In the next decade, society must grapple with the acute challenges generated by global trends that have transformed our economic, political, social, and environmental systems. The efforts of corporate executives and governmental authorities will determine the future of the planet.
In the U.S., Europe, and China,
10% of the population owns 70% of all assets and the bottom 50% owns less than 2%. This concentration of money, land, and property in the hands of a small group of people is accelerating. Meanwhile, the incomes of most people have been frozen for a decade. As a result, financial inequality is growing, along with dissatisfaction with governments and businesses. When governments lose their influence because of public pressure and popular discontent, can corporations help change
the situation?
Bank of America analysts believe that iIncome inequality will peak this decade, and then begin to smooth out due to the growth of "
Stakeholder Capitalism”. The rate of return of companies is already the highest in many decades, analysts at
Deutsche Bank point out. They expect that many factors will lead to its long-term decline, including the growth of the minimum wage, higher taxes, and tougher competition and social requirements. Classic capitalism is coming to an end.
One of the most significant trends is related to changes in business behavior. Organizations must now consider the impact of their actions on the environment, embrace social responsibility, and pay close attention to the quality of their governance (environmental, social, governance – ESG). Companies must shift from a focus on maximizing profits and working for shareholders to activities that benefit all stakeholders – including the public. They must also adhere to the principles of fair competition, demonstrate intolerance for corruption, and respect human rights in every link in their supply chains.
However, investors and consultants have not yet been able to develop clear criteria for assessing the behavior of companies. Different ESG ratings sometimes give diametrically opposite results. It’s difficult to pursuit multiple targets – and that's the problem.
Still, company CEOs say without a shadow of a doubt that they are engaged in solving all sorts of problems, climate change, inequality, and slavery because they’re committed to the principles of "social responsibility."
Robert Reich, a former US Secretary of Labor, does not believe in the enthusiastic promises of companies. "CEOs won’t do anything that hurts their bottom lines,” he says. “They’re in the business of making as much money as possible, not solving social problems."
Corporations are networks of agreements, contracts, and responsibilities. In the current system of entrepreneurship and private property, corporate executives are responsible to their shareholders. Therefore, the goal is to increase profits for the company’s owners. By spending money on social responsibility, companies will squander the funds of their shareholders. Additionally, real social change will prevent companies from doing many of the highly profitable things they are doing now. It means that companies will not change course unless the law requires them to change.
In early 2021,
Grayling surveyed 500 business leaders. Almost a third (32%) of the directors of large companies said that their business’s only job is to maximize profits without breaking the law. However, the majority (63%) noted that their organizations also have a responsibility to society. The smaller the company, the less important profit was cited as the business’s sole goal. Only 17% of small business owners admitted that income is most important.
The willingness to sacrifice profit for the sake of social responsibility should move from the announcements of managers and the declaration of long-term roadmaps for tangible restructuring of business models. Companies' promises about social responsibility are now preventing the adoption of new regulations rather than being accompanied by action. This trend will only further undermine public trust and stability.
The lack of regulation and traceability gives a free hand to corporations. They can find an
ESG rating scheme that will overlook their dark spots in reporting and present a plan to reduce
CO2 emissions or fight inequality for the next few decades without having to make any real changes in the company.
This situation forces companies to seek ways to demonstrate that they are changing and improving their transparency. The
right combination of IT solutions, including blockchain, Big Data, the Internet of Things, and other technologies for automated traceability and data management can strengthen the trust of stakeholders.
Greater transparency and verification of ESG data can significantly improve corporate governance practices and outcomes. The
World Economic Forum has presented a list of use cases of blockchain applications to support the collection and verification of ESG data. Blockchain can automate data collection at different points in a supply chain. Instead of relying on obscure data provided by various suppliers, organizations can better control their true environmental and social impact.
Without setting social goals, companies cannot sufficiently provide the education that employees need, implement innovation, and attract investment for long-term growth. Since governments are failing to prepare for the future, people expect companies to help create a society that benefits shareholders, customers, and local communities. In the end, after setting their social goals, companies must provide evidence that their reforms are not just words and restore public faith and trust.
