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Since the 2008 financial crisis, conferences for corporate leaders have explored ways they might restore trust in business. Policymakers and regulators have tinkered with codes and rules to encourage boards and executives to do the right thing. In turn, executives have underlined their commitment to long-term goals over short-term profit.
Yet public confidence continues to be shaken by corporate scandal and the disconnect between business leaders and the public has contributed to anger over inequality and resentment of institutions, evident in both the UK’s vote to leave the EU and Donald Trump’s election as US president.
For some, this lack of trust is proof that a revolution in top-down hierarchies is imminent.
“Leaders no longer have the ability to control the conversation. The predominant communication [in companies] is already lateral rather than vertical” management expert Gary Hamel told last November’s Global Peter Drucker Forum — named after the influential management writer.
Some leaders of large companies are subverting traditional structures. Zhang Ruimin, chief executive of Haier, is leading the transformation of the Chinese white goods maker into a shareholder of “micro-enterprises” that will compete for staff, capital and the right to make the machines customers want. It will operate more like a venture-capital incubator for start-ups than a multinational. Other companies, including Microsoft and Ericsson, are giving autonomy to self-managed teams working on complex projects.
As such models develop, the role of corporate leaders will evolve. Leaders will not disappear but will have to be more attentive to customers and their changing attitudes. One such is Feike Sijbesma, chief executive of DSM, the Dutch group that has transformed from a coal miner into a chemicals manufacturer and then a life sciences and materials group over its 115-year history. “Of course I take care of my shareholders and take care that the company makes profit,” he says. “But my first priority is having customers who are happy.”
Mr Sijbesma wants his company “to play a responsible role in the world”, but says traditional corporate social responsibility (CSR) initiatives, managed separately from the core business, are “nonsense”. “The things I want to do well for the world can only be done if linked to the strengths and competencies of the company,” he says.
Another Dutchman, Paul Polman, chief executive of Unilever, has moved the consumer goods group away from short-term quarterly earnings updates and plans to halve the environmental impact of the manufacture and use of its products by 2030. This effort is part of the group’s normal profitable business rather than as a separate initiative.
Sustainability — in the broadest sense — is built into this business model and is evident in companies’ attitudes to both innovation and leadership incentives. Half of Mr Sijbesma’s bonus is based on non-financial targets, such as increasing employee engagement and improving energy efficiency. The mantra of leaders in this mould is that long-term financial returns will improve as a result of working in a way that benefits society.
Yet many companies remain prone to a tendency identified in a 2005 academic survey of financial executives that found a majority would avoid starting a project to increase long-term economic value if it meant missing that quarter’s earnings forecasts.
Another 2016 survey of 400 executives by Black Sun, a stakeholder communications company, found 60 per cent would prefer planning horizons of more than three years, but only a third have so far adopted such a strategy.
Even at companies known for taking a long view, short-term pressures may remain. Last November, Novo Nordisk’s chief executive Lars Rebien Sorensen was named the world’s best-performing chief executive for the second time by Harvard Business Review, based on the healthcare group’s long-term financial, environmental, social and governance record under his stewardship. But before the ranking had been published, Mr Sorensen’s planned retirement was brought forward by two years after the group cut its long-term profit targets and its shares plunged.
Finally, business leaders need to anticipate changes in public attitudes. For instance, by responding sooner to concerns about tax avoidance, companies such as Google and Starbucks could have avoided the public outcry they provoked in the UK.
As part of a research project looking at how to rebuild trust in business, the Oxford University Centre for Corporate Reputation suggested to business leaders that they should embrace changing societal norms. However, “a surprising number . . . responded by paraphrasing Milton Friedman’s 1970s assertion that the only responsibility of business is to make a profit for its shareholders,” the study said, revealing “a gaping distance between the views of the elite and the views of the public,” who “now expect much more of business”.
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