One of the great crises of our time, alongside climate change, are the gross inequalities that increasingly characterize our societies. These inequalities have various causes, but not least among them are ways of doing business that have systematically pushed risks and costs onto the most vulnerable workers and communities in order to maximize profits.
At the same time, companies today are ever more attuned to their responsibility for how decisions and actions impact stakeholders other than their shareholders. More and more are carrying out human rights due diligence to identify, mitigate, track and account for their impacts on people, in line with international standards. And there is greater understanding that a failure to do so brings risks to the business itself, whether reputational, operational, financial or legal.
Yet there can still be a tendency to see the source of significant risks to people as being ‘out there’ – the product of the company’s operating environment or the conduct of its business partners; or to see incidents as the result of a compliance failure, or the fault of an internal practice that can be resolved through a new policy, a revised process or better training.
So why do so many severe impacts recur and persist? Why do so many companies – even whole sectors – find themselves constantly facing the same critiques, allegations and campaigns?
At least part of the answer lies in the fact that these risks are often integral to the company’s business model: its intended ways of creating value. Where this is the case, the key to unlocking solutions is not in the hands of operational teams or external consultants, no matter how good. It is in the gift of the company leaders who design and develop the business model and strategy. The first, essential step, is for these leaders to be able to recognize where their business model is the source of the risk; the second is for them to know what to do about it.
That’s where this tool comes in. These Business Model Red Flags are designed to help leaders quickly recognize where the source of risk to people’s human rights sits in the company’s core design, and equip them with questions to ask and resources to tackle the problem. These are not ‘red flags’ in the sense of requiring that a model be abandoned wholesale – at least in most instances. They are red flags in the sense of throwing up a signal that top-level action is needed so that business can proceed without inevitable harm to people’s basic dignity and equality.
We hope this resource can inspire and empower business executives and board members, as well as their investors and other stakeholders, to ensure that companies are designed to reduce, not exacerbate, inequalities in the societies where they operate, source and sell their goods and services. By doing so, they will make their companies more resilient to crises such as the COVID 19 pandemic and more attractive to employees, customers and investors.