Understanding the evolving nature of business

Harvard Business Review (HBR), the reputable business magazine, has issued its 2015 global ranking of the top CEOs. Interestingly, there is no one from China, Africa, Saudi Arabia, or the whole Arab world for that matter.

The magazine uses two metrics to measure the performance of CEOs making it to its list — financial and non-financial ones. The financial part is very obvious; it is related to the CEOs’ abilities to increase shareholders’ returns through profits and market capitalization. The non-financial measurement, however, is the tricky part.

It is related to the international trend in which companies and its leaders are judged by their impact on those surrounding them — their employees, communities, governments and the societies they are operating in. “The changing expectations have magnified the relevance of non-financial metrics and the need to paint a more complete picture of a CEO’s performance,” HBR noted.

For us in the Kingdom, we do not lack companies with good financial performances, all the financial institutions in the market are doing great, most of the FMCGs, retail, and industrial companies are also doing pretty well. The missing X-factor prohibiting us from competing to enter such lists could be the lack of a comprehensive understanding of the non-financial part, of truly grasping the concept of Corporate Social Responsibility (CSR). 

The concept of CSR has been in use in the business world since the mid 1960s but here in the Kingdom, it started to appear about 5 to 8 years ago. It is usually presented as a part of branding and marketing campaigns, not as a genuine strategic component of most of the companies.

Usually it is a campaign of donation or charity here or there, a clinic or a training center built here or there. It is nothing but a drop in the ocean when it comes to the concept of social responsibility, an approach that is lacking depth and meaning, overpassing the most important issues of employees’ welfare, communities interaction with the products or services, environmental and social impacts, governance and regulation matters, to name only a few.

In other words, we lack the culture that comprehends and nurtures the concept of corporate social responsibility. The same applies to Africa and China apparently. 

Having said that, it is no surprise to see CEOs coming from countries that are known for their superb social welfare systems to top the list. From the Scandinavian countries, for example, there are 3 CEOs in the top 10, with Lars Sorensen of Novo Nordisk from Denmark as the top performing CEO in 2015 rank. While in the top 100, there are 8 from Germany, 5 from Canada, 4 from each Japan and Sweden, 2 from Denmark, and 1 from each Austria and Norway.

From a pure financial results, Sorensen would not have taken the lead, Jeff Bezos of Amazon, the well- known online retailer, would have replaced him, but from the social responsibility perspective, or ESG (Environmental, Social, and Governance performance) as the magazine calls it, Sorensen and his company made all the difference. 

“Why does Novo Nordisk score so high on ESG?” HBR reported. “According to Sustainalytics, the company benefits from, among other things, its decision to offer insulin at a steep discount to consumers in developing countries; its transparent and limited political lobbying practices; and its responsible policy on animal testing.”

The understanding Sorenson has about the concept of social responsibility is something we need to deeply think about. “Our philosophy is that corporate social responsibility is nothing but maximizing the value of your company over a long period of time, because in the long term, social and environmental issues become financial issues,” he told HBR.

“If we keep polluting, stricter regulations will be imposed, and energy consumption will become more costly. The same thing applies on the social side. If we don’t treat employees well, if we don’t behave as good corporate citizens in our local communities, and if we don’t provide inexpensive products for poorer countries, governments will impose regulations on us that will end up being very costly.”

Such a holistic approach to business that goes beyond making profits and maximizing the wealth of the few sitting on the board or investing in the company is what we need in the local market. Companies that evaluate and value their impact on the community they are working in, the staff they are employing, and the markets they are selling to. Maybe then, we can find a local CEO topping that list one day.

-arab news