Social Purpose & Business Leadership
I recently spent a day and a half with the leadership team of one of Junxion’s long-standing clients to facilitate their first in-person strategy retreat since before the COVID pandemic. Partway through our first day, we got to talking about the relationship between growth and risk.
President & CEO of Junxion Strategy, Mike is an accomplished entrepreneur, consultant and advisor who has spent more than 20 years working to catalyse social responsibility and sustainability with organizations on four continents. Reach him via [email protected]
Our client had needed to downsize by about 30% in the year before the pandemic, due to a ‘perfect storm’ of issues. We of course spent time unpacking those issues and discussing how the right strategy post-pandemic could make the firm more resilient to such shocks, which led us predictably to leaders’ tolerance for risk.
Grow back too fast, and they might sacrifice profitability, reducing resilience again. Grow too slowly, and they might sacrifice potential career paths, eroding the company’s ability to retain great people. One answer might be what I like to call The Goldilocks Approach: pick a path in the middle that’s subjectively ‘just right.’ But on deeper analysis, that might deliver the worst of both outcomes, rather than finding some sort of magical, middle way balance.
Optimizing for Resilience and Risk
Resilience is a measure of a company’s ability to withstand the unpredictable, volatile nature of real dynamics in a sector, market, or community.
Risk is a measure of the possibility of those dynamics actually having an impact on the business. These two are intimately connected: a resilient firm can embrace more risk because it can tolerate some shocks. It can also take some risks in pursuit of its goals when the timing appears favourable. But which risks should it take?
One way to quantify and assess risk is to consider a reasonable forecast of the financial implications of an identifiable risk coming to pass. What would be the downside impact of the risk? What is the likelihood of that downside coming to pass? Multiply implications by risk likelihood and you have a rudimentary framework to compare one risk to another. Of course, no risk calculus is that simple, but this at least looks beyond Goldilocks! The next step is to look beyond financial considerations and use a more complete range of criteria.
From Risk to Responsibility
As more and more businesses expand their view of risk beyond direct, financial assessments, they’re considering environmental, social, and governance—ESG—factors as well. Momentum is building at a very fast pace: According to Bloomberg, ESG investing could reach $53 trillion by 2025—fully one-third of global assets under management (AUM). This is up from $35 trillion in 2020. So the market is providing a significant incentive for business leaders to think about ESG.
Our experience, though, is that most business leaders view ESG through the lens of risk. So their conversations tend to focus on managing the downside: Cut carbon, so we don’t face customer criticism. Focus on labour rights, so we don’t face NGOs’ criticism. Focus on transparency, so we don’t face employees’ criticism. And so on…. I’m simplifying, citing some obvious considerations, but even in the most mature enterprises, risk remains the frame of reference.
If a risk assessment quantifies what we should worry about, then responsibility invites us to consider what positive contributions we can make. Whereas ESG thinkers might consider obligations, impact thinkers consider opportunities. This is the shift in thinking that takes us from ESG to impact.
Make Better Decisions by Considering Impact
Google the difference between ESG and impact and you’ll learn that ESG tends to be focused on public markets, whereas impact tends to be focused on private companies. Or that ESG is a set of criteria, but impact is a strategy for investment.
Both of these are technically true, but they don’t really capture the distinct attitude of assessment—risk mitigation vs service to society.
Three models for this impact-based thinking are prominent. Each aspires to much more than merely quantifying risk: they offer solutions to some of humanity’s greatest challenges.
The UN’s Sustainable Development Goals (SDGs) “are an urgent call for action by all countries… in a global partnership.” They were adopted by all UN member states in 2015. The SDGs describe the ultimate, global context for positive impact. The 17 goals and 169 underlying measures collectively answer the question, ‘What does the world need?’ And they are a frame of reference for all actors in society, not only nation-states.
Certified B Corporations are “leaders in the global movement for an inclusive, equitable, and regenerative economy.” B Corps are “purpose-driven and create benefit for all stakeholders, not just shareholders.” The stringent B Impact Assessment ensures certified companies demonstrate high social and environmental performance, shift their governance to be accountable to all stakeholders (not just shareholders), and present their performance (as captured in their ‘B Score’) publicly and transparently.
The Impact Management Project (IMP) “began in 2016 as a time-bound forum for building global consensus on how to measure, assess and report impacts on people and the natural environment.” Its legacy programs and partnerships help practitioners select impact metrics, build capacity among investors to consider impact as part of their investment decision-making, encourage global standards for sustainability, and help investment practitioners to disclose how their products map to global goals.
The challenge with each of these frameworks is that they present such a wide range of possible activities and contributions that the typical leader is easily left wondering where to start. Read through the SDGs; they’re all important! Complete the B Impact Assessment to identify your strengths and opportunities; there are so many places each enterprise can improve! Have a look at the list of metrics on the IMP; nobody could track all those KPIs!
So where should you start? Regulators, alongside sector and societal norms, provide some of the answer. More comes from clarity about the purpose of your business. How might you make a more significant and positive impact for the many stakeholders around your firm? Yes, consider downside risk, but also look for environmental, social, governance, and financial opportunity. In short, ask yourself this:
Why Does Your Company Exist?
It’s a big question. Especially if you’re wise enough to contemplate it from the points of view of the myriad stakeholders who rely on your company. Its employees. Its customers. Suppliers and partners. Investors. The environment. The local community. But the answer is powerful: it’s your company’s purpose.
Another of our clients, the United Way Social Purpose Institute has published a clear and eminently compelling business case for social purpose.
“There is increasing evidence that having a social purpose is not only beneficial for society, but also positive for the bottom line. Having a social purpose positions the company to be a force for good—and a force for growth.”
During the recent GLOBE Forum conference, Unilever Canada’s CEO Gary Wade reported that of all the company’s brands, those with a social purpose outperform the others on nearly every financial metric. Put simply, a social purpose company is a better company.
Junxion’s purpose is ‘to accelerate the shift to the purpose economy.’ This clarity helps us to understand our ‘ceiling of accountability,’ whether we’re thinking about what kinds of clients to engage, how to assess our impact against the SDGs, or our strategy and plans for the next few years. We grew about 20% per year during the pandemic, as our clients turned to us asking how they might #emergestronger. This year, we’ll be up 40%. More great work. More jobs for great people. And yes, more profit to share.
That client I was meeting with last week? Their purpose began to coalesce during our retreat. Their sector has an outsized impact on the climate and on people’s health and quality of life. By taking on the most challenging projects and distributing their knowledge widely, they’ll at once prove their innovative approach and build a field of consulting that will make a massive contribution to solving the climate emergency.
How do you put a financial value on that?