Rarely in modern times have business leaders been subjected to such pressure for transparency and social engagement as now. This is partly because the Covid-19 pandemic and its economic aftermath has been followed by a growing economic divide between shareholders and stakeholders. This includes company employees, as evidenced by a recent report by The Brookings Institute on 22 iconic corporations. This concludes: “Despite commitments by the majority of these companies to voluntarily embrace stakeholder capitalism, the pandemic test reveals that the system changed little.” Indeed, since those commitments, company shareholders grew $1.5 trillion richer, while workers enjoyed under 2% of that benefit.
And yet, we believe many executives are paying more attention to long-term objectives such as purposefulness and the ability to engage as social actors. Many large companies have created competent foundations which finance social projects, facilitate access to medical and drug treatment, as well as quality education. Highly qualified and talented people working inside them are able to organize long-term aid or sustainable programs. Meanwhile, these firms set up partnerships with public bodies in order to benefit from infrastructure services. And, in order to complement the process, the foundations collaborate with NGOs. Two years ago, for example, Ashoka kick-started a partnership with Zalando which built an ambitious ecosystem to address Covid-19 related challenges on a global level.
The Six Catalyzers For A Hybrid Approach
To help such partnerships, six practical developments are helping catalyze this hybrid public-private-citizen approach which leaders should integrate in their future strategies. First, international banks have become aware of the need to finance long-term sustainability projects to offer cities and states solutions to answer challenges such as water provision and social infrastructure (such as schools, hospitals, etc). So, they are beginning to reshuffle projects to pick the right materials and coherent urban designs aimed at reducing our carbon imprint and protecting the rare resources that we’ve preserved.
Second, some multinationals are revising the very nature of their core business. Take Renault carmakers, for example. The simmering tensions in East Europe and the energy and economic crises have encouraged them to reconsider their century-old tradition of selling cars. Some are toying with perspectives of renting them out; or selling mobility services which could reorganize the market and develop a new business model. Their new motto is “Mobilize is inventing the mobility of the future,” thanks to a program called “Beyond automotive”. The initiative makes use of technological developments to “simplify daily life and accelerate the energy transition.”
Third, private companies are seeking to harness big data and AI to drive their partnership with public bodies and citizens, especially in urban settings. For years, we have developed a vision of how smart technologies can catalyze social justice for the 4.2 billion people living in cities globally. This is exemplified by smart cities we have studied which can answer the ongoing urban crisis and its challenges for the environment, health and economic inequality. These three issues represent a ticking time bomb: when they combine, it can lead to a deadly concoction, for example, an estimated 200,000 people in the United States die from air pollution annually. This is set to increase with the acceleration in climate change.
From Corporate Values To New Supply Chains
Fourth, some major executives have been making great efforts to better secure the quality of ties with their workers. Meaningful and deep relationships with employees are best achieved by winning them over to a shared vision of company interests. All the more so in the general context of the Great Resignation we have been experiencing since Covid-19. Harvard Business Review published an article last year delineating the ways uncertainty can cause a loss of motivation, focus, cooperative behavior, self-control and a sense of purpose. If employees are skeptical or in doubt about quality or variable alignment with the company interest, they will start to question their future and look to change jobs. This can have a major impact on the talented teams and their ability to provide dynamic answers.
This is particularly the case with the younger generations whose commitment to greater sustainability continues to grow. Young incoming employees are no longer shirking their environmental responsibilities and are demanding solutions from their company to global sustainability. This has an impact on the profile of jobs the new generation expects to be offered, a very delicate subject for managers at present. Some admit that they simply don’t understand the new generation’s values. The long-term life cycle relationships executives are seeking to establish between employees and the individual company appears to be over. That has a tremendous impact on different job and labor markets.
Fifth, managers need to be aware of legislation in some countries where rigid procurement laws for public/private partnerships have been passed. Canada, France, but also Brazil and Ghana have pushed through strong texts on this legislation which has created a non-flexible framework, something which has been shown to slow down investor engagement. As a result, contractual flexibility has been questioned. Legislation is so well defined in terms of specific PPP law that managers lose bargaining power, but also the room to discuss exactly how to serve their joint objectives. This is creating tension and contradictions. There’s much more research to be done in this field, but it’s the first indications we’ve noted from the results of our own investigation. Check our paper (soon to be presented, with Mohammed Hosseini, HEC Paris doctoral student at the Academy of Management annual conference in Seattle) entitled: “Big Picture Thinking in Small Pieces: Disentangling the Multi-Partner Collaboration”.
Sixth, business leaders are reconsidering the opportunity to invest in local and regional areas of the global supply chains. In Europe, companies are exploring developments with North Africa and Asia in a re-alignment of the supply maps. Possibilities are also opening up within the textile, automotive and agro-business sectors in West and North Africa. However, business leaders need to qualify suppliers, assess if they can provide the necessary quantity and quality to fuel the market adequately.
Working For The Common Good
Overall, the ongoing economic, health and geopolitical crises have rocked the business world in ways researchers are still grappling to measure. The Russian invasion of Ukraine is the latest global calamity – and it’s far from over -, causing a high level of uncertainty in collecting funds to support major projects. That’s the result of a backlog of short-term objectives run by states, regions and cities to find financial mechanisms to have access to oil, wheat and basic cereals to feed the population.
Authorities and the private sector leadership are beginning to re-invent mechanisms to attenuate these shocks to our financial system, often hand-in-hand. This momentum can help create both social and economic value in a form of hybridization that is driven by contractual and institutional mechanisms. We believe in this partnership because it’s the connection between an inclusive type of governance and the ability to serve the common good which can lead to long-term and sustainable objectives – for the benefit of all parties concerned.
The six factors we are sharing here reflect tremendous changes in the economic and social functioning of our societies. On the one hand, uncertainty is now an integral part of our decisions because we must collectively provide long-term answers to climate challenges. On the other hand, companies are increasingly under pressure from their stakeholders to convince them of their financial priorities, their raison d’être and their contribution to society. Companies must contribute to the common good. Finally, ayounger generation of entrepreneurs are sometimes tempted to create their own company. This will contribute to the innovation needed to match these global challenges. One key challenge is to persuade our young future graduates that joining an well-known company can serve their aim of transforming the world, for more equality, better inclusion, and value sharing.
Bertrand Quélin is the Bouygues Chair holder of Smart City and the Common Good at HEC Paris.
Daniel Brown is Chief Editor at HEC Paris Communications.