Don’t believe the podium talk at Davos–but capitalism is starting to change

As thousands of business executives descend on the Swiss ski resort of Davos this week, it’s easy to be cynical. Their stated goal of encouraging “courageous collective action” is noble, even noble. Addressing today’s major crises—climate change, energy security, and global inflation, to name but a few—requires business to be proactive.

However, many delegates at Davos believe they have a fiduciary duty to put investors first above all else. As I often hear in conversations with big businesses, “We can’t all be Patagonia.” And indeed, while most modern companies today boast extensive environmental and social programs, few actually challenge the superiority of quarterly returns. If they do, then the financial markets will announce the wrong chief executive soon.

It doesn’t have to be this way. Imagine a scenario where leaders measure themselves against a guiding objective, be it environmental or social, as well as profit. Using this purpose as a North star, they are responsible for respecting the needs of their workers, suppliers, and parts of the planet they trust.

Imagine how much faster a clean, vibrant economy would move if the talent of entrepreneurs aligned with what we all want as individuals: a strong civilization, a future for our children, and a continuous sense of wonder at the world we have. given.

Wishful thinking? Not for the thousands of companies around the world that are now building their businesses around the idea of ​​positive returns for society or the planet. In 2021, there will be 4,000 certified benefit corporations, in over 70 countries and 150 industries. Tens of thousands of companies have been incorporated as benefit corporations in the US following recent regulatory changes. By 2021, more than 10 Public Benefit Corporations planned IPOs.

Such models are successful because capital investors are not neglected. This is more than a case of rebalancing: By choosing to use the magic of the market to provide a social or environmental purpose, these companies generate investor returns as a byproduct of their success, not as their central goal.

How can corporate governance be different?

The inclusion of purpose alongside returns may seem like a subtle shift in emphasis—but it’s one that has many practical implications for how businesses conduct themselves and the legacies they own. abandoned.

Progressive legislation can support that transition. That is the case in Italy, France, and the US (where the so-called ‘Benefit Corporations’ have statutory backing in 35 states). Businesses can also opt for long-term management alternatives, such as employee ownership and shareholder foundations, or, in the case of UK-based beauty company Faith in Nature, providing natural world a legal say in business strategy with a representative seat on the board.

In a move that made headlines around the world last year, Patagonia founder Yvon Chouinard transferred ownership of a large portion of the company (100% of the nonvoting stock) to a non-profit dedicated to to fight the environmental crisis and protect the environment, the Holdfast Collective.

The foundation’s goal echoes our company’s reason for being–to save our home planet. Every dollar we make now, after reinvesting in the business, will be distributed as a dividend to help fight the crisis, connecting the profits of our company with the purpose of doing business to save our home planet. This fundamental change has implications for every aspect of the business, from the products we make to our campaigning work.

It sounds radical, but, in fact, it has made good business sense for many other successful companies over the last century. The John Lewis Partnership, a UK high-street retailer, uses a democratic “steward ownership” model that ensures its 80,000 employees have an active say in how the business is run. Similarly, almost 94% of the shares of the German electronics giant, Bosch, are held by a foundation dedicated to furthering the social purpose of its founder.

Each method has its own nuances. Some businesses continue to issue shares to investors, for example, but ensure that enough non-transferable shares (also known as “golden shares”) exist to protect their long-term purpose. company (examples include search engine Ecosia, software firm Sharetribe, and sustainable fashion. brand Ziel). Some pass full economic ownership to a foundation and then assign inalienable voting rights to trusted trustees, as we do in Patagonia.

The result is what matters—that is, keeping a company’s social purpose alive forever. Executives come and go. Shifting markets. Changing agendas. The evidence is mounting favor the financial performance of for-purpose businesses over their traditional counterparts, suggesting that the incentive to renege on commitments may diminish in the future.

How do we scale this management shift?

A goal-directed approach to capitalism will require advocates for government reform from across the business spectrum. Take what the European Union is proposing Corporate Due Diligence Directive. If passed, (voting is scheduled for May 2023), the directive will require all major European companies to examine their supply chains for possible human rights abuses and negative environmental impacts. The ripple effects can be huge.

While in the UK, the Better Business Lawwhich already has the support of more than 1,500 companies, will legally oblige companies to change their current focus on shareholder returns to one that considers the interests of all their stakeholders.

We need innovation, resources, and business problem-solving capacity to move us forward, not backward. Today, even if corporate leaders buy into this proposition, many find their hands tied by antiquated, profit-first management systems that perpetuate takeover practices.

It is important not to be complacent: shareholder capitalism runs deep, especially in Davos, but alternatives involving other stakeholders are possible. Companies are what make capitalism tick—and with the right governance in place, companies can be a force for good and benefit the many, not the few.

Beth Thoren is director of environmental action, EMEA, at Patagonia.

The opinions expressed in commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of luck.

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