Welcome Address and Challenges of Doing Business in the 21st Century

Dr. Pierre Tapie (Dean, ESSEC Business School) kicked off the 2012 forum for the Council on Business and Society with a welcome address. The consortium of 5 schools shares strong common vision and values relating to business and society, sustainability, responsible business behaviors, and long-term world challenges. Dr. Tapie shared an observation where the values of companies worldwide influence business schools, and in return, the values of business schools develop future business leaders that will influence companies. Therefore business and society issues are increaingly interconnected. This year, the forum will focus on the theme “Corporate Governance and Leadership”, as the world is changing and needs to redefine the modern meanings of business performance and responsibility, especially the stakeholders that businesses are responsible to. As top business schools, they are responsible of finding ways to enable businesses to create sustainable value in a society – ways that look at business as a powerful and positive force for change.

Following the welcome address by Dr. Tapie, Yayoi Aihara (Keio Business School) and Cem Kiper (University of Mannheim, Business School) presented the results of an international survey. The international survey was developed by the council and conducted on graduate students. It seeked to learn about what current students believe are the responsiblities of companies in today’s world, and about the topics on corporate governance and leadership. When asked about the top responsiblity of companies, though maximizing value for shareholders emerge as the top responsiblity through the survey, differing priorities were observed across different geographies. For example, students from Asian schools (i.e. Fudan University School of Management and Keio Business School) listed producing useful and high quality goods and/or services and creating value for the comnunities in which they operate as the top two responsibilities, instead of maximizing value for shareholders. On a separate question, environmental protection was listed as the top issue that companies should look at. In addition, the survey also generated insights on what graduate business students think are the key attributes of a successful CEO. The top 5 attributes, in sequence, that emerged are driving financial and commercial success, having ethical behavior, taking a strategic view of the business, managing change and innovation, and being a motivational leader. Similarly, there are differences observed across geographies. For example, students from the Tuck School of Business listed having ethical behavior as the top attribute.

The forum was also very fortunate to have invited Mr. Eric Labaye (Director, McKinsey & Company) for an opening address on “Challenges of Doing Business in the 21st Century”. McKinsey & Company is a corporate partner of the Council on Business and Society. The world has seen unprecedented changes in the last twenty years. Example of these changes include China’s growth, evoluation of the G20, and the emergence of the mobile web. What were the megatrends that have shaped the global economy? Mr. Labaye shared five megatrends. The first megatrend is the great rebalancing, where more than 50% of the GDP growth over the next 10 years is expected to come from non-OECD countries. The second megatrend is productivity and labor imperatives. By 2050, those over 60 will make up 22 percent of the global population – double the proportion today, and more than the number of children in that year. Furthermore, there will be a key challenge in terms of matching skills with employment. 75 million young people between 15 and 24 are looking for a job but can’t find one, while 34% of employers cannot find talent. This is a global issue, and not one that is specific to any developing or developed countries. The third megatrend is the increaing interconnection of the world. 5 billion people now have mobile phones, 35 billion objects are connected to the internet, and facebook is the world’s 3rd largest country. Information flow has seen a growth rate of more than 50%, and this growth rate is much higher than that for GDP, trade flows or capital flows. The fourth megatrend is the depleting resources on this planet, especially in terms of water, energy, and food. Since the late 1990s, there is clearly a pricing hike on commodities, and this has a huge implication on businesses and business structure. The last megatrend is the growing challenge for government. Many countries are facing unprecedented fiscal burdens, public sector productivity challenges, growing income inequality, and deteriorating public support for market, trade, and business.

Wth the five megatrends as a background, Mr. Labaye probed a question: what are the key challenges for business? Mr Labaye shared five major challenges. The first challenge is to capture opportunities where they are. Business has a growing challenge in choosing markets and knowing the right market entry strategies, as more than 60% of revenue growth is linked to the market momentum. The second challenge is innovation. There is an increasing trend for a winner-take-all ecosystem, and business must continuously innovate to keep up with changing consumer needs and evolving landscape. The third challenge is managing a global organization and talents. In a McKinsey research on organizational effectiveness, many organizations have observed a disturbing trend where local organizations are more effective than the global organization itseld. That seemed to suggest that there is a penalty levied on global organizations. The fourth challenge is managing and leveraging data. Big data can generate significant financial value across sectors. The last challenge is raising resource productivity. When McKinsey looked at the efficiency of resource investments, the productivity opportunity totals $2.9 trillion in 2030 from an investor perspective.

From the megatrends and key challenges identified, Mr Labaye shared insights on four implications for leadership and business. Firstly, leaders need to learn how to manage volatility by balancing between a telescopic and microscopic view. Secondly, leaders need to increase focus on long-term health of businesses. leaders need to balance between the need to drive short-term quarterly earnings performance, and the long-term health of organizations. Thirdly, leaders and businesses must engage stakeholders, not just shareholders. The last implication is business leaders should adopt a mindset that they own the companies when they are managing their companies. Research has shown that family-owned businesses have outperformed non-family companies in the last decade. By acting as owners, that will also encourage business leaders to focus more on long-term health of their businesses.

Personally, I find it very encouraging that the collective effort to redefine a new meaning for business and society has generated great interest from business leaders, NGOs, government officials, and graduate business students (read: future business leaders). What Mr Tapie and Mr Labaye spoke about on stakeholder management resonated with me. From my summer internship in the Philippines, as well as my recent Independent Study on “Media Scrutiny and CEO Effectiveness” under the supervision of Professor Pino Audia, I have gained valuable insights on the importance of stakeholder, in addition to shareholder, management for businesses. For example, I worked closely with government officials, indigenous people, and mining companies when I was in the Philippines. That allowed me to witness how corporate social responsibility is no longer a good-to-have activity for business, but can be an integral part of business strategy that improves long-term competitive advantage of mining companies. In addition, I find it heartening that graduate business students are taking a closer look at responsibilities of businesses and attributes of CEO, and going beyond the traditional belief of maximizing shareholder value. I hope the Council and business schools worldwide will develop better business leaders that can take both business and society forward in this increasingly complex world. And transform the world into a better place. This may be a first step, but I believe it is an important, landmark step we are taking together.

#CouncilBusinessAndSociety

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About Kevin Tay #CouncilBusinessAndSociety

Kevin Tay is a second-year MBA candidate at the Tuck School of Business at Dartmouth. At Tuck, he is a Fellow with the Council on Business and Society, and had consulted for organizations in the healthcare, anti-human trafficking, and extractive industry. Prior to Tuck, he had worked in the banking industry in Singapore and China.
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