The economies of the world are in transition. Uncertainty about the future is rising, political dissatisfaction around the world is increasing, and as people believe that they have to share an ever decreasing pie and limited natural resources with more people (who then are often shown as the “other”, i.e. foreigners, refugees etc.), selfish self-preservation arising out of fear kicks in.
Added to this mix are the growing population (9-10 billion people by 2050), depletion of natural resources, climate change, pollution, accelerated urbanization, generational culture shifts, and the advancement of technology.
In South Africa, the daily impact on our lives caused by poverty, inequality and the lack of opportunity available to the majority of our population – resulting in deep-seated aggression, crime, university-burning and a slew of other “undesirable” societal impacts which many are quick to condemn without understanding – is hard to ignore.
It should be obvious to all of us that businesses locally and around the world are going to face steep learning curves and need to adopt completely different strategies to be both relevant and profit-making in 10, 20 and 30 years time. But somehow we seem to have divorced shareholders and the seemingly rational goal of “maximizing shareholder value” from the people, the flesh-and-blood who hold these shares and who are trying to amass value; which if we keep going at it this way, will be meaningless for our retirement and for the inheritance of our children.
The social, political and psychological constructs that underpin this thinking that keeps us plugged into The Matrix is, however, a topic for another day. Rather, I wanted to unpack the thinking of the company that is owned by shareholders who hold values beyond making as much money as they can in the short term to the detriment of everyone around them. I wanted to unpack the long term, commercially-minded thinking of companies that are operating in a highly socially and environmentally responsible way – and that are profitable and growing.
At the SOCAP Conference held in San Francisco recently, the outdoor apparel company, Patagonia, which is privately-owned, shared its approach to business and how it is growing organically as well as gaining market share by appealing to consumers who are starting to vote with their wallets and only support companies whose values and business practices they respect.
Patagonia once took out an advert during Christmas sales stating “Don’t buy this jacket”. The advert went on to suggest that consumers really shouldn’t buy jackets if they do not really need them. Flying in the face of the consumption economy our economists have encouraged, where goods are designed to fail after a short time to ensure future sales, Patagonia prefers to make higher quality goods using better materials that last longer and have a lower overall cost to the planet. They also make it easy to fix their clothing, including self-help guides on how to mend their clothing, as well as owning the largest apparel repair centre in the world. If it can’t be repaired, they offer a recycling option to their clients to ensure minimal wastage.
There are reasons why Patagonia sees value from its approach to business:
1. A reduction in energy, water, electricity, and waste saves money in the long run
2. Reward and recognition in the press are free advertising and reduces their overall cost of marketing
3. Talent management. Bright young people want to work for socially conscious and transparent companies, shifting the recruitment, remuneration and retention benefits in Patagonia’s favour
4. Getting ahead of inevitable social and/or environmental regulation typically results in a competitive advantage for the company
6. Equity fund managers approach you and ask if they can invest in your company, as the wave of impact investing gathers momentum and look for robust opportunities
7. Consumers are starting to buy goods and services from companies that are socially responsible and while this trend hasn’t yet caught mainstream, it is clear the direction it is heading in
As a responsible corporate citizen, Patagonia strives to add more solutions to the economy than it adds problems, and because its decisions are commercially-based with commercial benefits, it is a solidly profitable company as well as growing year on year, “very slowly and very carefully”. In Patagonia’s opinion, the multinationals that are leading the pack are the ones who are realizing that this model creates business value through sustainability.
As the speaker so eloquently put it: “There is no business on a dead planet”.
This is exactly the sort of thinking that is part of the new economy – and many innovations in the years to come will not only come in the form of products or services, but also in the general way we do business. Most likely out of sheer necessity, rather than just moral conscience but whatever the reason, companies who get ahead of the curve in this space are likely to ride out economic challenges more effectively and show greater profits in the new economy once it rises.