Adjusting the capitalist motivation, from ‘profit’, to a more responsible ‘sustainable positive returns’.
The capitalist drive to create new technology, design new products and pursue new opportunities has had some very positive results for society. However the motive behind the positive also drives the negative, unscrupulous behaviour and disregard for society and the environment. To improve capitalism we need to shift corporate focus from being solely based on shareholder returns, to targeting sustainable returns and positive social and environmental attitudes. Reporting employee engagement levels along with triple bottom line reports to link businesses social and environmental initiatives to their financial performance could be the best bet.
The dark side of capitalism.
Capitalism has its drawbacks. The power of the profit motive encourages unscrupulous individuals to act unethically. Poor treatment of staff and lack of consideration for the environment and communities has created many problems and catastrophes in the past. The root cause of these catastrophes and problems is the single minded pursuit of profit, it is too simple, it is focused only on a single outcome of business actions ignoring all other outcomes, it favours a short term view which can bring undesirable consequences. Profit is a motivator who lacks morals. How do we adjust the focus of business to encourage positive social and environmental outcomes of corporate activity?
Much debate has centred on this issue, business ethicists and philosophers have discussed in depth the causes of unethical behaviour and tried to suggest methods of ethical thought to prevent management of companies from making poor decisions or acting badly. The problem still remains, “cash is king”, profit first, the temptation to do bad for the sake of profit doesn’t disappear just because we have a better understanding of why it happens. Utopian ideals on business ethics and theories on what ethical behaviours and thoughts look like may give some managers an insight into how they should behave, but it cannot prevent opportunistic behaviour from egoist individuals causing problems for society and/or the environment.
Regulation of business by governments in the hope of forcing ethical or positive behaviour is currently the best method of preventing unscrupulous corporate behaviour. One of the problems with regulation is that it encourages some individuals to search for loop holes, ways to get around the system, to gain an advantage in the pursuit of profit. Another problem is that regulations are generally put in place to prevent an activity from re-occurring. It is like shutting the barn door after the horse has bolted.
The question is; how do we adjust the capitalist motivation, from ‘profit’, to a more responsible ‘sustainable positive returns’?
Business managers act in the investors interests. It is the investors who influence management decisions. Investors demand, not just a return, but a better than average return. Some investors will jump ship if returns fall below the average for that industry, which further depresses company values and creates a downward spiral. Around we go on our never ending circle of being disappointed with corporations who value cash above everything, but only investing in corporations who can report good profits. What is needed is a change of measure, a change to the way companies are valued, a change that will bring cash back into line with other equally important outcomes of business activity.
Triple line reporting is being adopted by many companies to varying degrees. It is a step in the right direction; lift environmental and social reporting up on par with profit reporting. Create a norm where investors are looking to place their funds into companies who are good corporate citizens, create a norm where investors are less focused on short term financial returns and more focused on sustainable investments with positive long term outcomes. By modifying the capitalist mantra “Cash is king” we can go some way to rectifying the faults with the capitalist model. By considering all outcomes of business action we can reduce the occurrence of the types of disasters that have been attributed to capitalisms “profit at all costs” motto in the past. We have to report business environmental and social activities in a way that highlights how they impact on financial performance.
The best way to monitor the environmental and social impacts of any company is by measuring employee engagement. Employee Engagement is affected by many things, from remuneration and leadership styles to how socially responsible a company is, which charities it supports and what steps it is taking towards sustainability. Employees are usually citizens of the communities that their employer operates with in. The way a company is perceived for its social and environmental activities influences the community’s opinion of that company and therefore impacts on the employee’s level of engagement. An employee is likely to feel proud to be associated with an employer who undertakes positive social and environmental initiatives or works to limit negative impacts of business activities.
Highly engaged employees feel a sense of belonging to their workplace, they are happy to be at work and view work as a positive part of their lives. A business with a highly engaged workforce will have a workforce who understands the company’s vision, understands and feels ownership for their part in that vision, is motivated to perform work tasks and is highly productive. It is not difficult to link employee engagement to financial results. Motivated employees who believe in what their company is trying to achieve influence customers who become more engaged, which leads to better returns.
Employee engagement levels and initiatives, when reported along with a company’s financial reports, will provide investors an insight to how well a company is performing socially and environmentally and how this performance is viewed by employees. This style of linked triple line reporting will build investor understanding around how positive social and environmental activities are an important aspect of a responsible business and how this positive behaviour can provide for long-term sustainable returns. Investors will respond by looking to invest in companies with highly engaged workforces along with positive financial returns. Business managers will focus on initiatives to build employee engagement to remain attractive to investors. A focus on positive outcomes through positive actions will become the norm in this adjusted capitalism.
Linking the triple bottom line and indicating how social and environmental outcomes can affect financial performance will influence investor behaviour, bringing investors who are currently solely focused on financial returns in line with responsible investors with their consideration for all business outcomes.
Employee engagement levels have a significant impact on productivity, staff turn over and client engagement. On its own a well designed and implemented employee engagement programme will prove positive.
- Gauge current engagement levels in the workforce and identify key initiatives which will lift employee engagement. Developing a customised employee engagement survey that is developed with the company’s vision and goals in mind will offer a clearer picture of what initiatives will give the best return on investment.
- Monitoring engagement levels yearly will provide useful feedback to management on how business activities are viewed by the workforce. Trends will appear over time to give a clear indication on which activities are linked to higher levels of engagement.
- Annual reports can indicate how environmental and social initiatives have affected employee engagement levels which, in turn, have impacted on financial results.