Four ways to create a corporation seeking sustainable prosperity
The pursuit of sustainable development is more crucial today than ever. Increasing stress on ecological systems, an intensifying climate crisis and turmoil in global financial systems are just some of the issues we face. All stakeholders, including corporations, must step up and play a large role in transforming our economy and society.
Because corporations command such a high level in the international economy today, their leadership is fundamental. Corporations operate with a main purpose of increasing value for their shareholders. They often tend to de-prioritize or even disregard broader concerns fundamental to society. In the worst instances, the pursuit of profit by corporations around the world has led to exploitation of their employees, lack of accountability in the societies where they operate and indifference to the negative environmental effects of their activities.
A vision of the new corporation requires a set of framing principles and living examples of these transformative changes.
Worldwatch Institute’s State of the World 2012: Moving Toward Sustainable Prosperity focuses on the themes of inclusive sustainable development discussed at Rio+20, the 20-year follow-up to the Earth Summit of 1992. The report presents a selection of ideas and practices to achieve global environmental sustainability while meeting human needs for all by engaging government, nonprofit and private actors.
In the State of the World chapter titled “Reinventing the Corporation,” the Tellus Institute’s Allen White and Monica Baraldi outline four areas of needed transformation for the modern corporation:
- Purpose. A corporation’s statement of purpose serves as a window into its goals and values. A statement of purpose, however, is not required in countries with common law traditions, including the United States, the United Kingdom, Australia and Canada. The B Corp (or “benefit” corporation) (LINK to B Corp story) is an example where participants are required to have a corporate purpose to create material positive impact on society and the environment. The spreading of programs like B Corp internationally is important since corporations with the most power today operate at the global level.
- Ownership. The ownership structure of a corporation has significant impact on its overall goals and day-to-day operations. There are various alternatives to the traditional Western model based on joint stock and limited liability. Ownership systems such as trust ownership, hybrid social enterprises and cooperative ownership have much more potential to align their goals and values for the benefit of society – and realize their actions form part of the larger economic system. These alternative ownership structures are flourishing around the world and show how corporations can be successful while contributing to the benefit of society.
- Capital. Investments are critical for every corporation, regardless of organizational structure. Historically, capital markets operated without regard to long-term social or environmental impacts or regulations. Recent efforts to embed sustainability within the investment decision-making process show it’s possible to generate significant changes in corporate sustainability behavior.
- Governance. The structure of decision-making and accountability in an organization is of paramount importance. A board of directors can play an important role in determining the corporation’s values and practices. If boards can shift from a narrow focus on increasing shareholder value to a more comprehensive view of the corporation and the impacts, it’s possible to make progress toward sustainable development. While far from sufficient, corporate reporting is a first step in improving governance through increased transparency and long-term goal setting.
The practice of corporate greenwashing is now widely recognized as a flawed response. But many companies are increasingly open to changing their product lines in order to be more sustainable. They’re also interested in helping consumers make more informed purchases by labeling products using health and sustainability criteria. A number of visionary companies have taken bold steps, such as outdoor clothing manufacturer Patagonia. In a daring move in Sept. 2011, Patagonia urged its customers to not buy its products unless they really need to.
In critically thinking about corporations, it’s necessary to remember that they are not islands. Corporations operate within a vast economic system that includes a multitude of players and variables. Sustainable development becomes a more viable option when transnational corporations recognize that their position of global influence entails responsibilities to the societies and environments in which they are embedded.