Television and entertainment specialist, former SVP Warner Bros.Discovery, Inc.
As leaders, how do we work to change current performance metrics focused only on profit-maximisation at the detriment of society?
Partner and Ethics & Sustainability Manager, John Lewis Partnerships
In 1970 Milton Friedman stated that the “social responsibility of business is to increase its profits”. This neoliberal ideology of profit maximisation has been the dominant economic paradigm since. Most businesses are still wired to deliver profits and in year returns, and many use exclusively financial performance metrics to keep employees focused on those goals. It’s encouraging that in the last ten years, as the investor market is waking up to the importance of ESG, some businesses are introducing ESG performance measures alongside financial ones. Though, this is in its infancy and typically covers just the E of ESG, which can be more measurable, e.g. carbon reduction measures. I’d like to see more businesses introducing targets and KPIs linked to a broader pool of environmental and social impact considerations. Crucially, these should be alongside, not inferior to, financial metrics and ideally relate to a longer-term time horizon rather than just in-year. The next part of the conversation is about how employees are incentivised to deliver these targets in a purposeful and responsible way that isn’t just focused on financial gains… that’s a question we can explore further another time.
Co Founder & Director Wren Laboratories Ltd
I would love to see the establishment of a universal ESG rating for businesses, which all stakeholders referred to before interacting with a brand. This could be likened to how one would not buy a fridge without checking its energy efficiency score. It would therefore impact not only a business’s reputation but its bottom line too. In order to achieve such a thing we would need real collaboration between business and government to establish industry-wide standards and best practices that promote a more balanced approach to performance measurement.
Assistant Manager – M&A, Grant Thornton UK LLP
Performance metrics should remain linked to profit-maximisation. Having a more conscientious, diverse and equitable work environment fundamentally is based on profit-maximisation; firms that embrace the new world of work will have a sustainable competitive advantage and outperform their peers, therefore current metrics that determine remuneration should be evolved to link to performance on ESG metrics to change behaviours.
Digital Transformation Director, Crystal Doors
We should lead by example in measuring our businesses success by social impact and sustainability alongside profit. To set an effective example, stakeholders must have confidence that we are actually ‘walking the walk’. To this end, I would urge leaders to proactively seek transparency and accountability. At Crystal Doors, we are pursuing transparency through projects such as our development of a public dashboard for our carbon emissions, and accountability by getting an outstanding B-Corp certification. Let’s fight the green washing with transparency!
Digital Transformations Consultant
For me, this comes down to leaders stepping back and reconsidering the question ‘what does good / success look like for our organisation?’. If the answer to this question is just ‘bigger revenue, greater profits and even higher share price’, then even when broader performance metrics are brought in, they’ll have very little real impact. The definition of success for the organisation – as set by the leadership and accepted by the wider employee population – has to encompass more than just ‘the financials’. When it does, broader performance metrics will naturally flow out of this because people throughout the entity will be holding themselves accountable for delivering on the holistic definition of success.
Gonzalo Coello de Portugal
Associate – Design and Project Leadership, Arup
At policy level, it is imperative to institute mandatory reporting of climate-related financial risks, so capitalism can help solve the climate crisis. In parallel, we must promote impact investing in our companies and clients to influence positive ESG outcomes. The providers of capital need to be more transparent about their objectives, including their investment horizons and where are they placed between maximising value for shareholders and doing the same for stakeholders. A problem to solve is the many systems to measure stakeholder value creation by companies. However, reporting the ESG impact of how we are delivering our services, coordinated with the economic metrics, will help avoid the short-term quarterly objectives, and change the aim from Profit to Value.
As leaders, we should lead by example. It is time to rethink organisational cultures in the first instance: how do we choose projects we work on and is it because they have great societal or environmental impact or because they make good profits? Where do the firms we work for spend the profit we make and is it reinvested in research and staff development or only in shareholders’ pockets? How do we express recognition of our staff and is it through raises to congratulate them for overworking or through work-life balance, good support systems and an empowering space for innovation to change the world? Working at Arup, I believe we have found some balance but the next challenge is to create that ripple effect beyond our immediate spheres of influence.
Partner, Shakespeare Martineau LLP / AMPA
Such a thought provoking question – and something that makes you re-think the values some of us may hold -being the pursuit of wealth over happiness. Until we prioritise the things that truly matter such as well-being, health and happiness it will be difficult to change metrics for profit maximisation – as our society/government/businesses all generally focus on growth and profitability. But I do see businesses, in recent times, doing more through encouraging their people to volunteer in work time, CSR initiatives which not only involve fundraising but time dedication in the form of pro bono work. Businesses introducing a CSR metric (which could offer some or all of the above initiatives) into performance reviews may not only help our communities but makes us all a little bit richer in happiness.