Understand Sustainable Business
After completing this unit, you’ll be able to:
- Explain how sustainable business relates to Relationship Design.
- Explain how the concept of sustainable business has evolved over time.
- Define stakeholder capitalism.
Let’s talk about sustainability and business.
Make Sustainable Business a Goal of Relationship Design
What does sustainable business mean? Sustainability in business refers to the quality of relationship between a business and the society and environment where it operates.
In Sustainable Excellence, BSR CEO, Aron Cramer, and author Zachary Karabell describe sustainable business as “...one that delivers value for investors, customers, and employees; improves the living standards of its employees and the communities it touches; makes wise use of natural resources; and treats people fairly.”
This means sustainable business is aligned with Relationship Design which Salesforce defines as "A creative practice anyone can use to drive business and social value by building strong relationships with their customers, employees, and communities."
This isn’t a new idea. Leaders, economists, and prominent thinkers have been trying to define the relationship between business and society throughout history. Let’s look at how societies have thought about this relationship through time.
In this unit, we explore their thinking at key points in time to give you a sense for how these leaders saw businesses affecting society. And for how these ideas drive sustainable business and design today. We’re not here to give you a history lesson, but if you’re interested, you can find a selection of more detailed readings in the Resources section at the end of this unit.
Understand the Relationship Between Business and Society
As far back as ancient times, the relationship between businesses and society was an important topic. King Hammurabi of Mesopotamia defined a code of conduct for workers requiring them not to neglect each other’s safety while working and fixed a statutory wage for field laborers and ox-drivers.
During the 18th century when the Industrial Revolution was radically reshaping the role of industry in the world, the British economist and philosopher Adam Smith claimed morality and justice were prerequisites to a flourishing free market.
Over the centuries, the relationship between business and workers, governments and broader society was a source of continual debate, change, and struggle.
In 1970, the economist Milton Friedman published an influential essay in which he asserted that the only responsibility of business is to maximize profits for its shareholders.
This ushered in the era of shareholder primacy, or shareholder capitalism, that places a business's relationship with its shareholders over all other relationships. This has been the dominant governing philosophy for most businesses for the past half century.
While this philosophy, and the global economic growth that accompanied it, accelerated the products, services, and global markets that have improved human health, living standards, and communications for many people in the world, they’ve also come at a price.
The single-minded emphasis on profit above all else has led to a wide range of undesirable outcomes—oil spills, corporate ethics scandals, financial crises, widening income inequality, and the climate crisis. These challenges have raised doubts about the widely accepted dogma of shareholder primacy.
Include All Stakeholders
In the past 15 years, sustainability has become more and more recognized not only as the ethically right way to conduct business but also as a source of direct business value. Larry Fink, CEO of Blackrock, made such a claim with his 2019 letter to CEOs.
Though it is in no way the widespread norm for business—and his letter received pushback from other CEOs—it represents a significant milestone in mainstream adoption of responsible investment and corporate sustainability. In the letter he directly countered Milton Friedman’s original essay, saying, “...to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Other business leaders are taking note, alongside Fink, and rethinking the role of business in society. The Business Roundtable, an association of US CEOs, redefined the purpose of the corporation by committing leading companies to ensuring benefit for all stakeholders—customers, employees, suppliers, communities and shareholders—an explicit shift toward stakeholder capitalism and away from shareholder primacy. As Salesforce CEO Marc Benioff notes,
"Just look where the obsession with maximizing profits for shareholders has brought us: terrible economic, racial and health inequalities; the catastrophe of climate change... It’s time for a new kind of capitalism—stakeholder capitalism, which recognizes that our companies have a responsibility to all our stakeholders. Yes, that includes shareholders, but also our employees, customers, communities and the planet."
Design Business’s Relationship with the World
We enter the 2020s with businesses becoming much more aware of their cumulative impact on the world and more committed to sustainability as a path to manage the risks and consequences of those impacts. More than half of companies responding to the 2019 BSR-Globescan Survey said that sustainability is among their CEO’s top five priorities, up from 37 percent in 2015.
What comes next? Whatever it is, design and designers will play an important role in how that question is answered. Let’s get to work in the next unit.
- External Site: SpringerOpen: A literature review of the history and evolution of corporate social responsibility
- External Site: SpringerOpen: Proto-CSR Before the Industrial Revolution
- External Site: The New York Times: A Free Market Manifesto That Changed the World, Reconsidered
- External Site: Former chief economist at the World Bank on globalization’s impact on poverty and inequality
- External Site: Harvard Business Review: The Comprehensive Business Case for Sustainability
- External Site: BSR: The Business Role in Creating a 21st-Century Social Contract
- External Site: BSR: The Decisive Decade (video)
- External Site: Business Roundtable: Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’