At a time of activist shareholder backlash against so-called woke capitalism — notably, corporates espousing sustainability objectives, including environmental, social, and governance (ESG) causes — it is interesting that an argument is being advanced to remodel Indian capitalism. There is no doubt that conglomerate capitalism that is dominant in the country discourages innovation, widens income disparities, contributes to environmental degradation, and slows growth over the long run. In a recent article in this newspaper, M Muneer and KM Chandrasekhar made a strong pitch for corporates to have a greater sense of purpose in balancing the interests of all stakeholders like employees, customers, communities, and the environment rather than focusing solely on shareholders. One of the earliest proponents of purpose-driven capitalism is the business of humanity project of the Katz Graduate School of Business, University of Pittsburgh, according to which humanity-oriented decision-making of firms leads to superior economic performance. Humane decisions include the option of, say, eschewing layoffs during a downturn. Safety, quality, environmental sustainability, gender equality, and integrity are other examples.
This is indeed a challenging proposition for business to be governed by values and principles as well as profitability, which after all is what capitalism is all about. Embracing the shared value concept makes a lot of sense but is difficult to sustain if it is at the expense of profitability. Look no further than the example of Unilever under the far-sighted leadership of Paul Polman, who led from 2009 to 2019 and his successor, Alan Jope, who doubled down on purpose in accelerating climate change actions within the company’s operations and the wider value chain. Another lesson from the Polman era is that purpose can also help reduce tensions in the workforce and create optimum conditions for growth. But after five years with Unilever’s stock on a downward trend and pressure from activist shareholders, the company’s current leadership is relatively less focused on sustainability objectives and is even cutting jobs. In other global companies like Ford, activist shareholders have successfully exerted pressure on the top management to back away from policies promoting diversity, equity, and inclusion and focus more on shareholder value.
Clearly, these are not good times to advocate that India Inc. must integrate social impact and ESG into their core business models. To persuade more companies to embrace the shared value concept, it is necessary to point to successful cases that have enhanced both societal and shareholder value. Muneer and Chandrasekhar, for instance, suggest that companies could be persuaded to develop new products or enter new markets that address societal needs. This is a variant of the late management guru CK Prahalad’s thinking that companies must address the needs of humanity. But if there was indeed fortune in catering to the bottom of the pyramid, why aren’t many companies addressing the needs of the poor?
If that was happening, there would be no warrant for the government to mandate corporate social obligations on companies. However, what is important is that they want to start a debate on remodelling Indian capitalism in which corporates address societal needs rather than only shareholders. That the business of business is not only generating profits but sustainably enhancing the welfare of all stakeholders. Unfortunately, this thinking coincides with a time when activist shareholders are asking questions to the top management as to whether adopting a shared value concept could be at their expense.