People + Strategy spoke with three prominent business school deans about how company leaders can handle the trade-off of doing well financially and also addressing today's social and environmental challenges.
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Corporate Leaders: The New Trusted Drivers of Social Change?
For decades, even centuries, the relationship between employer and employee has been framed as oppositional. Who has the greater leverage? With the pendulum swings of the economy and the employment market, there are times when one side or the other seem to have the upper hand. More recently, with the Great Resignation, workers seemed to be in the driver's seat, with companies bending over backward to accommodate their wishes and needs.
Governments, which historically have been the protectors of societal interests, are divided and gridlocked. Citizens have little faith in the efficacy of governments to push forward social change and effectively regulate against corporate excesses, including exploiting employees, customers and the environment. Citizens also wonder if organizational leaders, boards of directors and investors can become a stronger partner in supporting solutions to society's greatest problems.
To what extent can we rely on corporate leaders and the resources of the private sector?
Corporations—long derided as greed-is-good, evil empires—are beginning to be more widely viewed as the most trusted drivers of social change. They have embraced the language of stakeholder capitalism and serving multiple constituencies. They are touting their purpose statements and describing themselves as mission-driven at every turn. They have launched diversity, equity and inclusion programs to help address some of the persistent problems of society—inequality and systemic racism—and are issuing regular reports to hold themselves accountable.
But where are all these initiatives headed? Are corporations embracing the idea of long-termism and seeing themselves as critical players in building a more sustainable planet? Is ESG moving from a function to the fabric of organizations? Will the growing backlash against "woke" capitalism, as critics call it, take hold, and push institutional investors to return to a singular focus on shareholder returns? Will the skeptics, who believe that many of the ESG efforts are little more than another form of "green-washing," be proven right? Will economic challenges push CEOs to abandon their kinder approach in favor of more hard-hearted "it's-called-work-for-a-reason" directives?
To address these societal and corporate leadership questions, we reached out to three business school deans who are engaged in developing future leaders. We asked them about these timely and universal challenges facing all organizations and their leadership teams:
What are some of the most pressing social and environmental challenges that leaders face in the world today?
Ian Williamson, Dean of the Paul Merage School of Business at the University of California, Irvine
Williamson: Among all of the global issues facing leaders today, you have to put climate change and the environment at the top of the list, because ultimately these become the final constraint.
For example, I've done a lot of work in the Pacific Islands around climate change and rising ocean levels. These are existential threats that are literally eradicating countries right now and evacuation planning is in place. But eventually climate changes have major implications for all countries and every industry, certainly including the financial sector. These are big issues and not ones that necessarily all executives and organizations can get their head around because the impacts are so pervasive.
Another issue that we need to think about more broadly is inequality. Obviously in the United States, wage and so many other inequalities are vexing concerns. But on a global level, it's something quite confounding.
Many developing countries in Southeast Asia, Africa and elsewhere struggle mightily. In these areas, there's a huge opportunity for enhancing the quality of life for billions of individuals. Yet the models we see in developed economies may not, and perhaps should not, necessarily translate to those settings.
So we are having to come to terms with the age-old story of how we balance collective wellbeing with individual accumulation. For example, Jeff Bezos at Amazon is one of the richest individuals in the world. And at the same time, this extraordinarily profitable company is coming under tremendous pressure for its treatment of employees. In terms of economic sustainability, something's not right with how we're conceptualizing that problem. I look at Amazon as a microcosm of the broader concern around inequality. When it occurs, it's very destabilizing for societies and companies.
A third big issue has to do with technology, information, social media and data security issues. It's clear that technologies and data analytics are pervasive and can be used in myriad ways. But it's not exactly clear how we should use them and their potential unintended consequences. This includes thinking carefully about the ethical, moral, security and governance parameters that are really quite complex, including the role of government versus the role of companies to create some sense of stability and verifiable information in society.
A fourth issue is our obsession with short-term ROI and our focus on the quarterly timeframes we use to evaluate performance. Research shows there are incentive structures, typically provided by the board, that incentivize very quick and rapid growth rather than investing in long-term growth potential, such as R&D expenditures and things like training, which tend to generate longer-term firm viability.
Short-term growth models may not incentivize what is in the best interests of the company for the long run. This is a choice we've made in our economic models for how we run companies. But there are options.
For example, at U.S. companies, you're likely looking at a three- to five-year strategic plan, which interestingly somewhat mirrors the average tenure of the CEO. But when I worked in New Zealand, they had business plans of 50 years or for three generations. These are very different conceptualizations of what our goals should be and how we should run our organizations.
When leaders begin talking about product offerings that use a piece of land, they would often say they wanted to ensure the land is viable for their great-grandchildren. So, if they increase a product, crop or service today, what does that do 50 years from now? So that conceptualization of time as a mechanism of determining the return on investment is a very important one to consider.
Tackling some of the most pressing social and environmental issues that leaders face today is a tough job that's made even harder by our focus on short-term ROI. That's because these broader challenges of social inequality, information technologies and climate lend themselves to frameworks of evaluation that are more than three to five years. It really doesn't matter if you're Disneyland or a local family business, these global issues have major economic and social implications that can touch every business.
What advice would you give to leaders regarding the trade-off between doing well financially and doing good for society?
Joyce Russell, Dean of the School of Business at Villanova University
Russell: The next generation of employees wants to work in a place that is financially solid but also does good for society and our planet.
More than ever before, leaders are expected to be aware, take a stand and make a difference on the important social issues of our day. Leaders can't hide, but rather are expected to be aware of the issues and be positive role models.
Most leaders are not pushed into making a positive difference, but rather they feel an internal call to do good.
Corporations are actually pretty progressive. There are plenty of examples where corporations act on positive social change more quickly than both academia and government. They might move faster on work life balance, maternity and paternity leave, health benefits, diversity, equity, inclusion, etc.
Some stakeholders would tell leaders,
"Stay in your lane and focus on the bottom line." Others would say,
"You have a platform so use that opportunity to effect change for the betterment of society."
I say that the trade-off between doing well financially and doing good for society is a false dichotomy. For example, by having a more diverse workplace, you discover different and creative ideas and you're able to better connect with your customers, clients, partners and constituents.
Research shows that business leaders are much more actively engaged in positive societal impact than is portrayed in the movies and popular press. Of course, there are greedy actors who just want to make money and do nothing good for society. But while many leaders are financially successful, many are also using that success for the betterment of society. Today's best leaders ensure profitability and play a role in making the world a better place.
My advice to leaders regarding the trade-off between doing well financially and doing good for society is to do both.
Don't buy into the false dichotomy. It takes vision and effort to change society, but it also takes a certain amount of resources. By doing well in business you can do good for the planet. And then you can pay it forward by mentoring the next generation and building leaders for a better world.
To what extent should we trust that corporate leaders will help move the needle forward on social change?
Jean-Francois Manzoni, President of the International Institute for Management Development (IMD)
Manzoni: The short answer is that we need all sectors to help move the needle forward on social change. We need businesses, governments, non-profits, philanthropists and others to partner together on this important challenge that has reached a tipping point.
The business sector has long been a powerful influence on human existence. Companies, work teams and organizations are pervasive in our daily lives. For many, work and companies sustain life. But beyond providing sustenance, companies have historically behaved in both good and evil ways. That's because companies are led by people, and human nature is a complex mix of virtue and vice.
We do know that today's global, social and environmental challenges are large and almost overwhelming. We know that the business sector has resources and significant resources will be necessary to address these challenges. We can't rely solely on philanthropy because they do not have the necessary resources.
There is a growing segment of leaders and employees who are socially and environmentally minded. Part of this movement is in response to increasing transparency. Part of this is due to government oversight and regulation. Part of this is due to the type of education that future leaders receive. Part of this is due to the mindset of the next generation of employees. All of these factors are affecting the behavior of companies.
Should we trust corporations to push the needle forward and be socially and environmentally responsible? On one hand, yes. A growing number of leaders are accelerating their organization's transition to a more environmentally and socially conscious perspective. Not only is it the right thing to do, but it is also increasingly necessary from a business perspective, as corporations are increasingly being held accountable by various stakeholders.
Ideally, this accountability would be reinforced by governments through providing greater financial incentives for companies to improve their environmental and social impact. Regulators and policy makers have been slow to move in this direction, but I think we are seeing an acceleration as the urgency of the situation becomes clearer to voters and governments around the world.
Winn: While the future raises existential questions about the role of companies and even capitalism itself, it also forces a reexamination of some of the foundational disciplines of leadership. A core skill of a senior executive is being able to work through analytical frameworks, including weighing different options, to arrive at a decision. In effect, that meant closing doors to arrive at the chosen path. But in a volatile, uncertain, complex and ambiguous (VUCA) world, the skilled leader needs to shift toward creating more options, rather than eliminating them.
Leaders face tough decisions, tensions and competing values as they balance goals of doing well financially and doing good for society. These universal challenges are faced by all organizations and their leadership teams.
It may not be an either/or challenge, but rather a both/and opportunity to do good for the company and the planet. Stakeholders, including corporate leaders and investors, must be willing to focus on building both profits and sustainable ecosystems for long-term sustainability and success.
Brad Winn, Ph.D., is a Leadership Practice Professor at the Covey Leadership Center and the Executive MBA Director in the Huntsman School of Business at Utah State University. He serves as a Senior Editor for People + Strategy and is the Principal of Winn Consulting Solutions. He can be reached at firstname.lastname@example.org.
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