This article was originally published in the Oxford Saïd Review, by our partners at the Saïd Business School. You are encouraged to check out the publication here.

Beyond profit

At a two-day conference hosted by Saïd Business School in collaboration with the Catalyst think tank at Mars, senior corporate executives and institutional investors discussed the urgent need for capitalism to adopt a new paradigm.

‘A business that makes nothing but money is a poor business’

The traditional view of business's role in society, for the last 50 years at any rate, has been that its sole social responsibility is to maximise profits for distribution to shareholders.

‘A "business as usual approach" cannot be sustained’

Although this paradigm has served investors and companies well over the last five decades in terms of bottom- line profits, when business's broader impact on society is taken into consideration, the model is less compelling. The fallout from the 2008 global financial crisis and the distrust in the corporate world it provoked, coupled with other challenges like climate change, shrinking natural resources and growing inequality, have made it clear that a "business as usual approach" cannot be sustained.

In May 2016, Saïd Business School, in collaboration with multinational food company Mars, hosted the landmark Responsible Business Forum, a two-day conference where investors, C-suite executives, academics and students from the School's MBA and other programmes discussed the need for capitalism to change, why responsible practice was in the best long-term interests of business and what steps could be taken to orchestrate a transformation of how corporates operate and view their responsibilities to society.

'The question is whether business can do well by doing good. Can one make profits out of doing good? Can business find innovative practices that measure performance benefits beyond profit and motivate people on the basis of that performance measure?' asked Colin Mayer, Peter Moores Professor of Management Studies at Saïd Business School.

Convergence of opposites

A key argument raised throughout the two days was that profit and growth should no longer be regarded as the antithesis of philanthropy and social good. Instead, those two aims should be seen as mutually reinforcing.

'In 2007, the Mars leadership asked itself, "What should be the right level of profit?" It was a very unusual question to ask,' said Bruno Roche, Managing Director of Mars Catalyst, an internal incubator within Mars tasked with challenging conventional business thinking and developing new business models.

'Business needs three inputs to succeed. It needs the planet that provides, it needs people and it needs money, which brings liquidity. All of those inputs need remuneration. If any of them is weak, then the whole supply chain is weak. Focusing exclusively on the interests of the shareholder is not sustainable,' Roche continued. 'Mars has adopted the economics of mutuality, which looks at business holistically and seeks to optimise the value of all three inputs.'

‘There needs to be a fusion between corporate social responsibility and doing business’

Business has now come to point, Roche said, where responsible practice has to become embedded in company operations, and that it is not enough to generate profits with only shareholders in mind, and then attempt to rebalance by ploughing capital into foundations and philanthropy.

In a presentation on how Unilever has put sustainability at the heart of its operations, Karen Hamilton, Vice President of Sustainability at the international consumer products giant, outlined the business case for a holistic approach, citing examples of how social objectives had supported financial performance within Unilever.

'There has been a conflict between doing business and sustainability, but it is clear that business as usual is not going to work if you look at the long-term challenges society faces. There needs to be a fusion between corporate social responsibility and doing business,' Hamilton said. 'Sustainability can be framed as a way to drive better business success. At Unilever our sustainable living brands are growing twice as fast as other brands and now account for 50% of Unilever's growth. Since 2008, we have lowered costs by US$600m by using resources more effectively and we have de-risked the business by sourcing 60% of all agricultural materials sustainably.'

Emmanuel Faber, CEO of Danone, the food multinational that has overhauled its supply chains and manufacturing processes to reduce environmental impact and support employees and suppliers, said a responsible business philosophy also served as powerful tool for employee recruitment and retention.

'This is an incredible way to engage with people,' he said. 'Leading a professional life that you can be proud of in your private life has become very important, and will become more so for future generations as they come into the job market.'

A question of trust

Bertrand Badré, former World Bank Chief Financial Officer and currently a Senior Advisor to the World Economic Forum, said the 2008 financial crisis had highlighted in no uncertain terms just how crucial it was for companies to behave ethically.

‘It is good business practice to behave decently, openly and transparently’

'Trust in business has dissipated following the financial crisis, and it hasn't just been the banks. If people have no trust, the system doesn't work. You see that in the growth of reputational risk. That just wasn't an issue 30 years ago, but if you want to be in business, you have to have the trust of the consumer. That is where you make your value,' Badré said.

Simon Walker, Director General of the Institute of Directors, said if business failed to act responsibly, it risked undermining all the benefits it brought to society, and ultimately compromising its own aims. 'It is good business practice to behave decently, openly and transparently, because it is simply easier to do business if you are not viewed with suspicion by customers, regulators, suppliers and employees,' he said.

Reporting review

But although the benefits and the necessity of doing business responsibly are undeniable, the way that business performance is measured, the frequency with which it is reported, how staff are remunerated and the way shareholders and companies engage needs to change, if there is to be progress.

'Responsible business is centred on the concept of having a clearly defined purpose, by having the people with the integrity and ability to deliver on that purpose, by having the processes and management practices that deliver on that purpose, and by having ways of measuring that,' Professor Mayer said.

‘We need to think about how governance structures can build in medium to long-term thinking’

A number of speakers pointed to short-termism as one of the main obstacles to introducing new ways of judging a company's success.

'Short-termism has crept into business and investment, and when you have a short-term horizon you look at a different set of metrics. Public markets mark-to-value every day and it is human nature that you will manage to that number,' said Goh Kok Huat, Chief Operating Officer of GIC. 'If you have a longer investment horizon, your metrics will change. You will automatically begin thinking about mutuality, people and the planet. If you want sustainable long-term results, that precludes short-term fixes in order to get the instant gratification we have all become so used to.'

Walker called for corporate governance practice to include some kind of requirement for business to adopt a longer view. 'There are a lot of companies that have become rent extraction machines for the shortest term shareholders. That is a real problem. We need to think about how governance structures can build in medium to long-term thinking,' he said.

'I don't think we can move back from quarterly reporting, but we can review what can be added to regulation that will force us to be more long term rather than short term,' Badré said. 'The development of integrated reporting and a way to account for that is very important.'

Badré also argued for institutional investors to look at new ways of investing their capital, so as to recognise and support companies acting responsibly and following sustainable business practices. 'Pension funds need to break out of the fixed income, cash and equity boxes and start looking at new products and distribution channels,' he said.

And if performance metrics had to change for business to take a longer-term view and consider people and the environment in addition to shareholders, then so did remuneration.

And if performance metrics had to change for business to take a longer-term view and consider people and the environment in addition to shareholders, then so did remuneration.

Sustainability can be framed as a way to drive better business success

A new direction

It is clear that new ways of measuring business success will become ever more important, especially as business attempts to take on the increasing expectations of it and prove to society that it is capable of more than making money for shareholders.

‘We want to move the needle so that the future and current generation of leaders will have a different basis on which to take business forward’

'In many cases businesses are now as large as some nations in the world, and because those nations are ridden with debt, business has been looked upon to provide the goods and services that until now, we have looked to governments to provide,' Mayer said. 'The question is whether business is up to it. But in many cases, business has lost our trust; even our trust to look after us as customers, let alone to look after our broader community and social interest. At this business school we want to move the needle so that the future and current generation of leaders will have a different basis on which to take business forward.'

‘There has been a conflict between doing business and sustainability, but it is clear that business as usual is not going to work if you look at the long-term challenges society faces

Watch footage from speakers at the Responsible Business Forum here.