The VW affair that set alight on Monday and has been burning ever since is a big deal however you look at it. But I think in 10 or 20 years’ time, we could be looking back at it as an even more significant moment than any current commentator is forecasting.
Everyone has seen the immediate impact on the VW share price; many have noted the lasting damage that will have been done to a brand whose foundations are built more than most on dependability and trust; some have even started to talk about the wider impact on the reputation of German and even European manufacturing as a whole.
But I think the true significance runs even deeper – I think this will come to be seen as the apotheosis, the last defining catastrophe of an idea of the role of business in society whose time has come. This is the idea famously conceptualised by Milton Friedman in 1971 as “the social responsibility of business is to maximise its profits”, an idea which has remained intact at core despite various compromises (Michael Porter’s idea of shared value, which in essence simply suggests that profit should be defined slightly more broadly and over a longer time period, is the latest of these, and to my mind a significantly less radical idea than many in the business world make out).
The VW affair is a particularly egregious example, admittedly, but in a world which has seen stories such as LIBOR, the Sea World scandal brought to light by the film Blackfish, the crisis over milk prices, and many more besides, the time has come when we have to see these sorts of transgressions not just as exceptions but as symptoms of a deep structural malaise. When the ultimate goal is to maximise profit, the biggest questions that are asked are whether – not how – this is being done.
Happily, the world is changing and a new idea of what the role of business should be in society is afoot. This will come to be understood as the idea that a business must exist first and foremost to serve a purpose in the world – and that profit-making is achieved in service of this purpose.
Purpose has become a much-discussed buzzword in the business world in recent years, but the principle I am setting out here goes further. Such as purpose is currently discussed, it is still for the most part considered as instrumental to the making of profit. In other words, the argument being made is that businesses should have an idea of purpose because those businesses that do so make more profit.
I am going further. I think we are in a moment of what the philosopher Robert Pirsig would call a Copernican shift, where we realise that the orbit is reversing. Just as once upon a time we were right that there was an orbital relationship between earth and sun, but had got it the wrong way round; so now we are right that there is an orbital relationship between profit and purpose, but have got it the wrong way round. And as a result, we are still getting some big things very wrong.
I hope and believe the moment is now here when we can make that cognitive shift in full. And if the VW scandal tells us it needs to happen, three major movements in the business world are ready to step into the breach and show us it can happen – the rise and rise of social enterprise, the renaissance of cooperatives, and perhaps most importantly, the spread of the B corporation movement.
Benefit Corporations, or B Corporations, are companies that hold a social or environmental purpose as high or higher than profit in their work. In the USA, where the idea was born, the B Corporation is a distinct legal structure, necessitated by the fact that otherwise in US law companies are actually legally bound to prioritise profit over all other concerns: legislation allowing the new structure now exists in 28 states. In much of the rest of the world, as in the UK, legal structures have more freedom to allow the statement of purpose – but because that freedom is seldom used, the B Corporation movement retains an important role in championing this new idea of what the role of business in society might be.
To our thinking at the New Citizenship Project, the VW scandal signals the death of the old model of businesses as Consumers-of-society, exploiting those societies for profit at all costs and inevitably transgressing boundaries of acceptability as a result. By happy dint of timing, the B Corporation movement arrives in the UK today, bringing with it a new idea of businesses as Citizens-in-society, fundamentally rooted in and interdependent with the societies of which they are part.
It’s an exciting time to be alive.