustainable development. Leaders will need to see the organisation as a complex network of mutually interdependent relationships, understand the links between the organisation and the wider socio-economic environment, and in particular see organisational change in the context of social and technological change. Leaders will need to be systems thinkers. It is this deep understanding of the nature of the interdependence that exists between an organisation and its dynamic environment that provides the basis for leaders' ability to develop an inspiring yet achievable vision of the organisation's future.

Developing tomorrow's leaders

Sadler sets out some 'inclusive' principles for developing tomorrow's leaders.

  1. The design process of the programme should involve the CEO and the top team. The first step is to revisit the organisation's purpose and values and to consider what kind of leadership style and approach would be best aligned with these and most appropriate to the future needs of the organisation.
  2. Identify those with the potential to develop the ability to lead (using such techniques as 360 degree assessment).
  3. Give the selected candidates successive developmental assignments as the principal means of developing them. These should include challenges such as influencing people over whom they have no authority, or having to cope with change, uncertainty or ambiguity. They should include, wherever possible, opportunities to meet and interact with the organisation's stakeholders and involvement with local communities, voluntary organisations and other external bodies.
  4. Support participants' learning with mentors and self-managed action learning groups. Give them prompt and regular feedback on their progress. Use external, open programmes to build sustainable networks of future business leaders, who are linked by having debated their values and developed a common approach to such issues as business's responsibility to society, and the ultimate purpose of economic activity.

Will the inclusive approach survive?

As new technology and aspirations for a more egalitarian society gather strength, one result is that choice of structure becomes less critical for organisational functioning, while process and culture gain in importance. Today we require a flexible system that connects with customers' needs and establishes a linked set of processes along the value chain from supplier to finished product resulting in customer satisfaction. In this type of organisation, the key managerial task is the design of these processes; the key leadership task is to create a culture in which creating customer satisfaction is seen as the common objective and in which continuous improvement and standards of excellence are striven for.

Unfortunately, hierarchies convey power, privilege and status - so, despite their growing redundancy, they are unlikely to wither away. Nevertheless, Sadler believes there is cause for optimism. There is a rapidly growing number of companies that embrace key aspects of the inclusive approach: more and more businesses acknowledge their responsibilities to stakeholders. Investment funds based on selectivity on the grounds of sustainability or social responsibility are growing fast and generally performing well. Some of the largest pension funds and fund managers are engaging companies in dialogue. There exists a new emphasis on training and development for leadership as distinct from training in the tools and techniques of management.

Overall, the debate has shifted its focus from 'Why adopt the inclusive approach?' to 'How can we do so most effectively?' The inclusive approach is a long way still from being mainstream, except among the top few hundred companies. But Sadler believes that there are now so many powerful forces pushing for change that it is inevitable. A powerful social movement has been set in motion. Recession may slow its progress but will not halt it. We are witnessing the early stages of the emergence of a new form of capitalism, one in which concern for social justice and for the environment are seen as goals ranking in importance alongside shareholder value.

Such a form of capitalism will be more rather than less successful in wealth creation than that which existed at the end of the 20th century. As it matures, however, we shall be using different definitions of 'wealth' from those we have used in the past. The ultimate aim of sustainable development is to sustain life on planet Earth, Sadler concludes. He echoes Kofi Annan when he says that this overall objective may well prove to be incompatible with sustaining the Western way of life.

Annan was hoping that the Johannesburg Summit on Sustainable Development in August 2002 would be a break with business as usual. As might be expected, the conference did not achieve all its objectives. Heavy opposition from the USA, Japan and the OPEC countries prevented the setting of specific targets for the development of renewable energies. The conference did, however, adopt new goals and implementation programmes for environmental protection and poverty eradication. If those goals are to be achieved, many more managers and business leaders will need to understand the issues at play. Philip Sadler's book, which is packed with the results of the latest research on sustainability, is required reading for them and will leave little doubt as to the urgency of the situation.

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