The three mega-trends behind the transformation of companies to more socially conscious enterprises

From Qantas championing marriage equality, to Patagonia funding grassroots activism to protect Tasmanian rainforests, there is an increasing trend of companies recognising the significance of socially conscious external stakeholders and seeking to address social and environmental issues.

It seems that companies’ reputation, relevance, and bottom-lines increasingly hinge on their ability to act as good citizens and influence pressing social and environmental issues.

What has changed to shift companies away from a focus on pure profit? From being profit-seeking enterprises, to so called social enterprises[i], that recognise that creating social value can lead to the creation of financial value.

Deloitte’s 2018 Human Capital Trends report, based on a survey of 11,000 HR and business leaders, identifies three forces, or mega-trends, which have been on the rise over the past decade, and help explain this rise of the social enterprise:

1. The rise of the individual, with millennials at the forefront

As millennials become the dominant generation in the workforce, the power balance between the organisation and the individual has shifted towards the individual, who is now calling the shots about who they want to work for and for how long.

Deloitte’s 2018 Millennial Survey of over 10,000 millennials across 36 countries shows that just over a third (39%) of Australian millennials believe they will be better off than their parents (compared to 51% globally) and only 35% believe they will be happier (compared to 43% globally). This generation is also much more socially conscious:  globally, 86% of millennials think business success should be measured in terms beyond financial performance and include ethical behaviour and social impact.

Millennials are actively questioning corporate behaviour, and companies looking to attract them – as employees and customers – must now publicly promote their values and contributions to society.

2. Responding to the collapse of trust in institutions

As Australia’s banking royal commission has highlighted, the public has lost trust in the institutions we once put on a pedestal.

Edelman’s annual Trust Barometer for 2018 showed that public trust in government, business and NGOs has all declined. When asked which institution they felt was the most broken, 56% of Australians surveyed nominated ‘government’. Globally, there is a widespread perception that political systems are becoming more polarised and less effective at meeting social challenges.

Both the Edelman Trust Barometer and Deloitte’s Millennials Survey highlighted a desire from citizens for business, and CEOs in particular, to fill the void left by ineffective governments and take a more active role in addressing issues such as income inequality and diversity; as well as expecting business to be a good corporate citizen by acting ethically and paying its fair share of tax.

Regulators and markets are increasingly enacting changes that address inequality or reinforce social good. For example, following gender pay equity legislation in the US companies are now required to disclose their CEO pay ratio, comparing the CEO’s compensation to employees’ average pay. The UK has just announced it will introduce similar legislation in 2020.

Smart companies are proactively addressing this lack of trust and diversity and inclusion concerns, before regulators force them to change.

3. Technological change

Another key concern of millennials is how rapidly technology is changing the world of work.

The challenges and opportunities presented by the Fourth Industrial Revolution (aka Industry 4.0) were first raised in 2016 by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

The speed and scale of change enabled by the marriage of physical and digital technologies, such as artificial intelligence, robotics, cognitive computing and the internet of things mean millennials can expect to see exponential changes in how they work, live and play. As one would expect, change on this scale makes people fearful for their futures, but also curious about new ways of thinking and working.

Forty-five percent of Australians interviewed for Deloitte’s Millennial Survey believe that Industry 4.0 would augment their job, allowing them to focus on more creative, human and value-adding work including generating social value. Gen Z were more pessimistic, with less than a third (32%) thinking technology would augment their job and a quarter (24%) saying it would replace part or all of their job’s responsibilities (18% of millennials believe this).

To help prepare them for the brave new world of work including work that generates social value, millennials are primarily looking to their employers (40% cite business as most responsible for educating them, versus 18% saying government).

Millennials also rank ‘opportunities for continuous learning’ as the fourth most important consideration when choosing a new employer. But Australian companies are lagging behind their global counterparts in rising to the challenge: just 27% of millennials in Australia say their employers are helping them prepare for Industry 4.0, compared to 36% globally.

The implications for companies

The collision of these mega-trends and the rise of the “social” enterprise should be a wake-up call for companies. Yet many are still asleep – only 23% of Australian respondents in the Human Capital Trends report say social responsibility is a top priority reflected in their corporate strategy. Over half (53%) say it is not a focus for them.

With increased transparency and social awareness, business focus needs to shift towards stronger relationships with employees, customers and communities. In the past we have measured business performance on financials and the quality of products or services. Today, social capital is just as important as – and inextricably linked to – human, financial and physical capital. Companies today are judged for more than their success in making profit. They’re now being held responsible for their impact on society at large – their role as a “social” enterprise.

Supporting footnotes

[i] In the Human Capital Trends report Social enterprise is defined as “an organisation whose mission combines revenue growth and profit-making with the need to respect and support its environment and stakeholder network. This includes listening to, investing in, and actively managing the trends that are shaping today’s world. It is an organisation that shoulders its responsibility to be a good citizen (both inside and outside the organisation), serving as a role model for its peers and promoting a high degree of collaboration at every level of the organisation”. It is recognised that this is distinct from social enterprises which are “businesses that trade to intentionally tackle social problems, improve communities, provide people with access to employment and training, or help the environment”

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