Fourth Industrial Revolution

Why complying with the law is no longer enough

A woman listens to music as the sun sets as seen between buildings on Boa Viagem beach in Recife June 30, 2014. In a project called "On the Sidelines" Reuters photographers share pictures showing their own quirky and creative view of the 2014 World Cup in Brazil.  REUTERS/Brian Snyder    (BRAZIL - Tags: SPORT SOCCER WORLD CUP TRAVEL ENVIRONMENT SOCIETY) - GM1EA710EOX01

'Companies must compete with each other and not with society.' Image: REUTERS/Brian Snyder

Silvio Dulinsky
Deputy Secretary-General, International Organization for Standardization (ISO)

Dear reader, I would like to leave you with a single message from the Annual Meeting of the World Economic Forum in Davos this year: for large corporations to comply with the law is no longer enough.

In a world increasingly fractured and with lack of confidence from citizens in almost all social agents, the expectation of society in relation to the companies goes far beyond meeting minimum legal requirements.

Two of the main topics of debate at this year's Davos meeting were climate change and social inequality. These issues require urgent attention from all. It will be a collective failure if within a decade these issues continue to be considered among the main risks to the global economy, as indicated by the Forum's Global Risk Report.

In a globalized world with an economic model that leads to a growing consolidation in the most diverse industries and greater capacity of influence on the part of large companies, the responsibility of business leaders in constructing a sustainable and inclusive society is unavoidable. No longer acceptable is the attitude of "no matter how we make a profit as long as it is within the law; what matters is how we invest this profit, and for that we have the department of corporate social responsibility and philanthropic activities." Society today cares about how companies conduct their business and what is their impact on the world.

The liberal precepts that Milton Friedman established in the 1970s created the basis for a value creating system that, coupled with other major humanist developments and the global governance structure established in the second half of the twentieth century, led humanity to a phase of rapid social and economic advances. However, these precepts are no longer enough to meet the challenges of today's society.

Larry Fink, CEO of Blackrock, the world's largest asset manager, wrote an open letter to CEOs that companies need a strategic framework to achieve their long-term profitability goals and to manage their impact on society. These two pillars are paramount in ensuring long-term success in the era of the fourth industrial revolution, with its ever-accelerating and unpredictable transformations.

The private sector can not solve all the problems of society, but many problems can not be solved without the private sector. The complexity of today's world requires effective public-private collaboration, which does not replace governments' obligation to play their part and formulate responsible, ethical, innovative, solidary, transparent and inclusive public policies. Business leaders must assume that their responsibility in society goes beyond generating jobs, paying taxes and providing products and services. Their privileged position in the management of financial and human resources, with access to numerous sources of knowledge, and their capacity for execution and innovation, gives them the possibility of being an unrivaled force for the construction of a better world. Companies must compete with each other and not with society.

In this process the role of investors and boards of directors is crucial. In Davos, two global CEOs reported very different situations: the first, CEO of a German metallurgical company, does not feel supported by his board in the pursuit of value creation for a diversified group of stakeholders; on the other hand the board of a Scandinavian transport company puts pressure on its CEO to improve environmental and social performance as quickly as possible. Visionary and committed companies are able to take giant steps along this path when supported by their investors, who are increasingly integrating environmental, social and governance performance indicators into their investment decisions.

It is high time to end the fallacy of the alleged inconsistency between sustainability and value creation for shareholders. There are countless examples of initiatives by leading global companies that are perfectly reconcilable with maximizing shareholder value over the long term. By integrating the creation of value for different stakeholders in the company's business model, the benefits become structural, minimizing risks and improving innovation capacity, developing new markets, attracting talent and strengthening corporate governance. The most admired companies have the ambition of solving the greatest challenges of humanity in a responsible, sustainable, agile, innovative and efficient way.

Fortunately many business leaders demonstrate a strong social commitment by mobilizing their respective industries towards high standards of sustainable performance. This commitment should not be confined to the top management. Each of us is responsible for several daily decisions that can help advance this agenda. We all know examples of initiatives that can be multiplied to other organizations and communities in a pre-competitive space. This requires a broad awareness of our responsibility as citizens in an increasingly unequal, interdependent and constantly changing society.

This is a unique moment in which business leaders have the opportunity and the obligation to put their creative and execution capacity at the service of a passionate project of society.

In Davos important initiatives of public-private collaboration were launched to build a more sustainable and just society. After the debates of our annual meeting, the World Economic Forum begins a new year with a renewed mandate from its constituents to continue working with governments and leading global companies to fulfill its mission to improve the state of the world.

A Portuguese language version of this article was originally published by Valor Econômico.

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