Most large companies acknowledge the need to be more responsive to shifting societal expectations, to better establish trusting relationships with stakeholders, and to become more open and accountable. And yet those same companies often struggle to translate good intentions into good practice. In no small way, this is due to the lack of any serious, practical guidance addressing the outmoded way in which leaders are selected and developed.
Together with Changing Consciousness and Executiva, BSR is launching a report today that explores how "leadership competencies" need to change in a world that is increasingly economically connected, ecologically interdependent, and socially accountable. Some refer to this as the "sustainability leadership competency gap." (This report is also the subject of the BSR Conference 2012 session "Sustainability and Leadership Competencies.")
The objective of our work was simple: to describe in an accessible way the competencies necessary for senior managers, executive teams, and boards to lead with sustainability in mind. The full report outlines how today's challenges are affecting company leaders, what this means for recruitment and talent development, and the role of corporate governance, particularly related to succession planning and board evaluations. Here, offer an excerpt of our report—which is based on interviews with more than two dozen experts and business leaders—to focus on the five traits of leading sustainability companies.
Living With Uncertainty and Complexity
Organizations that pay attention to their shifting environmental and social context tend to have a more humble relationship with the future than those that are more convinced of their ability to anticipate what lies ahead.
According to interviewees, leading sustainability companies have developed their appreciation of interdependence and complexity through their interest in long-term mega-trends and by engaging with stakeholders who represent diverse and even conflicting interests. These companies are more comfortable dealing with issues for which there is rarely a "right answer." Sustainability is replete with such dilemmas.
This shift of emphasis from planning based on a fairly well-circumscribed description of the future to a more uncertain future with assumptions held up for challenge is both subtle and profound. In practical terms, this approach places less faith in forecasting and central planning, a less formulaic approach to risk management, and a greater emphasis on a range of perspectives in risk assessment and strategy-making. As Glenn Barbi, vice president of Becton Dickinson's office of global sustainability, told us, "It is not the plan but the planning process that is important. When you force implementation of a plan, it will not be effective."
This is not to suggest there is no room for corporate planning in the conventional sense. Rather, strategies of leading sustainability companies tend to be more broadly based (some might describe them as more "resilient"), ensuring that corporate resources are set aside to respond to unexpected changes in the world. Given recent events in the global economy, such concerns are high on the agenda of business leaders.
Leading companies are more outward-looking by their nature. Given the pressure for greater social accountability and the recognition that business success depends on more than investors, customers, employees, and suppliers, more companies have brought diverse stakeholders into the fold. Some leading companies have gone beyond traditional stakeholder engagement by establishing external panels that offer new perspectives in a very direct way and even test out new ideas and products.
This approach requires an openness to different views that reaches beyond the usual diversity debate. As important as the diversity agenda surely is, it has become, ironically, quite narrow, tending to focus on gender, ethnicity, age, and other factors. Diversity for leading companies moves beyond this, taking a considered interest in "cognitive diversity," or different ways of thinking and seeing the world. In leading companies, a polymath is seen as a valuable addition, not a threat or a loose cannon.
"The biggest challenge today is the ability to talk to people you don't necessarily agree with and being able to listen to them," said Mark Moody Stuart, chairman of Hermes Equity Ownership services and also chair of the Foundation for the UN Global Compact. "Leaders need to try to understand what is driving the person they are speaking with and the implications of what they are saying. This is even more important today with all the loss of trust and new communications methods."
There are two main benefits to this approach. The first and most obvious is a questioning attitude toward accepted assumptions, habits, and ways of working.
The second is somewhat paradoxical but no less important. A challenge to "who we are" and "how we do things around here" just as often serves to reassert the importance of long-held values. In other words, welcoming different thinking and beliefs, when done well, not only holds the prospect of useful change but is a tremendous force for corporate cohesion, provoking a shared clarity about "what kind of company we are and want to be."
A Relational Enterprise
Companies wanting to establish themselves as socially responsible in the minds of a broad range of stakeholders often start with community investment and employee volunteering, and, over time, invest in a more sophisticated reporting and communications effort, initially without much change in behavior. As the limitations of this approach become evident, many companies progress to taking a deeper interest in social accountability. But for most companies, even those regarded as good corporate citizens, these efforts tend to be limited to stakeholder consultations and surveys. Such transparency and accountability is valuable because it provides senior executives and others with a snapshot of the state of stakeholder relations at a given point in time.
Leading sustainability companies however, are moving beyond these transactions in information and into dialogue and collaboration. The term "dialogue" here refers to more than a stimulating conversation. It is a quality of exchange that puts relationships at its heart, and so holds the prospect of doing something together that each party would struggle to do separately. These kinds of engagements invite representatives of a company and its stakeholder groups to identify common ground and develop imaginative new ways to make progress. For leading companies, stakeholder engagement goes beyond providing a greater awareness of emerging risks and a measure of stakeholder assurance for its activities, and also becomes a source of new ideas and innovation. In some cases, it may even deepen into co-creative relationships, such as when a company and a sample of its customers and other stakeholders develop new products together.
To this way of thinking and the kind of leadership that comes with it, a company is its social capital. Of course human, natural, manufactured, and financial capital are enormously important, too, but a company's relationships comprise the context within which all else resides, given that so much on which the company is ultimately dependent lies beyond its control.
Tata's Group Corporate Sustainability Vice President Anant G. Nadkarni summarized this idea nicely: "We are one undivided humanity. An enterprise and stakeholders cannot be separate. We are interconnected in many ways, and sustainability is all about these linkages and relationships. For instance, the sustainability of a supply chain is only as strong as the weakest relationship in the supply chain."
Stepping Outside the System
The interviewees also told us that leading sustainability companies are not content to simply respond to a shifting landscape—they are unusually active in shaping the social, political, and policy environment of which they are a part.
These acts of leadership broadly take two forms. The first is that these leaders work for sustainable change at a sector level. These individuals are often able to take a longer-term view—including of their own careers—and ponder their legacy and the importance of being a citizen as well as a manager. They are also able to articulate a greater corporate purpose and values that extend beyond profit and short-term shareholder value. In doing so, they secure for their company the "social permission" to participate in the wider debate with policy-makers and others about the future of their industry.
The second way leading companies promote profound change is by experimenting at the edge of the business model. There has been much discussion about integration within corporate responsibility circles over recent years. This has usually meant changing organizational processes and systems such as balanced scorecards, supplier assessments, and incentive and reward schemes to at least acknowledge environmental and social issues. This is a broadly based but shallow approach. Leading companies do more by complementing these efforts with genuinely ambitious, more sustainable ways of working, new technologies, and new products, all of which have the potential to transform industries through the power of example. This healthy relationship with risk-taking and ability to create safe spaces to "test change" requires bold leadership and encourages it in others.
Taking this approach can be a gamble, according to Stefano Giolito, Unilever's global director of sustainability. "Sometimes doing something bold requires going beyond the data and taking a leap of faith," he told us. "Sometimes you need to take a risk and think about identity and what you want to be known for. This morphs the discussion away from trying to prove the unprovable and into discussions of leadership."
Leaders Developing Leaders
It seems many of those interviewed were glad to see the demise of the "philosopher king," or hero CEO. For too long, too much faith has been placed in the abilities of one person or a small group of people who somehow are assumed to be uniquely insightful and capable.
Leading companies report an ongoing reassessment of what individual achievement in organizational life really means, and with it a greater recognition of just how reliant even the most impressive leaders are on those around them—including those who do not enjoy a lofty position in an organogram, or a grand job title.
The practical challenge of managing stakeholder relations on a day-to-day basis has prompted a less directive, less hierarchical approach to leadership. Those at the top of leading sustainability companies report making deliberate efforts to never be isolated and to involve more of their organization in the management of it. This emphasizes listening skills, and a certain level of confidence and trust in all employees to devolve authority away from the center.
This, in turn, prompts the participation of more of the organization in setting its priorities. Instead of largely being the preserve of the C-suite, strategy-making becomes a more participative process, during which more of those who will ultimately determine its success are involved. In the minds of many interviewees, this kind of inclusive culture is associated with a more agile, responsive organization that operates with a greater sense of shared ownership and purpose. This cultural change is seen as one of the unintended but beneficial consequences of a serious interest in sustainability.
All of these traits have implications for corporate governance. A number of interviewees worried that unless a wider range of interests are represented at the board level, companies are likely to struggle to establish this kind of inclusive culture. Interviewees were equally clear that there is insufficient guidance and support for chairmen, or, for that matter, CEOs, directors, or anyone else looking to make progress in this area.
This leads us back to the reasons for conducting this research in the first place, and the need for some guidance and support of the kind, we hope, offered in our report.
Adam Faruk is founder of Changing Consciousness, a sustainability strategy, change, and leadership development consultancy, and Anita Hoffmann is founder of Executiva Ltd, a boutique leadership advisory, executive search, and coaching firm.