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Is war between China and the US inevitable?
Is war between China and the US inevitable?

How SMEs can bolster growth in future-oriented industries
How SMEs can bolster growth in future-oriented industries

Mandatory ESG provisions could be a game changer
Mandatory ESG provisions could be a game changer

Mini-budget - the implications for business
Mini-budget - the implications for business

GIBS EMBA moves up 20 places on UK Financial Times ranking
GIBS EMBA moves up 20 places on UK Financial Times ranking

Meaningful professional development demands a shift in focus
Meaningful professional development demands a shift in focus

Has the water crisis made SA business more resilient?
Has the water crisis made SA business more resilient?

Medium term budget shows that SA's economy remains weak
Medium term budget shows that SA's economy remains weak

SA’s education needs to adapt to digitalisation
SA’s education needs to adapt to digitalisation

To appreciate value, we have to look beyond earnings
To appreciate value, we have to look beyond earnings

The role of the corporation needs a fundamental reevaluation
The role of the corporation needs a fundamental reevaluation

How we can all resist state capture
How we can all resist state capture

SA’s energy future a pawn in a larger political game
SA’s energy future a pawn in a larger political game

Rationalising corruption: Did the devil make you do it?
Rationalising corruption: Did the devil make you do it?

GE’s leadership problem goes beyond its CEO
GE’s leadership problem goes beyond its CEO

South Africa’s jobs summit failed to tackle the hard issues
South Africa’s jobs summit failed to tackle the hard issues

The real story behind Uber’s exit from Southeast Asia
The real story behind Uber’s exit from Southeast Asia

Can leaders commit moral treason?
Can leaders commit moral treason?

Moral panic on land reform blocks the path to inclusiveness
Moral panic on land reform blocks the path to inclusiveness

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Who are today’s heroes?

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What’s behind Facebook’s slump?

Old Mutual’s move signals that business sees a future in SA
Old Mutual’s move signals that business sees a future in SA

What causes financial crises?
What causes financial crises?

Business schools collaborate at first national case contest
Business schools collaborate at first national case contest

Ethical leadership
Ethical leadership

In conversation Clicks Group Limited CEO, David Kneale
In conversation Clicks Group Limited CEO, David Kneale

What misbehaving  companies can do to regain our trust
What misbehaving companies can do to regain our trust

The impact of technology on society in the future
The impact of technology on society in the future

The ethical dilemma of Digital Disruption
The ethical dilemma of Digital Disruption

Empowering SA’s blue-collar female workers with technology
Empowering SA’s blue-collar female workers with technology

South Africa joins global impact investing body
South Africa joins global impact investing body

5 tips on balancing your work and study life successfully
5 tips on balancing your work and study life successfully

Henley Africa named top business school in SA by PMR.africa
Henley Africa named top business school in SA by PMR.africa

The future of Financial Services and Fintech
The future of Financial Services and Fintech

Choosing SHL over GMAT
Choosing SHL over GMAT

Business schools must play a part in tackling unemployment
Business schools must play a part in tackling unemployment

Jobs Summit success will depend on implementation
Jobs Summit success will depend on implementation

Academic skills for entrepreneurs in Industry 4.0 plan
Academic skills for entrepreneurs in Industry 4.0 plan

Largest ever number of MBAs graduated at Henley Africa
Largest ever number of MBAs graduated at Henley Africa

GIBS launches new Africa centre
GIBS launches new Africa centre

New MBA timetable starts in 2016
New MBA timetable starts in 2016

EVENTS
NMU MBA and PDBA Information Roadshow
NMU MBA and PDBA Information Roadshow
15 November 2018,
Port Elizabeth

THE International MBA - Information Session
THE International MBA - Information Session
15 November 2018,
Cape Town

Management Advancement Programme Open Evening
Management Advancement Programme Open Evening
20 November 2018,
Johannesburg

Research meets Industry
Research meets Industry
23 November 2018,
Bellville

THE International MBA - Information Session
THE International MBA - Information Session
28 November 2018,
Johannesburg



06 NOVEMBER 2018
The role of the corporation needs a fundamental reevaluation

Environmental economist and President of the World Wide Fund for Nature (WWF), Pavan Sukhdev believes there should be a fundamental reevaluation of the role of the corporation in society, and that it is the only entity powerful enough to effect global change.

Addressing a recent Gordon Institute of Business Science (GIBS) forum, Sukhdev said, “I believe the corporation is the most important institution of our time, it is the mainstay and the engine of the economy.” However, “corporations have the responsibility to run the economy, and we are running it to ruin,” he said.

The need for change

The private sector’s unwavering focus on prioritising profits and externalising costs had resulted in hundreds of millions of dollars in undisclosed third party costs, including social harm and irreversible damage to the environment and climate.

These negative externalities and hidden costs of commercial activities are not accounted for. At present, “the private sector is free to do business without paying attention to externalities. It is the biggest free lunch. But we all pay, and are suffering in terms of health and the environment.” Greenhouse gasses, air pollution, water extraction and natural resource use are pushing the planetary boundaries.

Sectors that are the largest culprits include coal power generation, cattle, wheat and rice farming.

“We are a part of nature, but we don’t seem to recognise that fundamental reality. What we are seeing are the negative effects of that thinking,” Sukhdev said.

Corporations largely consider themselves as vehicles to create value for shareholders and not as entities with a social purpose. “Negative externalities are the third party impact of doing business as usual.”

Any concept that suggests a global transition to a green economy or a circular economy is meaningless unless it focuses on delivery through the engine of the economy that is the corporation, Sukhdev said.

“Unless we can change the private corporation, we are just talking to ourselves.”

Corporation 2020

Sukhdev explained his vision for a new type of business model: Corporation 2020, which places purpose before profits. Tomorrow's corporation would be a producer of not just profits for shareholders, but value for all stakeholders. It would aim to be a creator of positive as opposed to negative externalities.

Between 1820 and 1920, the concept of the corporation as an artificial being or entity was created, and the primary purpose of the corporation as a machine to generate returns for shareholders was established.

Corporations were concerned with the pursuit of size; involved in active lobbying; leveraged their organisations without limit; and engaged in advertising without ethics.

“But there is nothing that prevents the corporation from doing good,” Sukhdev said.

By disclosing and managing externalities, the private sector would move from a focus on shareholder performance to broader stakeholder performance.

An integrated profit and loss, and not just an emphasis on shareholder returns would look at the ‘big picture.’ “If we follow this thinking, we will reach Corporation 2020, which is a completely different business model where most companies would be created with social purpose,” Sukhdev explained.

Corporation 2020 would:

  • Be created for social purpose;
  • Create collateral benefits by choice;
  • Create human capital;
  • Create social capital (the corporation as community); and
  • Concern itself with the conservation of natural capital.

“All of these effects can be calculated,” Sukhdev said, and are not just assets in private ownership of the company, but rather assets in public ownership of society.”

“Corporation 2020 is therefore focused on creating private profits, as well as public wealth.”

Through the creation of natural benefits by choice, private companies would create shareholder value while improving their brand value and reputation. It could also result in opportunities for innovation.

“This is what will ensure that nature’s value is recognised, valued and conserved,” Sukhdev said.

How to effect change

The implementation of this ‘green accounting,’ integrating negative externalities, would need to be introduced first as guidelines, then as standards in order to effect meaningful change.

Change would need to come through a combination of incentives and regulation, as not enough companies would be willing to change voluntarily. “Today we have leadership, but what we need is followership,” Sukhdev explained. “The number of companies willing to move in this direction is 5%, but the other 95% who do not see it as their responsibility are problematic.”

Integrating negative externalities would do for corporate responsibility what the balance sheet and profit and loss statement had done for corporate accountability, he explained.

However, current realities meant change needed to be implemented urgently: “We have to change the environment of the corporation - policies, prices and institutions - in order to change the corporation into the creature we seek, rather than the creature we have.”

The power of the private sector could be balanced by a stronger civil society.
“It is a global change and needs to be a global effort. Success has to come from a constellation of actors, including regulators, the accountancy profession and civil society, who all have to move in sync for it to work,” Sukhdev concluded.

Source:

Gordon Institute of Business Science
Making an impact to significantly improve the competitive performance of individuals and organisation through business education to build our national competitiveness. GIBS is a leading business school in the heart of Sandton’s business hub, offering a wide range of executive and academic programmes. Visit our InfoCentre or website.

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