We discuss things like “sustainability” and the “environment” and “human capital investment” as new ideas in the business world…but are they really new?  I guess the increased focus is new but it seems like recent postings on this blog have linked to articles where the case has been made that focusing on these things is secondary to focusing on the financial aspects of business.  Many of the Environmental Accounting posts echo this sentiment…they say that business should focus on pleasing shareholders through increased profits and respond to environmental/sustainability only a means to that end.

But maybe focusing on financial measures is exactly what creates the short-term approach and expectations that cause problems for companies and the economy. As I mentioned this week in class, strategy is supposed to be a long-term vision and positioning of a company but time and time again we see that the measures and incentives are increasingly short-term.  A posting at the HBR blog caught my eye with some thoughts on this issue.  Read more at HBR: http://blogs.hbr.org/cs/2010/08/should_your_business_be_for_be.html

It’s an interesting notion that Business, held captive by a narrow definition of fiduciary responsibility, is not able to make the long-term investments that could benefit communities, the environment, and ultimately the shareholders. If this notion is even partly correct, then our most powerful institution will be unable to do enough to solve the social and environmental crises confronting us.

The HBR piece goes on to mention that the state of Vermont now provides for a new kind of organization: a Benefit Organization that exists not simply to pursue profits but also to provide a benefit to society.  Perhaps this is going to spread beyond Vermont and will ultimately cause companies to take longer-term views and set long-term strategies tied to incentives for their employees to think long-term.

Are the directors of a Benefit Corporation still obliged to act in the best interests of the company’s owners? Absolutely. But they have legal protection to make investments with an eye to the long term, aiming for sustainable returns, not fast paybacks for shareholders.

As I mentioned in class, the book The Big Short: Inside the Doomsday Machine by Michael Lewis talks extensively about how incentives influence behavior and that the impacts are real as evidenced by the recent economic meltdown on Wall Street and beyond (you can view a great 60 Minutes piece with the author on this site as well).

Whether through the expansion of the Benefit Organization concept or some other way I think that businesses with long-term visions and strategy ultimately do their shareholders a greater service than the ones that take risks for temporary, short-term gains.  Hopefully that philosophy becomes more prevalent and we begin to demand more of our business leaders so that their behaviors and decisions will align with this concept.