Sustainable entrepreneurship has gained greatly in significance in recent years. This is reflected in e.g. the heightened media attention for the subject. Triple Value has contributed to that public debate with articles and opinions, principally in het Financieele Dagblad. The present collection brings together 26 of these articles. They provide a survey of our viewpoints and the evolution of our thinking. Even more important than the stimulation of a public debate is the substantial progress that many companies have already made in the field of sustainable entrepreneurship. Measured by market capitalisation, about 80% of the 25 AEX-listed companies are now regarded as ‘sustainability leader’ by the Dow Jones Sustainability Index (1).
But there is no reason for complacency. Notwithstanding the progress made, sustainable entrepreneurship has yet to secure a solid position on the agenda of many boards of management and, above all, business unit managers. This is mainly because the subject is viewed too much from the need to ‘do something good for the world’. The contribution of companies towards sustainable development will remain sub-optimal unless value creation is given more central prominence.
We think that sustainable entrepreneurship needs a new impulse. This is briefly discussed in the final section of this introduction. First, however, we must defuse six myths that currently impede the development of sustainable entrepreneurship:
- Sustainable entrepreneurship calls for a different focus from the creation of shareholder value;
- Corporate governance, compliance and sustainable entrepreneurship are separate issues;
- Non-financial value is of little significance;
- The core of sustainable entrepreneurship is sustainability;
- Companies must be active in developing countries to help poor people;
- The government is a director and driver of sustainable entrepreneurship.
The following six sections each centre on one of these myths. The subsequent chapters of this book contain articles we have written in relation to the respective myths.
Where the Brundtland(2) definition of sustainable development states that we must meet our present needs without compromising the ability of future generations to meet their own needs, we believe that the bar must be raised higher. As you will be able to read at greater length in the final section, we think that companies focussing on actual progress will not only help their shareholders and the world population to meet their needs, but will also enrich the ability of future generations to better meet their needs. For there is no substitute for technological and innovative power and result-driven entrepreneurship.
The active harnessing of this power to achieve genuine progress is what sustainable entrepreneurship adds to ’straightforward entrepreneuring’. In the dynamics in which companies operate, this is not a choice but a necessity to survive in a hypercompetitive environment. ‘Survival of the best fitting’ is the challenge facing companies. Value creation remains the basis for survival; access to resources, efficient allocation of resources, and agility (i.e. the ability to respond to the external context) translate, in our view, into competitive advantages. Only those companies that master these competencies will remain successful in the long term.
Myth 1: Sustainable entrepreneurship calls for a different focus from the creation of shareholder value
A common assumption is that shareholder value is achieved at the expense of other stakeholders. Shareholders, however, have no contractual relationship with the company and only receive a return for contributing capital after the company has met its responsibilities towards other stakeholders.
By contrast, the relationships with many of these other stakeholders are contractually-based. Our own research among AEX-listed companies shows that in 2004 these paid about seven times as much in salary costs to employees than in dividend to shareholders. And the government received more than twice as much in taxes. So shareholders are not the privileged group that many perceive them to be.
The pursuit of shareholder value involves maximising the value of the company as a whole. Any attempt to realise ‘stakeholder value’ – if indeed it is at all possible to find a method that does justice to the diverse needs of this heterogeneous group – deprives a company of the incentives to deliver a better performance than is contractually required. Maximisation of shareholder value therefore offers the best guarantee for the protection of the future interests of stakeholders, while optimisation of stakeholder value may leave the shareholder empty-handed. That is not desirable: without shareholders companies simply cannot survive.
It is important to understand that a focus on shareholder value is not exclusively about promoting the interests of the shareholder. But it is precisely through this focus that the interests of other stakeholders are also best-served. This is obviously not to say that no problems exist in the current organisation of economic interests.We will return to some of these in the final section.
An attempt to resolve these imbalances by altering the company objective in favour of stakeholder value would, in our viewpoint, be putting the cart before the horse. The objective pursuit of maximum effectiveness and efficiency would then be replaced by a subjective quest for the ‘optimal’ distribution of income. Shareholder value is an objective measure for controlling and directing a company. No mixed bag of conflicting objectives can ever match that.
The reality therefore is: sustainable companies must remain focused on creating shareholder value. This is the best guarantee for meeting the long-term interests of other stakeholders.
Myth 2: Corporate governance, compliance and sustainable entrepreneurship are separate issues
Old habits die hard. Perhaps this explains the outdated but persistent perception that companies operate in two arenas: one of the shareholders and one of the other stakeholders. Even companies that are seen as the trailblazers of sustainable entrepreneurship are at best building shaky bridges between these arenas. Consequently, there is strikingly little contact between the departments that are responsible for these areas. That is a risk. By assuming that it can thus best serve both arenas, the company turns itself into a two-headed beast.
What the people at the top fail to realise is that a beast with two heads is by definition a monster. The one head is ignorant of what the other says and promises, and that leads to inconsistencies and contradictions. This puts the credibility and predictability of the business in jeopardy.
In the past years this could be seen most starkly in CEOs with a disproportionate and one-dimensional dedication to sustainable entrepreneurship. Often things went badly wrong precisely at these companies. This phenomenon was so striking that the market became very wary of companies whose CEOs championed sustainable entrepreneurship. Phil Watts of Shell and Cees van der Hoeven at Ahold became exponents of how it should not be done. In our view the governance of these companies – and sometimes also their compliance – actually came under pressure because they divided the world into two arenas. By maintaining a semblance of sustainability and good intentions, the top sought to conceal their appetite for shortterm results. Both the interests of shareholders and the credibility of sustainable entrepreneurship were thus damaged.
The view on sustainable entrepreneurship that we advocate therefore assumes a single arena: integration of corporate governance, compliance and sustainable entrepreneurship. That is in the interests of both the shareholders and the other stakeholders.
The reality therefore is: it is a superseded misconception that the world of capital providers is a different one from that of the other stakeholders in a company. This is why corporate governance, compliance and sustainable entrepreneurship must be managed as an integrated whole.
(1) Own research of Triple Value, October 2005
(2) In 1987 the World Commission on Environment and Development (WCED) published the report ‘Our common future’. This document is also known as the Brundtland report, named after Gro Harlem
Brundtland, the chairman to the commission. The definition of sustainable development, which has been launched in this report, is still regarded as the most authoritative.