Why business needs to take center stage on sustainability

 

What do the Paris climate agreement and the new UN Global Goals for Sustainable Development mean for leadership and development? Matt Gitsham looks at an emerging new role for business leaders.

Added on 10 August 2016 by Matthew Gitsham

Why business needs to take center stage on sustainability

A changing world

In September 2015, world leaders gathered at a UN summit in New York to agree 17 ‘Global Goals’ to be achieved by 2030, aimed at finally completely eradicating extreme poverty, improving prosperity for all, and living within planetary boundaries. Then in December 2015 they met again, this time in Paris, and reached an ambitious global agreement on tackling climate change, after 23 years of trying.

As sustainable development has become mainstream, business has moved from fringe to center stage. Over the past few years, business leaders have taken a leading role at the center of advocacy efforts for ambitious ‘Global Goals’ and an ambitious climate agreement. And business is also at the heart of how these goals are to be achieved.

Rethinking purpose in business

These big policy agreements chime with a shift in the way businesses have been articulating strategy.

Rather than articulating goals solely in terms of the financial value that will be created for shareholders, organizations have been instead defining goals in terms of the value they will create for people – end consumers and wider stakeholders – which will allow them to create value for shareholders in the process.

Although these kinds of strategic goals are a recent phenomenon, what we’re seeing is the outcome of two much longer-term trends.

We have seen the rise of complex interconnected global challenges that span national borders and require more than just action by national governments to tackle, for example, fiscal crises, severe income disparity and climate change. At the same time there has been a radical shift in perceptions regarding which institutions in the world must play a role in responding to these kinds of challenges. There is now a widespread view that most of today’s big interconnected global challenges are pretty hard for governments to address on their own, and that a much wider group of actors need to be at the table. It is these two fundamental shifts that have been driving a shift in CEOs’ thinking about fundamental business models and strategy.

A new role for business leaders

All these shifts have had some pretty fundamental implications for the kind of leadership role senior executives are now finding themselves having to play. The much greater economic influence of globally-integrated business has thrust business, and therefore business leaders, whether they like it or not, into a far more overtly ‘political’ kind of role on the world stage.

What’s required to be able to play this new role well? We’ve been leading a program of research around this at Ashridge for a number of years now. We’ve been talking with some of the CEOs who’ve been at the forefront of this trend. We asked them what their experience said about how the role of a business leader is different now from what it was in the past. Their experiences can be summed up in three themes: context, complexity and connectedness.

Context: understanding the strategic implications of societal trends, and developing a broader view on the role of business leaders in society

What is clear from their experiences is that it is essential that business leaders today have a nuanced understanding of the major societal forces shaping the world and a genuine personal passion for running a profitable business out of serving the interests of wider society; that helping address societal challenges through their core business is the primary means by which they create value, not a source of cost, and at the heart of their job description – a quite different view on the role of a business leader compared with the norm of a generation ago.

Sir Stuart Rose, former CEO and Executive Chairman of Marks & Spencer, spoke about the significance of the changing balance of governments and companies:

“The 100 largest financial entities in the world used to be governments. Now over 50 of them are businesses, so suddenly the whole scale in the world has changed, and businesses have become much more important than they used to be.”¹

For Sir Stuart, the commercial implications of this, and case for acting differently was clear:

“In 2007 I said Plan A wouldn’t make any profit in the first five years. In the 2010 annual report, £50million of extra profit was attributable to doing the right thing. So there’s the proof. Any chief executive that says: ‘I can’t afford to do it, I haven’t got the people, it’s all too expensive, the consumers don’t want it, they haven’t asked me for it, it’s the wrong thing to do and it’s going to cost me money’ is wrong, wrong, wrong, wrong and wrong.”²

The senior executives we spoke with were also clear that doing this well means getting involved in activities that require a different skill set. Not only are senior executives now playing some very specific roles in leading innovation and change within their own organizations to drive the execution of shared value strategies, they’re also playing a much more significant leadership role in wider society.

Complexity: a leader’s role in leading change in organizations

For companies to pursue strategies that are primarily focused on creating ‘shared value’ in society doesn’t just mean setting different kinds of strategic goals, it requires substantial change in organizational culture. Organizations don’t change because one individual says so, they are complex communities of relationships where people’s decisions and actions are guided by multiple different influences. The chief executives we spoke to talked of seeing their own role in influencing change in their organizations in terms of opening up the space for others to behave differently – through the goals they articulated and the rationales they developed for pursuing them, the stories and people they celebrated, the conversations they started, the questions they asked, what they were seen to spend their own time doing, and which individuals and groups got recognized and rewarded and for what.

Paul Walsh, CEO of Diageo, talked about the significance of the questions he asked in leading change:

“It’s interesting how word gets around. I’m a great believer that if I want to focus the organization on X I just walk round the organization and I ask about X. And the word gets out.”³

Connectedness: a leader’s role in leading change in wider society

A number of the interviewees also identified an important change in the scope of their work. More and more they now see it as their role to lead beyond the traditional boundaries of their organization, proactively leading change in consumer and supplier behavior, industry norms and government policy, for the mutual benefit of their organizations and wider society. Some are leading collaboratively with industry competitors, NGOs and government where challenges need to be tackled and only collective, systemic solutions will do.

This new horizon to their role has required leaders to develop skills in areas that have not historically been a conventional part of the business leader’s repertoire, for example; contributing to public debate with an informed point of view and proactively leading change in consumer and supplier behavior.

John Brock, Chairman and CEO of Coca Cola Enterprises talked about the change like this:

“I think the role of a business leader today is much more challenging because you’ve got so many other constituencies out there that you didn’t have before. Certainly the hierarchical approach — let’s just lead from the top and if other people don’t like it, that’s their problem — that does not work anymore. You’ve got to engage with these multiple constituencies and make decisions in a more consensual way. And that requires a real skill. As the leading drinks manufacturer in several countries, and as a major player in the industry itself, we believe we have an important leadership role to try to figure out how to bring government, NGOs, and industry all along. We as a company will invest a huge amount of time. And not just me, our whole leadership team.”⁴

What does this mean for talent management, executive education and leadership development?

Getting this new leadership role right has become key to whether an organization (and wider society for that matter) survives and thrives in today’s turbulent, uncertain and volatile times. But the extent to which organizations have ended up with leaders that can do this well (or not) has to date been more to do with good (or bad) luck, rather than by design. As Paul Polman, CEO of Unilever notes, few of today’s generation of business leaders have been trained for this:

“I don’t think our fiduciary duty is to put shareholders first. I say the opposite. What we firmly believe is that if we focus our company on improving the lives of the world’s citizens and come up with genuine sustainable solutions, we are more in synch with consumers and society and ultimately this will result in good shareholder returns… It is an enormous learning curve as no one has been trained for this.”⁵

As a result, this same new generation of business leaders has started to recognize that their organizations need to start taking a more systematic approach to the selection and development of the groups of executives handed the responsibility of senior decision-making roles. Their organizations need to deliberately build the right kind of leadership capability and cultural norms to be able to survive and thrive in this new context.

Clearly, today’s business leaders need a much more thorough literacy in global issues and their business implications, as well as the motivation and commitment to put acting on this at the heart of their work, and a different level of relational skill to lead change inside and beyond their organizations.

Today’s world is changing, and this is changing the role of business leaders and what is required of executive education.

For more in-depth details of this research see the full article in the Spring 2016 360º Ashridge Journal.

See full article

References

1. Rose, S. (2012) Sir Stuart Rose on the changing role of business leaders. Guardian Sustainable Business. 29 March. http://www.theguardian.com/sustainablebusiness/sir-stuart-rose-changing-role-businessleaders

2-5. Gitsham, M. et al (2012) Leadership in a rapidly changing world. Ashridge and IBLF