In a world teetering on the edge of chaos, disengagement is a dangerous delusion. Here’s why smart leaders know that stepping up is necessary.
Investors and business leaders know all about the relationship between risk and reward. While a “steady as she goes” approach may seem to reduce risk, in the short run at least, it could be that relative inaction exposes you to much greater risk over the longer term. Doing nothing in fact becomes the riskier thing to do.
The world at the end of 2024 does not appear to be offering the business community a particularly appetising set of options. There is war raging in Ukraine and the Middle East. Energy prices remain high. And a familiar figure is about to return to the White House to pick up where he left off four years ago. Life is about to get even more complicated.
The temptation for business leaders to disengage, to keep their heads down and focus on spreadsheets rather than news bulletins, may be high. But this would be a bad choice. Events will inevitably impinge on business plans. However unappealing it may seem, this is a time for business to step up and engage, not opt out.
Sceptics may object that business’s track record on engagement is patchy or at least unconvincing. And the sceptics would have a point. Not so long ago – in 2019 in fact, during those last few happy pre-Covid days – the US Business Roundtable announced rather dramatically that the era of narrowly pursuing “shareholder value” was over. “Each of our stakeholders is essential”, declared a new statement on the purpose of a corporation, signed by 181 top chief executives. Employees mattered: “We foster diversity and inclusion, dignity and respect.” At the World Economic Forum in Davos the following January Klaus Schwab declared that a new era of stakeholder capitalism was being born.
This was not merely premature; it was wrong. One investor wrote to the board of JP Morgan, whose CEO, Jamie Dimon, had been a leading force in the production of the Business Roundtable statement. Had JP Morgan’s commercial goals, and the fiduciary duties of the board’s directors, changed? Not at all, came the reply. Essentially it was business as usual. Research conducted by scholars at Harvard Law School revealed that very few of the 181 corporations had indeed altered their fundamental approach to business after signing this statement. In fact, it had rarely been discussed at board level at all.
At least these CEOs were trying to move the conversation on from that destructive account of business inspired by the work of the economist Milton Friedman: that it is purely a matter of making profits without breaking the law (or without getting caught breaking the law, at least).
But in terms of political economy the Business Roundtable were slow learners. The British commentator Will Hutton had written about the stakeholder economy in his book “The State We’re In” in the mid 1990s. Indeed, as far back as 1932, Adolf A Berle and Gardiner C Means had written “The Modern Corporation and Private Property”, which looked at the separation of ownership and control and called for greater shareholder democracy, transparency and accountability.
Until recently, it had seemed that responsible business leaders might be able to make a positive contribution to society under the headings of diversity, equity and inclusion (DEI – as referenced in the Business Roundtable statement), and that investors could support progressive (and sustainable) business activity with their ESG (environment, social, governance) funds.
But these ostensibly non-political interventions have been politicised. Donald Trump’s return to power has been accompanied by a wave of hostility to so-called “woke capitalism”. So certain Republican-run states in the US have attacked pension funds for investing under the ESG heading. The cause of DEI has been smeared, as if greater fairness and equality of opportunity at work are a bad thing. Businesses that still want to make a positive difference in this area are having to rebrand or even camouflage their activities to avoid the hostility of their newly-emboldened critics.
So what can a responsible business leader do? Luckily there is some good and practical advice available in a new book: Higher Ground – how business can do the right thing in a turbulent world, by Alison Taylor, who teaches at the Stern School of Business in New York City.
Taylor is pragmatic and wise. “Being an ethical business is about undertaking a process of discovery about your real-world impact and then basing your values and supporting principles on what you find,” she writes. “What has your company been doing that generates negative and positive impacts? How do you affect the external environment? How does it impact you? How might you alter these results?”
And in a footnote Taylor offers this telling insight: “During the course of this book I will cite examples of positive and negative practice, sometimes from the same company. I cannot provide a neat, holistic example of a company that gets everything right; I believe the expectation that this is possible is part of the problem.”
The world is struggling, and is facing a tough moment. Engaged businesses, thoughtfully led, can improve this situation: providing good jobs, and selling useful goods and services. We should not expect profit-making businesses to act in a saintly manner. But they should be able to do as little harm as possible. And sometimes they can actually make things better.
Stefan Stern is an accomplished writer who has contributed to the BBC, Management Today magazine, and the Financial Times, where he served as the management columnist from 2006 to 2010. He is currently a Visiting Professor in Management Practice at Bayes Business School, City, University of London. Previously, Stern held the positions of Director at the High Pay Centre and Director of Strategy at Edelman.