Last reviewed 23 October 2013
The clarion call to business is clear. The emerging sustainable economy is one that gives a huge opportunity to companies that will embrace the changes necessary to become sustainable businesses. Simon Graham reports.
What is an independent business?
Independent businesses are medium- to large-size companies that have a strong alignment between business ownership and operations. According to research undertaken by Oxford Economics, they provide more than 20% of private sector jobs, employ over 4 million people and contribute more than £68 billion to government revenues.
Independent businesses share an ownership model that uses a small number of shareholders employed by the business to make all decisions, with few if any external shareholders. Many are owned by founders or have significant control held by the family of the founder, but differ from the typical definition of family businesses in that there may not be cross-generational ownership.
A sustainable business
“Although we stand on the brink of considerable ecological upheaval that, for some, may spell catastrophe, there are still opportunities to forge a new way forward that cherishes different priorities; one that seeks harmony and strives to minimise social and environmental stress. This could be a hugely rich period of opportunity — with new, more sympathetic technologies, business models, new cultural values, and dynamic transformations, generating millions of new jobs.”
HRH Prince of Wales
A sustainable business is more than one that simply conducts its activity in a more sustainable way than its competitors. Sustainable leadership is fundamentally about viewing current business practice through the lens of sustainability. It enables a reassessment of products, services and even business models, many of which will have served companies for decades. This is an increasing trend. According to the fourth annual sustainability and innovation survey, conducted by MIT Sloan Management Review in collaboration with The Boston Consulting Group, the number of companies changing models and practice in response to sustainability increased by over one fifth in 2013.
This often means that companies rely less on corporate responsibility, environmental, ethical or sustainability functions to deliver their sustainability goals. While the role of charismatic leaders, such as the late Ray Anderson of Interface, will be important, true leadership will mean that sustainability will become more embedded in the organisation. It will become an aspect of normal decision-making processes and part of the normal practices of the company, moving from a peripheral activity to one that is fundamental to the core of the business.
Some companies are already far into this journey. Among them are independent businesses, for whom the challenges that sustainability brings can often align with the business model. Independent businesses constitute over one tenth of the world economy and include some of the largest companies in the world, like Mars and Santander. In the UK, there are over a thousand, covering a wide range of industry sectors and regions. They are a diverse set but share a business ownership model that impacts environmental and ethical business practices and, to a lesser or greater extent, facilitates them to become leaders in sustainable business.
One of the primary defining characteristics of independent businesses is the close alignment between their shareholders and business values. Independent companies are frequently either family owned, some for many generations, or controlled by founders, and the Board therefore has a relationship to the business that is more than financial. Many share the view of Alex Scott, Chairman and CEO of Sand Aire: “This business is me. It is in my guts and it is in my demeanour and I live it and I breathe it and I sleep it.”
This emotional engagement means that corporate reputational risk and opportunity becomes personal, which frequently translates into an attitude of personal responsibility that leads directors to focus their passion into making their businesses more sustainable. As Sarah Williams and Anja Schafer of the Open University found in their analysis of environmentally responsible businesses in East Anglia, emotional engagement is often a more powerful tool for engaging successful business leaders than the business case or cost savings. This passion can also be more enduring and can help businesses retain sustainable leadership year on year.
The personal motivations that directors of independent businesses feel for engaging in sustainability are varied. For Simone Hindmarch-Bye, Co-founding Director of Commercial Group, it was a balance between opportunity and obligation that led her to launch the company on a journey that made it the first CarbonNeutral and Zero Waste office services company in the UK. For her, the opportunity that sustainability offered to Commercial was equally balanced by a feeling that, as a business leader, she had an obligation to respond to the key environmental challenges such as climate change. Similarly, the obligation that Commercial has, both as a leader in its sector and as a provider of services to companies that themselves strive to be sustainable leaders, was to provide the most sustainable solutions in the most sustainable way.
Her close involvement in the programme, providing the inspiration and passion to break down barriers, has enabled the programme to succeed. While the financial business case is now very strong, with environmental improvements yielding up to 10% of net profit, it was not a financial argument that launched the programme but rather one that aligned her personal and business values.
Even when the leaders of a business are emotionally engaged with sustainability, there are still other barriers to be overcome. It is helpful if the Board believes that there is a need for the company to be more than just a financial entity, not only generating profit but giving back to the community and caring for the environment, but for such an attitude to truly permeate the organisation there needs to be an understanding that sustainable values are intrinsic to the business. To be a leader in sustainability means having the values of sustainability embedded in the values of the company, its operations and employees.
To ensure that sustainability is truly embedded in the business means ensuring the organisational culture is conducive to sustainable attitudes and actions. Here, once again, successful independent businesses have an advantage. As the directors and major shareholders of independent businesses are also key employees, they have the ability to mould the culture of the business more consistently than is possible in a listed company. This culture becomes pervasive, partly due to the continual influence of the value holders, but also because the values will be consistent enough for potential recruits to observe. This means that new members of staff will reinforce the cultural type. For example, Wates Group, a construction services and development company, has built its success on the values of the Wates family. Now in the fourth generation, the influence of the family is still seen throughout the business.
Like many companies, Wates has a programme to create the leaders for tomorrow. Wates’s scheme, Developing Leadership Skills (DLS), takes on between 20 and 30 staff a year to work on business-focused projects in small teams. In the 10 years that it has been operating, over 60% of the projects that DLS teams have undertaken have centred around sustainability, from carbon footprints to engagement with social enterprises in the supply chain. That over three fifths of the teams would select sustainable projects to prove their leadership potential is strong evidence that sustainable practice is considered normal in the business culture and, indeed, considered a value aligned with leadership. These eco-intrapreneurs themselves can go on to develop new sustainable processes and products that help the business become more successful and sustainable.
Once values conducive to sustainability are embedded in corporate culture, the challenge of normalising sustainable behaviour, often perceived as the final challenge to making sustainability part of a company’s DNA, is greatly eased. However, as many companies have found, even with complete engagement from staff at all levels, corporate structures may still limit the effectiveness of sustainability ambitions. This challenge is frequently from outside the organisation and driven by the pressures of delivering to shareholders.
Many corporate leaders wish to leave a positive legacy. With a typical CEO tenure in a listed company now falling towards four years or less, this can be difficult. Indeed, as research undertaken by the University of Granada and Network for Sustainable Business discovered, there is a strong relationship between the length of CEO tenure and sustainable investment, and so the reduction in the length of time between chief executives can inhibit sustainability programmes. A related challenge for many organisations developing strong sustainability cultures is the risk that the charismatic leaders of the programme will leave. This was clearly demonstrated in the speculation regarding the future of Plan A when Sir Stuart Rose left Marks & Spencer, which fortunately proved unfounded.
Similarly, external investors often challenge businesses to deliver potentially unsustainable returns and, without strong business leadership, companies can struggle against such pressures. Indeed, as the sustainability professional behind one of the most successful sustainability programmes in the US put it, the company “achieved this despite Wall Street”.
The fact that directors of independent businesses are often in situ for decades and are freed from the need to justify themselves to investors interested only in quarterly reports means many can focus on the long-term view. In the words of Mario Preve, Chairman of Riso Gallo, “We say that we didn’t get the company from my parents, we are borrowing it from our children. And this is important. We are thinking of how it affects our offspring. We don’t think in quarters, we think in generations.”
Out of this also comes a wider definition of business success. Independent businesses often have strong employee welfare programmes, which extend into philanthropic or corporate responsibility work as the organisation naturally projects its values into the wider world. More recently, this has also included explicitly ethical trading programmes with, for example, many independent businesses now actively engaged, alongside listed companies, non-governmental organisations, trade unions and others, in the Ethical Trading Initiative, which offers benefits on a longer term than the quarterly report.
While many sustainability programmes do yield short-term gains, the ability to focus on long-term objectives allows the development of new technologies, techniques and operational models that can provide significant sustainability benefits. For example, the development of the Circular Economy relies on businesses redefining their business models and considering all waste as raw material. Independent businesses have a rare opportunity to lead in developing this new model, with its potential for innovation, efficiency and growth.
The independent business model has many advantages for any company aiming to be a sustainable business. However, the lessons above are not restricted to these companies. Any organisation can use aspects of this model to create sustainable leadership.
Any business leader can also become a leader in the race to create a more sustainable world by taking personal responsibility for the environmental, social and economic impacts of his or her business and using this to emotionally engage with sustainability. Business leaders can also create a culture that is conducive to fostering talent to create internal sustainable leaders. In addition, they can ensure that they retain a long-term vision and the ability to see the bigger, more strategic picture, including a wider definition of business success. They too can be part of the creation of a new business model that is in harmony with the natural world and creates wealth and prosperity for current and future generations.