We sat down virtually with Andrew Kassoy of B Lab – the nonprofit behind the B Corp movement - to get his scenario of sustainable business leadership in 2030 and his vision of what it takes to get there.
This interview was conducted as part of our interview series with leaders whose input led to the development of the four scenarios.
TSBR: What do you believe sustainable business leadership will look like in 2030?
AK: I believe the core of sustainable business leadership in 2030 will be stakeholder governance.
I think 2030 is an excellent date to pick, because there is a set of concrete sustainability goals (UN SDGs) to which business needs to be a major contributor.
It is hard for me to imagine business being a contributor to meeting those goals, and therefore being sustainable, without stakeholder governance. This means that companies are accountable for creating value for their stakeholders by considering systemic issues like inequality and climate change. If businesses are not accountable for those issues through a form of governance, then it will simply be an exercise in disclosure, reporting or marketing that will not enable us to actually achieve those sustainable development goals by 2030.
People tend to focus only on the role of business to drive stakeholder capitalism, but we need a similar and aligned change in the fiduciary duties of investors. Business is so driven by the behaviour of capital markets that I don’t see that we will have sustainable business leadership unless it is aligned with the interests of investors.
TSBR: How important do you think frameworks like the UN SDGs are going to be in driving sustainable business leadership? Do you think ESG frameworks are essential to use, and what potential risks do you think come with them?
AK: That is why I am so focused on stakeholder governance.
I think there are a couple of issues with the way many people think about ESG.
One of them is that many people see ESG as a reporting exercise. They focus on transparency and reporting, but the information in itself is not helpful unless it is a result of action taken.
A challenge with data and reporting is that it has driven many people to a compromise where there cannot be any trade offs. The compromise is to report on certain ESG things that are financially material. Which is nice, but there are plenty of externalities businesses create that, if they internalised these things, they would be less profitable, at least in the short term.
So, part of creating corporate stakeholder governance, where companies are actually accountable for considering these factors, is that they would have to do something about the externalities they create that are not necessarily financially material, but are societally or systemically material.
TSBR: Expanding on your notion of stakeholder governance, can you pinpoint certain stakeholder groups who will get us there? Those that exercise pressure on the business.
AK: There are a number of groups that could get us there, probably in combination.
One is employees of companies – they are increasingly demanding of their leaders. In the war for talent, companies will have to satisfy their workers if they want to be successful.
Second, there is an increasing number of long-term investors who recognise, either because of their values or because they have long-term financial interests, that they need the companies they invest in to be more sustainable. They recognise that, because they are universal owners, most of their returns are attributed to the performance of the whole economy – and an entire market does not perform how an individual company does.
TSBR: Do you think we will see more proactive governmental regulation, or will we see more regulation as the result of business inaction on sustainability issues?
AK: I think it is going to be some of each. Obviously, there are many attempts to regulate the individual behaviour of all kinds of businesses, like minimum wages or carbon tax. But there is also a strong movement of people who recognise that we need a higher floor on the expectations of business.
We need to change their fiduciary duties, and we need to address the legal idea that has been perverted over time that the duty of the directors of organisations is to maximise value for their shareholders. That is both a cultural and a legal problem, and I think government is not going to fix the cultural problem – they will try to fix the legal problem. For example, in the UK, a new law was proposed called the ‘better business act’, which would make all companies in the UK responsible for considering the interest of their stakeholders, and for their systemic impacts.
What is important is that it needs to be explicit in law. Other than a few heroic leaders, you cannot expect individual companies to make changes that go much beyond financial materiality.
TSBR: Talking about ‘heroic’ leaders – In an organisational context what is the role or who is the person, or system, driving change?
AK: I think those dynamics are changing in a sense that there is just increasing pressure on CEOs from all of these different stakeholders to make significant changes. Often CEOs are not that well equipped, because these kinds of ideas are not institutionalised in the business. Obviously, culture matters too. When I think about systems change, there is no one thing that has to change - it’s multiple. Cultural change is about changing the narrative, but if the rules are contrary to the narrative, then all that is going to happen is ‘greenwashing’.
I cofounded and lead B Lab, a network of organisations stewarding the B Corp movement, which is all about economic systems change and creating a community of credible leaders (B Corps) who show that they can do business in a different way. They set an example for others to follow. People think in stories and narratives, so when they see those examples, they want to follow.
If change is institutionalised because we have changed the rules so that the board has to act in a fundamentally different way with everybody keeping an eye on them; and the investors in the company have a different set of fiduciary duties requiring the board to act in a different way; and they have to report on it so their performance is transparent; then you don’t have to rely on any one leader. You have a system that is functioning differently.
In the end, I don’t see a scenario where much changes without that.