Responsible Entrepreneurship - Business and Society: Bridging the Gap

Responsible Entrepreneurship in Our Time

Birgit Riess

Our society finds itself confronted with a broader array of challenges than ever before. Globalization may have brought prosperity, but it has also brought new problems. Digitization already heavily influences the way we make money, consume and our very way of life. However, it is simply too soon to predict the extent to which these changes will have a negative or positive impact on our society. Similarly, it is far from certain how we will deal with the consequences of demographic changes that will pervade every aspect of society. We know that the effects of demographic change will fundamentally alter the labor market, but how we manage migration and integration has cast a spotlight on unresolved problems.

These challenges elude easy solutions. Highly complex by nature, they are interdependent. Appropriate and effective responses to this complexity and efforts to introduce future-oriented change often fail at the national level, finding more success in an international context. Alongside these developments, there is a growing awareness that securing the sustainability of our economic, social and environmental systems will require contributions from all societal actors – in other words, joint efforts from politics, business and civil society. While political action is essential here, there are additional, meaningful ways in which we can support it.

The Reinhard Mohn Prize 2016 takes as its subject the world of private business and explores the question of how companies can make a meaningful contribution to sustainable societal development – by demonstrating responsible management and proactively contributing to their social environment. This year’s Reinhard Mohn Prize draws on its namesake’s conviction that “companies have a contribution to make to society” and that entrepreneurs “do not have the right to stand completely apart from society” (Mohn 2004: 141).

Many companies commit to contributing to the societies in which they operate. The Institute for Economic Research estimates that the volume of domestic entrepreneurial engagement represents a financial equivalent of at least €11 billion a year (Hüther et al. 2012). But this raises two questions: What are the standards of responsible activity for companies under conditions of shifting global megatrends? And how effective is social engagement, anyway, in terms of both scale and reach? Underpinning these considerations is the understanding that responsibility does not equal charity. Companies have a decisive role to play in strengthening social fabrics and innovation in society. Companies influence the lives and environment of people in our society in diverse ways with their products and services, as well as their manufacturing and supply methods. They therefore bear responsibility – not just economically – but also in the social and environmental impact of their activity.

Entrepreneurial engagement also bears an enormous social potential: the ability to solve social problems with entrepreneurial means. This is rooted in the fundamental principles of enterprise: innovation, risk-taking and resource allocation. And these principles can form an effective complement to conventional state or civil society mechanisms targeting solutions – ideally in joint initiatives. Clearly, this kind of activity also lies in the interests of companies themselves. This is because companies and society exist in complex interrelation with each other – and in a state of mutual dependence. This publication therefore examines the role of companies as social innovators in light of the dramatic shift in expectations placed upon them.

Shifting expectations...

In recent decades, the debate around the social responsibility of companies has accelerated at a rate many scarcely thought possible – including those who identified a fundamental paradigm shift underway, going so far as to postulate the “reinvention” of capitalism (Porter and Kramer 2011).

But what has actually changed, and why? A cursory glance at the development of the “corporate responsibility” movement reveals that what we expect in terms of company activity in a globalized world has changed fundamentally, underscoring the need to develop new approaches that make corporate responsibility more effective.

In the 1970s and 1980s, the shareholder value approach dominated management literature and practice. It held that a company’s sole objective was to maximize profits for its shareholders. This perspective failed to acknowledge that companies move within a dynamic network of relationships, and that other stakeholder groups – employees, customers, politicians and the general public – are also important.

The growing influence of multinational corporations and the globalization of value creation chains, in particular, precipitated closer scrutiny of firms’ economic, social and environmental responsibilities. In addition, the breakneck spread of information and communication technologies allowed for greater transparency, meaning that company scandals and misconduct quickly came to the attention of a worldwide public. Meanwhile, an increasingly vigilant civil society developed more effective campaigning skills. The economic crisis that began in 2007 served to further shake remaining confidence in business.

… promote responsible corporate behavior

These developments were and are the drivers for companies’ increasing acknowledgment of their social responsibility. Terms such as “corporate social responsibility” (CSR), “corporate responsibility”, “sustainability” and “shared” value are now permanently affixed to corporate agendas. And the quality of the concepts explored under these labels has changed greatly over the course of time. While corporate responsibility previously found expression in charitable and sponsoring activities, today, the prevailing conviction holds that the core business, including the supply chain, must be aligned with economic, social and environmental factors in mind. This minimizes risks and maximizes opportunities for new business models.

Another important driver was the increasing awareness among policymakers that corporate social responsibility had to be both supported and mandated. At the supranational level, too, a generally shared understanding of the foundations of corporate social responsibility emerged through the ILO’s core labor standard, the OECD’s Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights as well as the universal principles of the UN Global Compact. These international agreements form the reference framework for a multiplicity of management guidelines as well as rating and reporting systems.

The European Commission also plays an important part here, with its conviction that socially responsible corporate behavior can make a fundamental contribution to sustainable and integrative businesses in Europe. With the 2001 publication of the green paper “European Framework for Corporate Social Responsibility” (European Commission 2001), the Commission defined for the first time what it understood this social responsibility to be – “a concept whereby companies integrate social and environmental concerns in their business operations (...) on a voluntary basis” (ibid.: 8) – and how the necessary framework conditions might be created.

Demonstrably dissatisfied with what had been achieved to date, the Commission shifted its policy strategy from encouragement to obligation. In the new strategy presented in 2011, companies were generally held responsible for their impact – both negative and positive – on society (European Commission 2011). To lend weight to its demand for responsible action, in 2013, the European Commission ordered large companies to provide greater transparency in social and environmental matters. The extent to which a binding reporting requirement, such as the one that will come into effect in Germany in 2017, is able to not just sanction undesirable actions, but also open up potential for CSR remains to be seen.

Companies and their contribution to society

The urgent need for businesses to actively assist with the major challenges of our time was illustrated by two major events of recent years: the signing of the climate agreement in Paris and the Sustainable Development Goals agreed by the General Assembly of the United Nations in New York. Both agreements foresee an active role for companies and business in the implementation of their respective catalogs of goals. The largest and most important network in the world for responsible management, the UN Global Compact, emphatically calls for companies to mobilize in the effort to reach the 17 sustainability goals. And the final document of the UN Conference on Development Finance in Addis Ababa in 2015 placed a particular emphasis on the creativity and innovation of business in the search for solutions that implement sustainability and development goals.

There is a growing recognition of the significance of companies as actors or even partners in efforts to address the pressing problems of society. And the self-applied definition of companies acting as “corporate citizens,” to the extent of their abilities, ties in with their understanding of themselves as responsible companies that have an obligation to society and are unable to act in isolation from it. The engagement of companies in social issues can also be understood as an investment in the framework conditions for...