"Live your life as though your every act were to become a universal law"
Immanuel Kant (1724-1804) is thought by many to be one of the most influential minds of the past two hundred years. If Kant were alive, he would be instructing today's CEO's that value creation can only be achieved when one's moral compass is directed by the "categorical imperative" stated above. Implicit in this definition is the fundamental belief that you should always treat human beings as an ends in themselves, never as a means to an end.
As more than 2,500 leaders descended on the small village of Davos-Klosters, Klaus Schwab, the founder and executive chairman of the World Economic Forum, shared his thoughts around this year's theme Shared Norms for the New Reality stating, "As we begin the second decade of the 21st century, humanity is at a cross-roads. We can either continue to work as lobbyists for our narrowly defined self-interests and keep doing the same old things that got us into the crisis in the first place. Or we can act together as true global leaders, with the long term global public interest in mind and at heart."
It was Klaus' description of a 'true global leader' that caught my attention and made me wonder how one might create a scorecard to evaluate a leader's ability to create long-term value. The first challenge is to identify indicators that would be included in the evaluation criteria. For business leaders, the most widely used indicator is their ability to create shareholder value. However, events surrounding the 2008 financial crisis have accelerated a movement to go beyond traditional financial metrics to include risks associated with a broader set of behaviors that have led to an increase in values-based investing.
What if we redefined the stakeholder as the consumer, the human being at the receiving end of every decision a CEO is forced to make. If consumers are viewed as "ends in themselves" and not means to an end, then every other stakeholder's interest will by definition be maximized. Think about it. The entire financial meltdown the world experienced beginning in 2008 could have been completely avoided if the interests of the consumer would have been placed above the interests of the corporations, shareholders and Board of Directors.
Values-based investing is not a new concept. It started in the early 18th century in the U.S., when the Quakers prohibited members from participating in the business of buying or selling human beings. For more than 10 years, the Dow Jones Sustainability Indexes, have been ranking companies based on long-term economic, environmental and social criteria. This emerging megatrend led to the 2006 launch of United Nations backed Principles for Responsible Investment Initiative (PRI), an international network working together to help investors factor in the environmental, social and corporate governance (ESG) issues to satisfy investor demand - with their primary focus on predicting risk-adjusted returns. Launched in 2006, PRI is now reaching critical mass. At year-end, it had 855 signatories from 45 countries that control $22 trillion of assets under management - almost 10 percent of the global capital markets.
If you're still convinced there can only be a single bottom line around financial metrics - consider this: What if you knew that in as few as 20 years, wars would be fought over water and food? Or that our dependence on foreign oil today, will cost our children more than a trillion dollars in debt and perhaps their life? If this sounds like a science fiction, consider reading "Water Security: Managing the Water-Food-Energy Climate Nexus" launched in Davos this past week.
According to the authors, there will not be enough land, water and human capacity to produce food for a growing population over the next 50 years - unless significant changes are made today to improve freshwater use.
In my work with the Global Alliance for Improved Nutrition, our meetings in Davos centered on the challenge of food insecurity and malnutrition which affects more than a billion people globally. Concerns over rising food prices are destabilizing regions, causing food riots, contributing to a steep increase in purchasing and hoarding by food importing nations and driving agricultural commodity prices even higher. According to a recent FT article this trend isn't going to stabilize for some time due to the structure of the current global food system. It cites a landmark "Global food and farming futures" study, that reads like a doomsday novel, "The era of cheap food is at an end, with the real prices of key crops set to rise 50-100 per cent during the next 40 years."
So what does food and water have to do with shareholder value? Everything, if you consider the opportunity costs associated with unsustainable consumption and waste. Start with the consumer, the rational being, and work backwards. Perhaps Eisenhower said it best in his 1953 "Chance for Peace" speech: "The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities....We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people."
Next year, I'm hoping Klaus institutes a new global leader's index that is consumer centric and awards the world's top global leader with a free lifetime membership to WEF. In this regard, he can move beyond Davos rhetoric toward action that will motivate the next generation of leaders. As Kant said, "I ought, therefore I can."