While the financial markets remain unstable, hunger persists, the environment deteriorates and inequalities grow, a quiet transformation is underway in how business and government see their respective roles. In two recent meetings I experienced how business is reaching out to government to address major development challenges through new business models; and government is reaching out to business to promote corporate profitability through new development models.
The UBS Q series Innovation meeting hosted in Bloomberg's headquarters in New York featured major investors led by UBS and BlackRock, business guru Professor Michael Porter (known for his seminal work in Creating Shared Value), corporate sustainability leaders from the worlds of IT, food and agriculture, and infrastructure. Most accepted Professor Porter's notion that Corporate Social Responsibility (CSR) approaches had run their course and that the next major transformation involved business embedding core sustainability goals related to resource scarcity, human capital and diversity into the very fabric of how they worked. By doing so, many expressed the view that that they would reduce risks, open their doors to innovative ways of developing new products in new markets, attract the best and most talented employees and critically, add value to their financial bottom-line.
Paul Donovan and Julie Hudson from UBS drew from their recent book, "From Red to Green" in focusing our minds on the twin credit crises we face: a financial and an environmental one. They stress the urgency to address both together and with a Malthusian tone, warned that for the first time in human history we are facing very real environmental constraints. Business and human survival are at risk.
A day later USAID hosted their 10 year celebration of partnerships for development in the Ronald Reagan building in Washington D.C. In a major speech on future directions in foreign aid USAID Administrator Rajiv Shah highlighted the need to move more swiftly towards private-public partnerships involving U.S. corporations and local businesses in developing countries and address unmet development needs within innovative business models.
Dr. Shah called for an end to an era of distrust between the private and public sectors that had impeded progress in advancing economic and social development to date; and as speakers had stressed in New York, emphasized the limitations of CSR; urging that we move towards embracing "enlightened creative capitalism". To facilitate this he announced several ways in which the U.S. Government would do more to ensure that the conditions required for business to flourish would get priority support.
He gave powerful proof that well-focused foreign aid can work, citing modest investments made over 40 years ago in South Korea and Taiwan at a time when poverty was widespread. The fledgling companies had over the decades become major multinationals now employing thousands of workers in the U.S. The recent trade deal with South Korea builds on such early foreign aid investments.
Why are we seeing this convergence between public and private goals now? There are many reasons but high on the list must be a global realization that several emerging resource constraints-especially related to food, water and energy represent unparalleled threats to the economic and social wellbeing of all countries and many companies. Second, the last decade has yielded promising examples of how tough intractable problems can be solved when the full capabilities of the private and public sectors are optimally harnessed. Third, many accept that current development and business models have been too narrowly and separately developed-leading to business and development failures and to widening social class inequalities in OECD and emerging economies.
In both meetings there was healthy questioning of how profits and development goals might be achieved by sharing private and public sources of finance in new ways. This will require considerable work that starts by defining what constitutes questioning "business unusual". An important review by Accenture provides empirical evidence that sustainability is a solid proxy for high performance by companies independent of the many other benefits that it will bring to the bottom-line. This evidence should stimulate companies and investors to accelerate progress.
Many challenges remain though. They will involve addressing some of Professor Porter's concerns about how capital markets undermine value creation through an excessive focus on the short term; on demands for corporate growth that push many beyond their optimal path to profitability; and on the continued use by many analysts of very narrow view of the economic value of enterprises that often excludes social, human and environmental issues.
We now have a better sense of what constitutes the "good company" and signs that development models are emerging that take into account the interrelated needs of business and society. It may be that these increasingly linked approaches are the light at the end of tunnel beset by global crises.