The need for strong leadership has never been more urgent than in today’s age of radical uncertainty: globalisation, technological change, immigration issues and the rise of populism demand clear reactions and responsibility. Increasingly, corporations – particularly their CEOs – are stepping up to meet this leadership challenge. During OECD Forum 2019, we will reflect on CEO Activism & New Forms of Leadership. Anthony Gooch examines how radical the concept of corporate purpose really is as well as its risks and rewards.
When I first heard the term radical uncertainty, my mind immediately turned to the work of Hyman Minsky, a relatively unknown economist back in the 1950s, who spent his life trying to understand financial crises. He was uneasy with the predominant thinking at the time, which viewed the market economy as stable, and efficient and only vulnerable to external shocks such as the rise of oil prices, war etc. Minsky was convinced that economic booms ultimately sowed the seeds for economic crashes because of the mounting complacency shown by banks, firms and other economic actors during the good times. In other words: “stability was destabilizing.” Sound familiar?
This resonated with old school “influencers”, such as Paul Krugman, who, following the 2008 crash, urged people to (re-)read Minsky, finally granting him his moment of fame (unfortunately for him 13 years after his death).
This seems relevant at a time when we have been looking back on 10 years since the global financial crisis, with the political payback that began in 2016 fresh in our minds. We might have heeded Minsky’s warning earlier, but 2008 was certainly a wake-up call for my organisation, the OECD, and others, still consumed with the comforting notions of a world based on the utopian idea of “Homo Economicus”, eminently rational human beings working to equally rational economic models based on market equilibrium as the national state of affairs.
Just as it took the cataclysm of 2008 to remind us that we live in a world of radical economic uncertainty, so since 2016, we have witnessed a series of political explosions, raw not liberal democracy and the success of populist political offers and parties. This cannot be dissociated from the alarming erosion of public trust in traditional institutions driven in large part by increasing inequalities and divides in our societies that we can trace back to the years prior to the global financial crisis. What is unquestionably new is the digital and technological turbo charge that has revolutionised information and communications contributing to this greater sense of uncertainty.
Against this backdrop, communicators cannot conceive the future as a linear journey. All of us here are in the same boat – we cannot afford to be complacent.
As Victor Hugo wrote in his Actes et Paroles (1876), “Everything that augments our freedom augments our responsibility”.
Radical uncertainty pushes us to do things differently. To equip ourselves to survive and, who knows, thrive in this new normal, we need to carve out a clear and unwavering purpose, re-establishing our social licence to operate. We also need to adjust our mindsets and find new ways to create deeper and more emotional connections with the people we serve. Be it in a company, an NGO, a media organisation, as an elected representative or public official.
Why are we talking about CEO activism now?
The OECD’s mission is Better Policies for Better Lives – and at the moment if I’m frank, we’re asking ourselves some serious questions about our ability to deliver on this in the current environment. We are facing the potential unravelling of international norms and standards developed over decades, and in some cases by the very countries that were their biggest advocates and architects building from the ashes of World War II. From the moment I joined in 2008, governments knew it was misguided to think that we can achieve our goals working with governments alone. Policy-shapers are as influential as traditional policy-makers in delivering public policy and more importantly in ensuring the policies are implemented to have impact.
But who might we turn to as a societal compass? Is this the right moment to make “corporate activism” the new normal?
In reaction to this new normal, I detected a movement growing in the United States in the first half of 2017, now termed “CEO activism”. This has blossomed in recent years. Moving well beyond traditional forms of corporate social responsibility, and responsible business conduct, a number of prominent CEOs are speaking out on social issues, often beyond the areas of their core business.
- Arne Sorenson of Marriott noted that a more political role for chief executives today is “unavoidable and essential”. He said, “You can say it shouldn't exist, or try to hide from it, but neither approach works. There is enormous anxiety right now among our guests and our community all over the world. They want to hear a voice that is welcoming and affirming”.
- Rediscovering its rebellions origins, Nike made the deliberate decision to feature and lead support to Colin Kaepernick, the NFL quarterback who first knelt during the national anthem to highlight racial injustice.
- Marc Benioff at Salesforce decided to spend USD 6 million dollars of company money to close the gender pay gap at his company, Salesforce, over a two-year period.
- Leading fund manager Mellody Hobson is using her position to advocate for more inclusive corporate leadership, when barely 6% of fellow CEOs in Fortune 500 companies are women.
- Ahead of last year’s United States midterm elections, a coalition of major companies — including Walmart, Patagonia and Lyft — took a leading role in the #TimetoVote campaign, to encourage a big increase in voter participation in elections.
- And for the second year running, Blackrock Chair & CEO Larry Fink explicitly linked the prosperity of companies over time to a tangible positive contribution they make to society beyond financial performance.
Twenty years ago, it was rare to see businesses taking a public stand on emotionally charged social issues. Our relationship with brands was different then. Geography constrained our choices and without the internet, our way of sourcing information was more limited than it is today. In other words, our knowledge about brands resulted more from our physical proximity to it or our experience using the product.
Benetton were first movers in this respect, with the Colors of Benetton campaigns of the mid-1980s to embrace multi-ethnicity and reject racism, moving on to raise awareness on HIV in the early 1990s. Today, this type of “shockvertising” would be less surprising to many of us as corporate activism has become more mainstream.
But rather like the concept of “post truth”, it leads us to ask just how novel is CEO activism?
Already back in 1943 Robert Wood Johnson, former chairman and a member of Johnson & Johnson’s founding family, understood that corporate activism “Is more than just a moral compass. We believe it’s a recipe for business success”.
And over fifty years before that, businessman and philanthropist, Joseph Rowntree, was demonstrating his commitment to creating a better society. He built New Earswick, a village in York, for people on low incomes, including staff who worked in his factory, giving them access to decent homes at affordable rents.
Why is this the era of corporate purpose?
It seems that a fundamental realignment is taking place in the balance of power between corporations and customers. From the 1950s and 60s, corporations became the central actor and focus of the marketplace. For the most part, information and influence travelled in one direction, from businesses to shoppers, whose self-worth was tied to what they bought and how much of it they owned: the age of negative consumerism and consumer culture. The 1990s were defined in large part by self-interested “celebrity” corporate leaders. Its negative apogee was perhaps reached with Gordon Gekko’s “greed is good”. 2008 changed all that for good.
Today, information and influence are not unidirectional. It is more of a two-way street. Brands no longer dictate the terms, and this has made it more important for them to draw in consumers by talking to them personally, earning their trust and seeking that all elusive authenticity.
The day when NGOs were lone consciences are over. There is a clear demand from current and prospective employees and consumers, from elected officials and from the media who want to know where companies stand on the big questions shaping our society. As a business leader, it is no longer possible to view your economic activity in a social vacuum. Consumers can instantly inform themselves about your social position and “compromises” and weigh up whether or not they align with their values.
Research by Weber Shandwick and KRC finds that large percentages of millennials believe that CEOs have a responsibility to speak out on political and social issues. They say that CEO activism is a factor in their purchasing decisions.
This is also becoming an increasingly important consideration when people are choosing where to work. Whereas baby boomers sought out workplaces that offered stability and high pay, millennials have new priorities. According to a PwC report Millennials at work – Reshaping the workplace, “Millennials want their work to have a purpose, to contribute something to the world and they want to be proud of their employer”.
This also holds true for institutional investors. A 2017 report by Edelman found that 76% of investors expect companies to take a stand on social issues, such as the environment, gender equality, diversity and globalisation. They have an expectation that CEOs take a stand on issues beyond making money and creating jobs. Are they are looking to the big societal actors in the business community to fill the void left by the implosion of trust in government and, dare I say it, the state?
Marc Benioff summarises it well: “Today CEOs need to stand up not just for their shareholders, but their employees, their customers, their partners, the community, the environment, schools, everybody.”
Beyond the domestic agenda – CEO activism on an international stage
I was interested to learn that the Marshall Plan that created the OECD was pushed strongest by businesses, despite the fact that many Americans were against it at the time. Many business leaders are becoming increasingly engaged on international issues. Unilever CEO Paul Polman has famously pioneered a shift away from quarterly reporting and short-termism more broadly. He has also been a high-profile figure advocating for reporting on the advancement of the Sustainable Development Goals.
Michael Bloomberg, founder, CEO, and owner of Bloomberg L.P., famously offered to fill the budgetary hole of USD 15 million following the United States’ departure from the COP21 Agreement.
In fact, former US Secretary of Commerce and CEO of Kellogg’s, Carlos Gutierrez, has argued that business leaders should be encouraged to develop and execute their own “foreign policies” as well as to engage more actively with their “home” governments to build support for their interests, including maintaining an open, rules-based trading system. This in practice means translating their international strategy at the domestic level.
During the Paris Peace Forum convened by President Emmanuel Macron in November last year, the OECD announced a new Business for Inclusive Growth initiative, together with Emmanuel Faber, CEO of Danone. During the event, he noted that, “Business has a pivotal role to play in shaping a new model of economic growth that fosters social justice – a model that is more inclusive and therefore more resilient”. Therefore, companies are now not a million miles away from organisations such as the OECD. In fact, you might say that they stand at the crossroads between standard setting and implementation.
CEO activism is not without its risks
Whereas more socially active CEOs might be music to many people’s ears, as always, beauty is in the eye of the beholder.
CEOs need to think about the risks and how their statements and actions will be received in a politically polarised atmosphere. There are also some clear no-go zones.
According to a 2016 Global Strategy Group report, when companies are associated with political issues, customers tend to view this connection through the lens of their party affiliation. For example, Democrats were twice as likely to view Howard Schultz’s Race Together campaign positively, and Republicans were three times as likely to view it unfavourably.
The cost of inaction
The decision to engage in activism also needs to be weighed-up against the cost of inaction. The risk of inaction can in fact be far higher than the risk of engaging in political or social advocacy. If you decide not to take a stand on an issue, you run the risk of your position being decided for you in the public eye, becoming complicit in actions that are deemed socially and societally unacceptable.
It will be necessary for companies to establish clear criteria and processes for deciding on which issues to be vocal on but opting out across the board won’t be an option for any CEO.
Limitations of the personalised approach
It is evident that that the role of corporate leader is evolving in the current context, but to what extent is it sustainable to rely so extensively on a single individual to represent a company’s social values?
In October last year, I was struck by the high-profile departure of Sacha Romanovitch, the first woman to run a big City accountancy firm, who stepped down as chief executive of Grant Thornton. Her departure was the result of an anonymous memo, which accused her of pursuing a "socialist agenda" and "misdirecting" the firm, which it said was "out of control" and had "no focus on profitability".
In responding to these accusations, she said that some would find it hard to accept decisions that will depress profits in the short term but will help profits in the long term. She argued, "If profits get unhinged from purpose it might not hurt you now, but it will come back and bite you on the bum".
This raises important questions about the degree to which values promoted by CEO advocates are truly assimilated by the organisations as a whole and the potential risks for sustainability where this is not the case.
Furthermore, as Andrew Edgecliffe-Johnson warns, “If corporate purpose remains the preserve of a small group of western chief executives on the Davos circuit, it will fall short”. So we must be mindful that in order for CEO activism to play a transformative role, it must be long-term, sustained and systemic.
Perhaps radical uncertainty is the new normal, but let us not forget the lessons from Minsky: activism will be as necessary during the good times as the bad. Just as in economics we talk of the importance of fixing the roof while the sun is shining, we need to stay engaged with purpose well beyond times of crisis. In an era of uncertainty, we need to create a deeper connection with the people we ultimately serve – appealing to the heart as much as to the pocket. We will need to reach out beyond our comfort zone.
In the words of Albert Einstein, “The world is a dangerous place to live; not because of the people who are evil, but because of the people who don't do anything about it”.
Isabelle Kocher of ENGIE, Jacques van den Broek, Chairman & CEO of Randstad and Maithreyi Seetharaman of Fortune will address CEO Activism & New Forms of Leadership at OECD Forum 2019 on Monday 20 May at 16:45-18:15.