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7 months ago

G20-Germany-Hamburg-2017

mo.rami@trmg.co.uk

ADVOCACY MAZARS The

ADVOCACY MAZARS The German Mittelstand A sustainable business model in transition Few companies are founded with a clear sense of sustainable business practices, but for more than three million private, family-owned German companies classified as Mittelstands, their long-term approach to business, and their deep connection and engagement with employees and customers have not only helped them to thrive, but also embody some of the key drivers of a successful corporate social responsibility (CSR) strategy that many multinational companies currently strive for. But have we reached a point of transition? More recently, CSR has grown in importance from a well-intentioned silo to a strategic priority for companies, as the role business plays in supporting a more sustainable future gathers pace. But how CSR is both understood and implemented differs considerably between companies and countries, with varying degrees of success. There are a number of reasons for this. Firstly, CSR is a broad-ranging concept that addresses topics such as working conditions, the environment, human rights, as well as contributions towards societal and economic development. Many companies that struggle to define core values and adopt a strong corporate culture into their business structure often find it difficult to implement a connected CSR strategy. Others approach CSR in an ad hoc manner resulting in monitoring and reporting gaps. For many multinational companies there is also the short-term financial pressure of increasing the value of the business while at the same time implementing a meaningful CSR strategy. Family values German Mittelstands come from a different starting point. As the majority are private, family-owned companies they are anchored to the values of the founding family, which gives them a strong sense of their corporate culture and a long-term focus that aims to maximise value across the generations, rather than having to consider the short-term performance demands of external stakeholders. The fact that they Mittelstands are a major contributor to Germany’s status as an economic powerhouse tend to remain locally based and play an active role within the community also means they integrate social and environmental concerns into their business model voluntarily. It’s a corporate ethos that displays a level of responsibility and personal accountability that has allowed Mittelstands to withstand a number of economic crises. Indeed, for generations the German Mittelstand has fostered and enabled specific sustainable development goals of Decent Work & Economic Growth, objectives that are in line with the Sustainable Development Goals (SDGs) proposed by the United Nations. As a business model, Mittelstands have not only enjoyed a great deal of individual corporate success but are a major contributor to Germany’s status as an economic powerhouse. It’s a success story that validates the concept that having a strong sense of corporate social responsibility is not only good business practice but an enabler of financial success. Central to this concept is the Mittelstands’ focus on the long-term, where understanding customer needs, product quality, innovation and consideration of societal and environmental issues are considered more important indicators of success than focusing solely on profits. It’s a strategy that is, of course, much easier to accomplish without the demands of external stakeholders and quarterly returns. But achieving a more forward looking, longterm approach as demonstrated by the German Mittelstand is one that many CEOs of multinationals now see as the route to a more sustainable and financially successful business. Evolving benchmarks Yet with real benchmarks on issues of corporate social responsibility already beginning to evolve, measurable actions need to be in place, irrespective of whether a company has a long- or short-term business focus. Increasingly, capital costs are influenced by CSR factors, with each risk having to be identified, controlled and translated into a CSR framework part of an integrated cost process now on the agenda of CFOs. It’s a task requiring serious Dr Christoph Regierer Member of the Executive Board Mazars

ADVOCACY resolve which many of the smaller family-owned Mittelstands that rely on an informal approach to internal and external reporting will struggle to implement. The task becomes more intense for Mittelstands with international operations in developing countries where standard CSR metrics are neither appropriate nor possible, because of a lack of transparency in the supply chain and an opaque regulatory structure. In such circumstances, strict, formal reporting on the wider supply chain and human rights is crucial. Learning from Mittelstands Integrating CSR factors into corporate structures presents challenges. At the moment, regulatory requirements favour large multinationals that, unlike many Mittelstands, have the capability to leverage their size and financial power to meet requirements, even if they sometimes lack conviction. In order to encourage broader and deeper engagement in CSR, it’s important that the industry lobbies for worldwide Mazars Domstraße 15 20095 Hamburg Germany www.mazars.com regulators to consider a more flexible approach to CSR reporting based on scalability. For now, Mittelstands need to focus on adopting workable structures that enable them to comply with current CSR standards. Applying a formal overlay to the SDGs proposed by the UN is a good starting point. Although Mittelstands may lack experience in formally integrating and reporting on CSR standards, their history of family values, social responsibility and long-term focus give them strong foundations to build on. Partnering with like-minded experts to implement a formal reporting strategy is more achievable than having to reset a company’s moral compass or instigating a sustainable corporate culture from scratch. In this respect, the Mittelstand remains a blueprint for sustainability that other countries can learn from. Mittelstands that successfully transition to cope with the increased importance of CSR reporting will not only be in a position of strength, but offer a positive and relevant example of what a sustainable business can look like.

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