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Larry Fink CEO BlackRock “Sustainable investing will be a core component for how everyone invests. We are only at the early stages.”

When the boss of the world’s largest asset management company routinely thinks in terms of Environmental, Social and Governance factors (ESG) then other CEO’s would be sensible to take notice.

It makes even more sense for any business leader wanting to burnish their ethical credentials.  

For countless years responsible investing hardly hardly showed on the radar of business leaders, let alone ethical ones. It’s all different now. Corporate scandals such as the VW emissions saga, or the reputation shredding of consumer trust at Wells Fargo have transformed what it means to be ethical in business. 

Today, the business case for ESG investing has become far more robust, if not entirely irrefutable. Otherwise why have ESG funds raced past the $1 trillion mark? As one leading investment manager puts it: “It feels like ESG is at a tipping point.”

“There is mounting evidence that funds which observe environmental, social and governance (ESG) standards in their strategies tend to outperform those that don’t by a significant margin.”
Financial Times, Sept 3rd 2017

Activist investors such as growth-orientated hedge funds have woken up to environmental, social and governance (ESG) concerns. There is nothing philanthropic about such awareness. Stakeholders are following the money. ESG driven investments now often surpass conventional benchmarks:

So it’s increasingly in the interests of mainstream investors to pay attention to (ESG) factors. Bloomberg, Morgan Stanley, Goldman Sachs and other financial giants are busily expanding their ESG product and service offerings.

And in the coming years, women and millennials will start to manage a greater share of global wealth. They’ll also want to align their actions with their values about fairness, the environment and human rights. 
“Almost three-quarters of investment professionals worldwide (73 percent) take environmental, social, and corporate governance — ESG issues–into consideration in the investment process. Only 27 percent do not consider ESG issues.”
CFA Institute ESG Survey, August 2015

The Ethical Leadership Impact

Senior executives with a claim to be ethical practitioners now face a new kind of demanding investor.

These are activists wanting higher returns who have realised that the route to this is through integrity and ethical business performance.

Such investors may not be experts on leadership. Nor would they talk about ethical leadership perhaps. Yet they know what to look for in company leaders. They expect to encounter ones who talk regularly about integrity and then demonstrate it through daily performance.

More specifically they want signs that a business leader knows how to reduce the risks associated with ethics or compliance failures. A commitment to ESG is one clear sign that the leader is pointing in the right direction. 

Demand for risk reduction comes within a context fraught with significant levels of uncertainty. For instance, Swiss Re, one of Europe’s biggest insurers, now benchmarks its entire $130bn portfolio against ESG indicators.

The ESG phenomenon continues despite an absence of detailed, globally agreed definitions of either ethical leadership or what constitutes ESG standards. The overall trend to take into account ESG continues to bring ethical leadership in business into ever sharper focus.

Mirage or reality?

As a source of profits is ESG real, or mere mirage?

Sceptics argue the current enthusiasm for investing which takes into account ESG factors stems from a mere statistical distortion. This they say, combines with a vanity urge to be part of the latest investment bandwagon.

Yet consultancy Create-Research, reports 60 per cent of investors say they plan to increase their allocation to responsible investment over the next three years. That’s a lot of investors living an ESG delusion.

Similarly MSCI another research organisation recently concluded:

“…ESG has affected the valuation and performance of companies both through their systematic risk profile (lower costs of capital and higher valuations) and their idiosyncratic risk profile (higher profitability and lower exposures to tail risk.)

Other studies too have consistently shown how ethical leadership and its form of decision-making fosters employee morale, boosts brand reputation, encourages loyalty in customers and employees, and improves a company’s bottom line.

In summary, ethics and ethical leadership are more than the right thing to do: it’s also the smart thing to do.

The E of ESG

Broadly the E of ESG  means the environment  which includes

  • Sustainability
  • Globalization effects – e.g., exploitation, child-labour, social and environmental damage anywhere in the world
  • Corruption, armed conflict and political issues
  • Staff and customers relations – for instance education and training, health and safety, duty of care, etc.
  • Local community
  • And other social impacts on people’s health and well-being

Business needs leaders able to make sense of these diverse factors. Rather than ignore them, as many businesses still seem prepared to do, ethical leaders embrace the challenge. They also often take a highly personal interest in the implications.

To be an ethical leader is therefore to be concerned with the organisation’s own culture and environment in which employees work. This shows up in the increased interest in employee engagement as a clear route to financial success.

The S of ESG

The S of ESG refers to how a company treats its labour and how it responds to the human rights of the people and communities it touches. Various international instruments define these rights. They include the Universal Declaration of Human Rights and the eight Core Conventions of the International Labour Organization.

While originally developed for governments, these standards now affect the business context. They provide a strong foundation on which to clarify the scope and meaning of a company’s “social” performance. 

E- and G-factors of ESG have achieved considerable traction with both investors and business executives. In contrast, the S-factor, has yet to make a lasting impact. This is against a backdrop of rising economic inequality and mounting evidence of the negative forms of many business practices.

So it’s entirely relevant to ask: can business deliver value in today’s global economy in ways that work for people and communities around the world?

Once CSR, or Corporate Social Responsibility seemed like the start of a sustained shift. It seemed to herald a move by business to showing a genuine social concern for the company’s effects on environmental and social well being.

In practice, CSR has acquired a serious credibility gap. There remain few examples where CSR has delivered measurable business gains, let alone sustained benefits for the community. See Goodbye to CSR, welcome to Social Commitment.

The current lack of interest by some business leaders in the “S” of ESG partly reflects a disbelief that social commitment can pay. Many still view it as a check-the-box exercise, one where investors and companies only appear to comply with rising consumer expectations.

Despite this roll call of negative forces constraining social investment, leading corporate CEOs do emphasize for example, positive reasons they are considering human rights in their business models and operations:

 “…we firmly believe 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 sync with consumers and society and ultimately this will result in good shareholder returns.”
Unilever’s CEO Paul Polman

Others argue that sustainability and human rights investments have led to increases in their company’s ability to recruit and retain outstanding employees, They also point to improved quality control, and better worker retention throughout their supply chains.

The G of ESG

Corporate governance used to be a response to corporate scandals. Now it’s making important inroads on leadership accountability, especially in Europe.

Corporate governance has shifted from the wings where is was seen narrowly, in a legalistic sense of rules and regulations that must be obeyed.  Today it has evolved into a whole new approach. This now includes general support for better run companies and in particular support for sustainability.

Sustainability is one of those phrases that can  mean what you will. In practical terms it means looking at social, environmental and economic impacts and making decisions using a broader perspective than in the past.

When sustainability permeates governance in this way, business leaders become accountable for environmental, social, and economic performance. 

Using the sustainability lens to view governance changes how the organisation approaches issues such as:

  • Land use, energy, water, and emissions
  • Human rights, equal opportunity, and health, safety, and wellness
  • Charitable giving and volunteerism
  • Systems and strategies for engaging with stakeholders,
  • Product development, procurement, and innovation
  • Board composition and compensation
  • Ethics, standards, and codes that apply within an organization and to its value chain. 

With these multiple factors to consider, how can ethical business leaders make sense of the current ESG landscape? How can they better include such information into their approach to business?

The sheer diversity of the ESG landscape explains why governance tends to be its least understood aspect. Yet at its core,  governance prompts business leaders to pay attention to the culture of the organisation.

Investors too increasingly recognize that companies practicing good governance as part of a larger ESG-aware strategy will be more likely to see these factors translate into improved long-term investments. 

Nobody invests in governance for its own sake. Instead stakeholders look to ethical leaders who will place a high priority on good governance as a way of achieving long term financial benefits.

Sources:

  • G.Lofts, Who cares wins in the brave new world of ESG rules, FT 19th November 2018
  • A.Mooney and P Smith, As the climate turns, ESG powers into the mainstreamFT 19th November 2018,
  • Giese, Executive Director, Applied Equity Research
  • Has ESG affected stock performance? MSCI, May 2017
  • L.Portado, Activists look to the ethics route for higher returns,  FT 27th December 2017
  • Kynge, The ethical investment boom, FT, Sept 3 2017
  • Ethical Leadership Around the World, AND why it matters, ECI 2017
  • Jackson-Obot, Ethical investments still on trend, FT Adviser Nov 2017
  • O’Connor and S.Labowitz, Putting the “S” in ESG: Measuring Human Rights Performance for Investors, Centre for Human Rights, March 2017
  • Explaining the G: Putting Governance in ESG, FlexShares, Jul 31, 2017
  • ESG Investing: Should Start with the “G”, Magni Global Asset Management
  • Hale and J Glase, Sustainable investing trends for 2018, Morning Star, 21st December 2017
  • R Sullivan, Which direction for corporate governance?, Board Agenda, February 2018
  • A. Filabi, Prioritizing Social Responsibility in Companies: A coming firestorm? Ethical Systems, 17th January 2018 

This is a revised version of the article on ESG published at www.ethical-leadership.co.uk in April 2018.

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Scientists recently announced the arrival of light from 10.5 billion years ago. 

It reached earth from the most distant known supernova. It had been travelling all that time. Such a journey offers a sobering insight on personal ambition. No human being can hope to make an impact lasting for even a smidgen of that total. 

Someone asked China’s leader in 1971 about the impact of the French Revolution. Premier Zhou Enlai replied: 

Chinese premier Zhou-Enlai

“It’s too early to say.” 

Despite these daunting perspectives business leaders still get asked:

“Once you depart, what kind of a legacy do you want to leave behind?”

A legacy is central to what it means to be human.  Without a sense of working to create a legacy, adults can lose meaning in their life. It offers a glimpse into human relationships, communities, and the human spirit.

A positive legacy could be the most important thing a business leader can achieve in life. It means exerting an influence well into the future. Beyond one’s short stay here on earth. Yet creating such a legacy proves both complicated and difficult.  Most FTSE-100 company CEOs only last about five years. Not much time to build a strong legacy.

Remember me? Alfred Nobel

How will Martin Sorrell now ex CEO of WPP be remembered? Is this empire of 130,000 people really his legacy? Or is there more to life than making a fortune from advertising? 

Alfred Nobel read a bleak obituary about himself before the died.  It trashed Nobel for inventing dynamite and selling arms. Worried how history would judge him, Nobel left his entire fortune to the Nobel Prizes. And that’s how most of us remember him today.

Answering that question:   “What do you want to be remembered for?” 

can be the start of defining a worthwhile legacy. For millennia, leaders everywhere have wrestled with this issue.

The greatest of the Egyptian Pharaohs was Ramses II, or Ozymandias.  None of his great works have survived. In a famous poem Percy Bysshe Shelley evokes a picture of a single pedestal half buried in the desert. On it are the words:  

“My name is Ozymandias, King of Kings;
Look on my Works, ye Mighty, and despair!”
Nothing beside remains. Round the decay
Of that colossal Wreck, boundless and bare
The lone and level sands stretch far away.

Three other Pharaohs did rather better. They built the pyramids at Giza to endure an eternity. So far they have done just that.

Talking of builders, you can still visit Sir Christopher Wren’s famous legacy. In London’s St Paul’s Cathedral there’s a wall plaque with a Latin inscription. It translates as:

          “If  you seek his monument, look around you.”

Leadership legacies can be be almost anything. From a building, to a resilient reputation, such as Nelson Mandela’s.  Alexander the Great conquered half the world and cut the Gordian Knot. The latter was a metaphor for solving intractable problems. A less impressive side of his legacy was destroying Persepolis .  The Greek city was one of the most advanced and civilised in the world.

Henry Ford’s legacy was a process. His moving assembly line slashed the time it it took build a car. Instead of more than 12 hours, Ford did it in two and half.  His legacy lives on in countless factories around the world.

More recent business legacies? How about Anita Roddick’s Body Shop, Steve Jobs’ iphone, and the Internet of Tim Berners-Lee?  

The legacy puzzle 

Only the most committed business leaders crack the legacy puzzle.  Many struggle to make a significant difference in the short time they have at the top.  For instance, how do you leave a long-term legacy of sustainability

What at the time can seem so permanent, may soon fade into insignificance.  The much admired “HP Way” once described the approach of the two founders of Hewlett Packard.  Yet what’s left of “The Way” resides in history, not daily practice.

Jack Welch of GE

In the 1990s Jack Welch must have thought his legacy was secure. After all, Fortune magazine named him Manager of the Century .  Admired for leading the best-run company in the world, he generated double-digit earnings. Meanwhile other conglomerates fell apart. 

Yet within a few years his successor dismantled Welch’s legacy. Worse, a relentless re-examination of that legacy marked him a bully and a tyrant.

This paragon of managerial expertise often humiliated people in GE meetings. Many witnesses confirm that Mr Welch could be a formidable, even terrifying, boss.  One former GE executive confessed that one of his boss’s attacks “caused me to soil my pants”.

Few business leaders leave anything approaching a worthwhile,  lasting legacy. Once they’re gone, they’re gone. Even in the firm they ran no one may even mention their name, especially if they die or get fired. 

Leaving a negative legacy

No so those who bequeath a negative legacy. Years later people still talk about them.  Their harm and the hurt they caused may live on  It’s like lava from a volcano. Their terrible reputation slowly sets hard, becoming immovable.  

For example, Al Dunlap, also known as the Chainsaw, continues to appear on lists of the worst ever CEOs. He spent his career hopping from one corporate boardroom to the next. Dunlop made thousands redundant without a second thought. Finally, he engineered a massive accounting scandal at Sunbeam Products. The firm never recovered and filed for bankruptcy in 2001.

Fred Goodwin of RBS

For almost destroying the Royal Bank of Scotland, CEO Sir Fred Goodwin, was dubbed “Fred the Shred”. The Queen undubbed his knighthood. 

He may not have been a shouter. But he bullied senior managers during his daily 9.30 am meetings. He questioned their competence. He too could reduce a senior executive to tears. 

How does legacy building work?

How people make decisions that affect future generations suggests some specific strategies. Ethical leaders will be the most likely to leave an ongoing legacy. They do so by refusing to go for the quick fix. They maintain a relentless focus on the long term. They show personal respect for others, and a determination to do what’s right. 

Through social commitment business leaders make more than a passing impression. See panel on the right: What sort of legacy?  

Social commitment now appears on many corporate agendas. There’s a growing resistance when short-term comes at the expense of senior employees and shareholders.

Yet few companies have taken the necessary step back. Only the most insightful business leaders see the link between short termism and social inequality. 

In fact, short termism can distort corporate strategy. Many business leaders feel compelled to focus on satisfying activist owners. Or to pursue corporate arrangements such as mergers and acquisitions.

Legendary investor Warren Buffet

Not all companies and leaders though, succumb to the siren voices calling for short termism. Famous investor Warren Buffet sets the CEOs in whom he invests some hard to ignore goals. These stress the long term--“you can’t sell it or merge it for at least a century”.

Major Indian firms like Wipro and Tata Group build social commitment into their culture. They have won the trust of their stakeholders with such commitment. It has helped develop their legacy.
 
Jamsetji Tata founder of Tata Group
People still talk of the ethical approach of the founder Jamsetji Tata of Tata Group.  Business he believed, must respect the rights of all its stakeholders. It was there to create a benefit for society.

Ethical behaviour remains intrinsic to how the company conducts its business. It’s part of the founder’s legacy.

  A research perspective

In studying the legacy issue PwC  described an

“increased attention to the relationship between business and society as part of a company’s ethical legacy”

Over seven years to 2014, PwC found that CEO’s responses to the legacy issue had changed.  Creating social value had become more important. Many wanted their legacy to be a long term one. It included:
  • Making their business a pioneer in its field
  • Introducing a culture of innovation
  • Entering new markets
  • Growing a company against all odds.
Many CEOs felt personal attributes were important for their leadership legacies. Such as integrity, honesty, ethical leadership, transparency, and fairness

   ESG–a possible route to a legacy

One way to help identify a possible legacy is by focusing on ESG factors. These refer to Environmental, Social and Governance issues. Many investors now take these into account when making their investment choices.

Stuart Rose, ex CEO of M&S

Using the E of ESG, a leader may decide to make a difference in areas dealing with environmental factors.  For example, Sir Stuart Rose, then CEO of Marks and Spencers produced his Plan A for the company. This steered the entire organisation towards sustainability practices.

The S of Social Commitment might include: make a difference in how a company treats its employees. Or how it responds to the human rights of the people and the communities it touches.
 
Finally, Governance can be yet another route to a legacy. No longer confined to rules and regulations it encompass a far wider remit. Land use; energy; water; emissions, human rights, equal opportunity, and health, safety, and wellness, volunteerism and so on.
 

See also ESG: How just three letters can help define your ethical leadership

Keep the end in sight 
Anyone wanting to leave behind a legacy might best start by reflecting on the shortness of life.
 
Second, hold onto the aim of remaining in other people’s memory. Turning such thoughts into action play an essential role in a sustained legacy. Committed ethical leaders must therefore aim to create something meaningful–that is leaving something that will outlive them:

“Your legacy touches people you do not know and may never meet”
E.Bell Smith, Professor of Business Administration, Centre for Leadership

The right time to start building a business legacy is now!

 

Sources:

  1. Wade-Benzoni, Create Your Legacy as a Leader HBR December 2016
  2. Chesley, Legacy: what CEOs say they want to leave behind, PWC, Sept 2015
  3. J.Boss, 6 Principles Of A Leadership Legacy, June 12, Forbes, 2014
  4. T.Blackwell et al, Markets need to thing long-term to benefit society, Daily Telegraph, 31st May 2018.
  5. Martinuzzi, What type of legacy do you want to leave? Open..
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 “We want to stay a family business. We want to be able to think long term. We want to be able to concentrate on the values—the ethical and moral values, of course that we have…”
Sir James Dyson, in Boldness in Business, FT.Com March 2018

 

Ethical business leaders develop their resilience to impressive levels.

Apart from being adept at bouncing back from adversity, they know resilience helps define their existence and inspires it. Dyson’s personal story is not unique. Other leaders too grow their resilience, often without ever bothering to think: “I’m being resilient.”

His now familiar tale from struggling inventor to world acclaim combines remarkable determination with consistent creativity. Togetherthese add up to formidable levels of resilience.

And if there’s one consistent piece of advice about success, he and other leaders receive from those they admire and from an ever-expanding army of leadership “experts” it’s

The Harvard Business Review for example, confirms its “authors over the years have offered “an astonishingly wide range of advice” about bouncing back from setbacks, both large and small.

Route to resilience

We can view resilience through two lenses. The first is Bounce-back-ability. This is your ability to rebound  despite set backs, obstacles and a rock-strewn route to success.

The second lens is Lack of resilience. This shows lessons arising from leaders who don’t bounce back. We may briefly glimpse them before under-powered resilience forces them into some other mode or role—permanent or temporary.

For example, in 2011 Lloyd’s Banking Group won a blaze of publicity by appointing Antonio Horta-Osorio as CEO. He was hired to guide the part state-owned Group back to health.

Within a few weeks though, after suffering five sleepless nights, Horta-Osorio finally agreed he had a problem: unacceptably high levels of stress. Just eight months in at Lloyd’s top job he took a much-needed stress break.  To the shock of the banking industry he admitted himself to a London clinic,

The bank’s terse statement to the stock exchange merely said its chief executive was temporarily stepping back “due to illness”. He was done in by stress and exhaustion, brought on by working round the clock, seven days a week. Ironically, the news came on National Stress Awareness Day.

His career as well as his marriage seems to have survived the experience. Now he claims to arrive home with his family every night and is in bed by 10:30 p.m. He doesn’t read emails or take calls between 7 p.m. and 7 a.m. He eats more protein and less carbohydrates, and has learned how to be more patient.

“And I became a better person, more patient, more understanding and more considerate. It was humbling but you learn…. I thought I was Superman. I felt I could do everything. The burnout showed me I was not Superman.  

 

“Many CEOs I speak to are on the verge of exhaustion “says Steve Tappin, an executive coach and co-author of a book about CEOs. He points to the large number of CEOs who must deliver against a background of high expectations and low or zero growth. For example 2017 saw a raft of chief executives leave their companies.

Some exits were expected and came after years of service. Others were more surprising, victims of low levels of resilience,  brought on after the shock of wrongdoing—theirs or someone else’s in their companies. The failures offer lessons about the importance of transparency, accountability, how to handle shifting marketplaces, and stress management.

A poster child for these lessons is Uber’s controversial founder and now ex CEO. He appeared resilient. Until he wasn’t.

Travis Kalanick officially resigned in June when important personal survival lessons emerged. The main one being that simply staying resilient in the face of reputational disaster seldom works. It takes much more than that.

Senior leaders whose resilience
was sorely tested

Jeff Kinder, CEO of Pfizer who resigned saying the demanding role had worn him out; “The combination of meeting the requirements of our many shareholders around the world and the 24/7 nature of my responsibilities has made this period extremely demanding on me personally.”

Andy Hornby, former CEO of HBOS then Boots resigned to take a break “After an intense last five years as CEO of two major companies, I have decided to take a few months break and, having discussed it with the board of Alliance Boots, to stand down from my post as group chief executive.”

Jospeh Lombardi, Chief Financial Officer Barnes and Noble, abruptly quit the struggling US bookstore change as a result of “exhaustion depression – “it was like disappearing down a dark tube”. He couldn’t make decisions, lost weight and everything seemed pointless.

John Binns a high-flying partner at accountancy firm Deloitte for more than five years suffered from a worsening depression – “it was like disappearing down a dark tube”. He couldn’t make decisions, lost weight and everything seemed pointless.

James Green, former CEO of Giant Realm, began dreading his daily commute through New York’s Penn Station. Though emotionally drained, he never hinted at his condition. Instead, the stress led him to sell off his company.

Yishan Wong CEO of Reddit, a social news site, resigned saying “I’m basically completely worn out, and it was having significantly detrimental effects on my personal life,”

 

  

The VUCA challenge

This cumbersome acronym was invented by the US military in the late 1990’s. It describes an environment that’s Volatile, Uncertain, Complex and Ambiguous. Just right for battle fields. Yet it’s also caught on in business since in various forms VUCA happens there too.

All business leaders must deal with VUCA but ethical leaders tend to have a more sophisticated appreciation of it. For instance they usually make more systematic effort at risk assessment. They also seek out longer term strategies that can help them cope with set backs and obstacles.

On its own, being ethical is not enough to ensure a leader’s personal success. Though it certainly helps, particularly over the longer term. There are two key facts emerging from research factors that can make a big difference to whether the leader is resilient when facing a VUCA challenge:

  • Desire to leave a legacy
  • Strong personal values

These drive many ethical leaders. They help feed their relentless focus on making a social difference. It also primes their longer term view. For instance in 2017 Unilever’s chief Paul Polman came out fighting fending off the Kraft Heinz’s £115bn hostile takeover bid. His heroic efforts defeated the unwelcome invasion in a weekend. 

He continues to defend his company’s “inclusive capitalism” business model.  He persists in championing the returns Unilever shareholders have enjoyed during his eight years at the head of the Dove soap-to-Lipton tea consumer goods giant.

And he keeps trying harder than ever to provoke a wider debate about the perils of short-termism in business. This is CEO resilience in action.

Measuring Resilience

Resilience is more than just recovering—the bounce back. It also includes reacting in responsible and mindful ways to serious setbacks and challenges. Almost without exception Boards of Directors say they want two qualities in a CEO:  Integrity and resilience.

Why? Because they transcend any single business situation. Quite simply they help leaders to handle almost any adversity.

But such valued qualities are still hard to measure.Any metric will be an approximation, not a sure-fire statistic.  Most of the attention around choosing a CEO for example, relies on observable personality traits, such as charisma, influence and passion.

If we use approximations for resilience what should we choose? According to some recent research on integrity and resilience of leaders, there are contradictory traits of leaders who can navigate through VUCA. 

First, executives high in integrity—i.e. ethical leaders, tend to be more likely to score high on the ability to

  • Connect with others
  • Be vulnerable
  • Be reluctant to take risks

Second, leaders those leaders perceived as having strong integrity do not necessarily score well on: the ability to galvanize people into action; having a high tendency to take risks, or the ability to be disruptive.

In an effort to produce an approximate measure of resilience Management Institute Roffey Park created a Resilience Capability Index. This uses an ultra simple questionnaire approach—see below 

An approach developed by PWC looks at resilience from an organisational rather than a personal perspective. This relies on variables such as the ability to respond to change and the organisation’s relationships with customers, business partners, and other stakeholders.

The PWC variables for measuring organisational resilience uses six forms of organisational behaviour: Coherence, Adaptive Capacity, Agility, Relevance, Reliability, and Trust

Zenger Folkman a US consultancy specialising in strengths-based leadership has developed further ways to identify resilience  These include leaders who must be coachable, build trusting relationships, develop others and are decisive. It collected data on more than 500 leaders. Using views from managers, peers, direct reports and others on 40 behaviors. What emerged was

  • “Most resilient leaders are also viewed as the most effective leaders”.

Yet few attempts to measure resilience fully acknowledge the importance of integrity, and ethics as underpinning the ability to be resilient. 

Distilled Wisdom

Recent years have seen considerable advances in understanding the pressures and resilience demands face by leaders. These plus the large amount of practical wisdom offered by leaders themselves, suggest some practical ways ethical leaders can build their resilience. 

 

  • CHANGE: Build situational awareness through embracing change; accept the need to adapt and maintain a realistic perspective
  • VALUES: Be guided by your values and trust your judgement; resist short term pressures to cut corners or just go through the motions in some way
  • STEPS: Focus on concrete steps to bring ethics and compliance alive for others; don’t be satisfied with elaborate rules and words.
  • CHALLENGE: Be willing to challenge other senior leaders to embrace accountability and transparency
  • SIGNS: Demand evidence that ethics and compliance programs are effective and responsive to change
  • WALK: Get out there and make contact with stakeholders i.e. walk the walk.
  • CONSCIENCE: Pursue corporate conscience through promoting values and ethical culture, if necessary against the resistance from other stakeholders.
  • RESIST TRADE OFFS: Refuse to accept a trade off or “choice” between ethical business practices and profitability. The two are inextricably linked.
  • LEARNING: When misconduct occurs make sure it’s properly analysed and the lessons learned and shared with employees.
  • NO QUARTER: Support effective sanction or penalties on senior executives and high performers involved with misconduct
  • CELEBRATE: Ensure there is proper reward and recognition for ethical conduct, don’t just take it for granted.
  • GOALS: Set realistic goals and establish a clear sense of purpose that you can explain with enthusiasm to others; each day, take one small action to move forward.
  • CHALLENGES: View challenges as opportunities, not rocks in your way; take positive action to tackle them and avoid passivity
  • NETWORKS: Build your networks and set out to connect with others and encourage collaboration, not isolated working
  • STRESS: Accept it’s a real factor in your life and must be managed; practice optimism; don’t blame yourself and resist thoughts such as “I can’t do this”. 

 

  SOURCES

  • J. Folkm, 7 Ways To Become A More Resilient Leader, Forbes, New Research: April 6, 2017
  • The Resilient Leader Debunking the myths and growing your capabilities, Roffey Park
  • N. Pratly, Paul Polman: ‘I could boost Unilever shares. But cutting costs is not our way’, The Observer, 20 May 2017 
  • Chesley, Creating a Culture of Resilience, What really enables organizations to survive and thrive? Insights Ethisphere
  • Roffey Park, The Resilient Leader, Debunking the myths and growing your capabilities
  • 6 traits that define a resilient business leader, Laura Gitman and Anita Hoffmann, Greeen Biz, Monday, July 13, 2015
  • C. Alexandrakis and D. Stamoulis, Integrity, Resilience, and the Power of Quiet Leadership, Board & CEO Advisory Group, December 18, 2017
  • A.Hill, Do not take it personally: business leaders working under pressure, FT 11 March 2018
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“There is mounting evidence that funds which observe environmental, social and governance (ESG) standards in their strategies tend to outperform those that don’t by a significant margin.”
Financial Times, Sept 3rd 2017

Activist investors such as growth-orientated hedge funds have woken up to environmental, social and governance (ESG) concerns. There is nothing philanthropic about such awareness.

In simple terms, stakeholders are following the money.  In emerging markets for example, as the ever vigilant FT points out, ESG driven investments now do better than conventional benchmarks:

It’s increasingly in the interests of mainstream investors to pay attention to (ESG) factors. Financial giants such as Bloomberg, Morgan Stanley, and Goldman Sachs are all busy expanding their ESG product and service offerings.

And in the coming years, women and millennials will start to manage a greater share of global wealth. They’ll also want to align their actions with their values about fairness, the environment and human rights.

ESG is now part of investment jargon. It describe the performance of investment and fund portfolios using environmental, social and governance criteria.

The quality of these portfolios can be measured against specific ESG factors and duly reported to shareholders.

ESG analysis can provide important insights into the long-term prospects of companies. Investors can find new market opportunities with companies placing the management of ESG factors at the core of the business.

“Almost three-quarters of investment professionals worldwide (73 percent) take environmental, social, and corporate governance — ESG issues–into consideration in the investment process. Only 27 percent do not consider ESG issues.”
CFA Institute ESG Survey, August 2015

The Leadership Impact

While under pressure from so many diverse sources, senior executives are encountering yet a new kind of demanding investor. These are activists wanting higher returns who have realised that the route to this is through integrity and ethical business performance.

Such investors may not be experts on leadership. Yet they know what to look for in company leaders. They expect to encounter ones who talk regularly about integrity and then demonstrate it through daily performance.

More specifically they want signs that a business leader knows how to reduce the risks associated with ethics or compliance failures.

Demand for risk reduction comes within a context fraught with significant levels of uncertainty.

High profile cases such as VW or Wells Fargo are already part of business history. Devastating weather events continue to make their presence felt. The relentless decline in the coal industry has meant investors have lost 85 per cent of their money since June 2014. Once a sure money loser, renewables now look a sound bet.

These are storm force gales, whose waves continue to batter the investment shores. In consequence, the pull of ESG has reached critical mass.

For instance, Swiss Re, one of Europe’s biggest insurers, now benchmarks its entire $130bn portfolio against ESG indicators.

The ESG phenomenon continues despite an absence of detailed, globally agreed definitions of either ethical leadership or what constitutes ESG standards. Meanwhile the overall trend to take into account ESG continues to bring ethical leadership in business into ever sharper focus.

Mirage or reality?

As a source of profits is ESG real, or mere mirage?

Sceptics argue the current enthusiasm for investing which takes into account ESG factors stems from a mere statistical distortion. This they say, combines with a vanity urge to be part of the latest investment bandwagon.

Yet consultancy Create-Research, reports 60 per cent of investors say they plan to increase their allocation to responsible investment over the next three years. That’s a lot of investors living an ESG delusion.

Similarly MSCI another research organisation recently concluded:

“…ESG has affected the valuation and performance of companies both through their systematic risk profile (lower costs of capital and higher valuations) and their idiosyncratic risk profile (higher profitability and lower exposures to tail risk.)

Other studies too have consistently shown how ethical leadership and its form of decision-making fosters employee morale, boosts brand reputation, encourages loyalty in customers and employees, and improves a company’s bottom line.

In summary, ethics and ethical leadership are more than the right thing to do: it’s also the smart thing to do.

The E of ESG

Broadly the E of ESG  means the environment  which includes

  • Sustainability
  • Globalization effects – e.g., exploitation, child-labour, social and environmental damage anywhere in the world
  • Corruption, armed conflict and political issues
  • Staff and customers relations – for instance education and training, health and safety, duty of care, etc.
  • Local community
  • And other social impacts on people’s health and well-being

Business needs leaders able to make sense of these diverse factors. Rather than ignore them, as many businesses still seem prepared to do, ethical leaders embrace the challenge. They also often take a highly personal interest in the implications.

To be an ethical leader is therefore to be concerned with the organisation’s own culture and environment in which employees work. This shows up in the increased interest in employee engagement as a clear route to financial success.

The S of ESG Larry Fink CEO of Blackrock

In January this year (2018),  CEOs of the world’s largest public companies received a letter from Larry Fink, CEO of Blackrock. It’s  one of the largest asset and risk  management firms, so a letter from Fink was at least likely to be read.

He urged his fellow CEos to give priority to their company’s social responsibilities. The S of ESG refers to how a company treats its labour and how it responds to the human rights of the people and communities it touches. Various international instruments define these rights. They include the Universal Declaration of Human Rights and the eight Core Conventions of the International Labour Organization.

While originally developed for governments, these standards now affect the business context. They provide a strong foundation on which to clarify the scope and meaning of a company’s “social” performance. Fink’s appeal was emphasised the role of public companies in growing economic inequality.

He argued for long term value creation since ethical companies have a better financial performance in the long run. 

“It’s the right thing to do”
argued Fink.

E- and G-factors of ESG have achieved considerable traction with both investors and business executives. In contrast, the S-factor, has yet to make a lasting impact. This is against a backdrop of rising economic inequality and mounting evidence of the negative forms of many business practices.

So it’s entirely relevant to ask: can business deliver value in today’s global economy in ways that work for people and communities around the world?

Once CSR, or Corporate Social Responsibility seemed like the start of a sustained shift. It seemed to herald a move by business to showing a genuine social concern for the company’s effects on environmental and social wellbeing.

In practice, CSR has acquired a serious credibility gap. There remain few examples where CSR has delivered measurable business gains, let alone sustained benefits for the community. See Goodbye to CSR, welcome to Social Commitment.

The current lack of interest by some business leaders in the “S” of ESG partly reflects a disbelief that social commitment can pay. Many still view it as a check-the-box exercise, one where investors and companies only appear to comply with rising consumer expectations.

Despite this roll call of negative forces constraining social investment, leading corporate CEOs do emphasize for example, positive reasons they are considering human rights in their business models and operations:

 “…we firmly believe 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 sync with consumers and society and ultimately this will result in good shareholder returns.”
Unilever’s CEO Paul Polman

Others argue that sustainability and human rights investments have led to increases in their company’s ability to recruit and retain outstanding employees, They also point to improved quality control, and better worker retention throughout their supply chains.

Yes as the Centre for Business and human rights comments, more work is needed to :

“…reconcile the myriad approaches that currently exist for defining and measuring social performance.”

The G of ESG

Corporate governance was once merely a response to corporate scandals. Now it is making important inroads on leadership accountability, especially in Europe.

Corporate governance has shifted from the wings where is was seen narrowly, in a legalistic sense of rules and regulations that must be obeyed.  Today it has evolved into a whole new approach. This now includes general support for better run companies and in particular support for sustainability.

Sustainability is one of those phrases that can  mean what you will. In practical terms it means looking at social, environmental and economic impacts and making decisions using a broader perspective than in the past.

When sustainability permeates governance in this way, business leaders become accountable for environmental, social, and economic performance. 

Using the sustainability lens to view governance changes how the organisation approaches issues such as:

  • Land use, energy, water, and emissions
  • Human rights, equal opportunity, and health, safety, and wellness
  • Charitable giving and volunteerism
  • Systems and strategies for engaging with stakeholders,
  • Product development, procurement, and innovation
  • Board composition and compensation
  • Ethics, standards, and codes that apply within an organization and to its value chain. 

With these multiple factors to consider, how can leaders make sense of the current ESG landscape?

How can they better include such information into their approach to business?

The sheer diversity of the ESG landscape explains why governance tends to be its least understood aspect. Yet at its core,  governance prompts business leaders to pay attention to the culture of the organisation.

Investors too increasingly recognize that companies practicing good governance as part of a larger ESG-aware strategy will be more likely to see these factors translate into improved long-term investments. What that means in practice is up for debate. For example, some critics say we need a complete overhaul of corporate governance:

Bob Garratt, Professor Extraordinaire; Chairman Centre For Corporate Governance

“I can’t find a single corporate governance model that works well,” 
Bob Garratt, Visiting Professor at Cass Business School 

The direction of change would put more weight on directors doing their job responsibly and professionally. This would include developing corporate governance to include a social audit–in simple terms more focus on the E and S of ESG.

Better governance would also mean more focus on new challenges such as cyber security and the shift to digital.  

Nobody invests in governance for its own sake. Instead stakeholders look to ethical leaders who will place a high priority on good governance as a way of achieving long term financial benefits.

Sources:

  • Giese, Executive Director, Applied Equity Research
  • Has ESG affected stock performance? MSCI, May 2017
  • L.Portado, Activists look to the ethics route for higher returns,  FT 27th December 2017
  • Kynge, The ethical investment boom, FT, Sept 3 2017
  • Ethical Leadership Around the World, AND why it matters, ECI 2017
  • Jackson-Obot, Ethical investments still on trend, FT Adviser Nov 2017
  • O’Connor and S.Labowitz, Putting the “S” in ESG: Measuring Human Rights Performance for Investors, Centre for Human Rights, March 2017
  • Explaining the G: Putting Governance in ESG, FlexShares, Jul 31, 2017
  • ESG Investing: Should Start with the “G”, Magni Global Asset Management
  • Hale and J Glase, Sustainable investing trends for 2018, Morning Star, 21st December 2017
  • R Sullivan, Which direction for corporate governance?, Board Agenda, February 2018
  • A. Filabi, Prioritizing Social Responsibility in Companies: A coming firestorm? Ethical Systems, 17th January 2018 
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How do  you stop a risk from becoming a crisis? Most business leaders know that various risks can segue into a crisis at any time and they want answers. Two main causes create such a change. 

First, there’s the familiar boiled frog syndrome. What seems a trivial issue quietly builds from being a niggle in the background into a full blown disaster.

That must have been how things looked at Wells Fargo. First, the managers knew something was going awry. But their unethical tactics were bringing business results, so they ignored the danger signals. Pressure from above made sure of that.

Next came staff complaints about being bullied into unethical behaviour—opening unrequested accounts and charging for them. Again there was no serious management reaction, except some people were fired for protesting.

Then wang! In 2016 the dirt finally hit the fan. From being a highly respected bank with a long history of decent behavior, damning headlines now ricocheted around the world.

The bank’s name was trashed for its unethical practices. The CEO resigned and even today the organisation continues to pick up the pieces. It was the equivalent of the frog finally dying of excess heat.

Commenting almost explicitly on the boiled frog syndrome experienced at VW, Fed officials pointed to “persistent misconduct” at the bank. They said the two former most senior  managers had presided over “many years pervasive and serious compliance and conduct failures.

In case you think that you’re well protected again the boiled frog syndrome, take a look at Kobe Steel and the mess it’s in right now. Here’s a company with apparently a culture of compliance with rules and regulations, and quality control systems. It has compliance committees, compliance directors, whistle blowing programs, and internal reporting systems.

Kobe execs bow to apologise

Yet Kobe’s boiled frog disaster has been slowly heating up over years.  First this October the company announced it had found one case of falsified data on iron ore powder. This is used in vehicle parts such as gears. It followed an admission it had falsified figures about the strength and durability of its aluminium and copper products–used in the transport and defence industries.

Kobe’s shares plummeted 18% after the iron ore admission. This brought the company’s stock-market losses since the scandal broke to $1.6bn (£1.2bn). It is now examining other possible data manipulations going back a decade.

The boiled frog experience, in which something happens so slowly that one hardly notices the important differences building, can occur just about anywhere in a business. Watching out for the signs is partly what ethical leadership is all about.

Sometimes the syndrome takes years to emerge as a fully fledged crisis. Both Corrillion and Capita have hit the headlines recently for “suddenly” being in trouble. Yet in both cases the problems have long been gestating. As Capita’s new CEO puts it  Capita was spread over too many markets. It had under invested with much emphasis on acquisitions to drive growth”. He also mentioned “weakness in new sales”. Worse, the organisation was 

” too complex, it is driven by a short-term focus and lacks operational discipline and financial flexibility.

On top of this, Mr Lewis said the firm still had too much debt, at £1.15bn, and that this urgently needed to be brought down through selling assets. Hardly a short term sudden on set of risk. 

Lightening Strikes 

Then there are the lightening strikes. These are situations you cannot easily predict. Seemingly they come from nowhere.

Sometimes there are bad things that you least expect. As when some employees behave irresponsibly and leave the organisation and its leaders reeling.

Human behavior is the trickiest risk factor to predict, manage and defend against. Despite years of high-profile breaches, security training and anti-phishing campaigns, end users persist in using weak and compromised passwords, clicking on suspicious links, sharing accounts and using insecure apps and websites. 

Lightening recently struck Bankers of Steinhoff International, the South African-based home retailer in late 2017.

The bankers suffered billions in paper losses when the retailer’s shares plunged 75% and the chief executive resigned. Like a lightening strike, “accounting regularities” had unexpectedly emerged into the light of day.

Much the same occurred in Tesco, when  the retailer suddenly “discovered” a huge hole in its accounts. The case ended up in court, after Tesco announced in September 2014 that its profit forecast had been overstated. This was mainly due to booking commercial deals with suppliers too early. 

Tesco’s unexpected disclosure saw its shares tumble, plunging the company into the worst crisis in its near 100-year history.

What remedial action?

So what can a business leader do about either the boiled frog syndrome, or the lightening strike?

The best avoidance strategy stems from being an ethical leader. Ethical Leadership is one of the most effective risk mitigation strategies a company can adopt.

Ethical leadership relies first on a high level of emotional intelligence (EQ). This is the ability to own an organization’s values as well as one’s own. It means linking the means of achieving success with the business strategy. “How” matters just as much as “what.”

Second, ethical leaders are good at listening to multiple points of view. Consequently they’re open to differing input and feedback.  Rather than “killing the messenger”, ethical leaders welcome those who bring them the bad news. They even reward them. Such leaders are more likely to come across a boiled frog situation or be warned about a potential lightening strike vulnerability. 

For example, one new chief executive asked his team to list all the “red” signs of danger on their various business projects. At this first meeting nobody admitted anything bad was happening. They preferred to let the “frog boil”. They hoped somehow it might be OK.

The insightful new CEO sent all the team away. He said return back next week with more honest information about their projects. When the following week his team reassembled, one of them stood up and admitted his main project was Red and in trouble. The CEO refrained from yelling at him, or criticising him for the bad news.

Instead, the CEO stood up and applauded the surprised excecutive. The others got the message. Soon more useful information started flowing their respective “boiling frogs.” The CEO had found a way to mitigate the combined risks before they spiralled into a crisis.

At VW the new anti-corruption czar, Kurt Michels found a team unwilling to voice its thoughts, fears or uncertainties despite the gravity of the diesel crisis. Michels had to encourage his team members to speak up during meetings.

“During the first two (conference) calls, I didn’t receive a question at all. No one asked a question.”

Many were passive, waiting for instruction and interpreted his brainstorming suggestions as straightforward orders not to discuss but to carry out. VW has paid $30 billion in costs from its boiled frog experience since 2015.

VW also suffered from a lightening strike, when it was recently revealed that the company was testing the impact of pollution from its diesel engines on monkeys. Apparently nobody in the section carrying out the tests thought to ask the classic ethical filter questions: “How would we look if what we’re doing appeared on the front papers of the major media?”

Why is this a moral or ethical issue?

Today’s risk environment differs significantly and is less understandable than a few years back.  Complexity,  globalisation, and large forces such as climate change and cyber insecurity have transformed the risk scene.

Consequently many organizations now face a large variety of intangible and hard to predict risks. These may range from unwanted disclosure of information due to the behaviour of errant employees, through to breaches of conduct driven by skewed incentive systems, such as at Wells Fargo.

The task of risk management in a company is therefore expanding. From protecting the balance sheet and having a mainly bottom line focus, today’s risk management must  encompass wider possibilities.

Two capabilities can help companies tackle this trickier risk environment.  First, there’s the more widespread adoption of ethical leadership. This tends to be more open to the unpredictable implications of the boiled frogs and lightening strikes syndromes.

Second, no amount of attention to devising codes of practice, adopting compliance technology or issuing threats of punishment will mitigate the risk factors companies could encounter. Instead, organisations need to become more explicitly in being values-driven.

The combination of ethical leadership and a reliance on core values can affect people’s responses to the intangible risks ahead.

Ethical assessment

Another helpful tool in tackling the transformed risk environment is a more analytical approach to risk management. This has resulted in the production of a variety of guidelines, frameworks, and standards to assist leaders assert better control over risk.

These frameworks help them tackle a common problem shared across many types of business enterprise. In highly competitive or fast changing environments people under stress may not only suffer from burnout and health threats. They may also fail to see there is an ethical or moral dimension to their decision making.

That certainly happened in VW. There, the decision to install defeat software to hide the extent the company’s engines were polluting, was initially seen as a technical one. Not as a moral or ethical choice.

Starting with the values

Much risk management effort relies on using bogus objective measures of mitigation. For example, one much-used approach asks: how much impact would a particular issue make if it occurred? This is then ranked on a scale from one to 10.  Next the approach asks: how likely is the risk to occur–again described on a scale?

Combining impact and likelihood produces a deceptively easy to grasp risk assessment measure. The resulting number has the comforting appearance of logic and objectivity.

Yet you cannot turn risk into a value free zone. It is deeply embedded in the ethical dimension of the organisation. Something may be wrong, no matter what the risk scale tells you.

Ethical leaders therefore need to ensure the risk assessment process becomes values-driven and built permanently into the company’s overall governance.

If and when his happens it should be possible to detect the values-driven approach affecting strategy and planning, management, reporting processes, policies, and culture.

Therefore the best place to start in handling boiled frogs or lightening strikes is not with a so-called objective tool for measuring risk. Instead, invest in time and resources to understand the interplay between corporate values and risk management.

Reaching this understanding remains more art than science. It means viewing social, cultural and organisational values as a source of risk. Values and culture for example, produce their own range of risks and these need to be managed.

The connection between an organisation’s values and broader societal values may therefore be an important yet much ignored source of ethical risk—see panel

CLICK HERE TO READ ABOUT:

Is your dirty supply chain secret waiting to trash your reputation?
Ford’s Pinto’s fuel tank design
GM faulty ignition switches

Finally, the effective management of ethical risk must become an on-going discipline. Not a one-off event.

This means having constant checks on how the organisation’s declared values and the risks they cause arise in daily ways of working. Here are five specific ways to combat the twin evils of boiled frog syndrome and lightening strikes:

Sources:

  • Jondle et al, Managing risk through the ethical business culture model, European Financial Review June 19, 2013 
  • Disparte, Simple Ethics Rules for Better Risk Management, HBR Nov 2016
  • FT Reporters, Banks stand to lose billions in Steinhoff, FT 8th December 2017
  • A. Sancheti, Combating Your Company’s Insider Risk,  Corporate Compliance Insights, December 11, 2017 
  • A.Gray and B.Mclannahan, Fed’s rap puts fear of God into bank board rooms, FT 6th February 2018

Acknowledgement: Thanks to David Archer of Socia.co.uk for inspiring this title, –the rest with all its faults, is down to me.

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EMPATHY: “If I’d only known how being nice to customers was going to work so well, I’d have started many years ago.”
Michael O’Leary CEO of Ryanair, 2016

Sadly, his new awareness didn’t lead to sensitive handling of the chaos  a year later caused by his airline’s last minute cancellations. So he and you might well wonder: how important is it for a business leader to show empathy?

There are two ways to answer this perfectly sensible question. The first is the human side; and the second is what I call the hard-nosed reply.

The human side suggests as a leader you need empathy to help you build essential relationships at work. Only with effective relationships can you expect to bring  your vision for the company to life. 

Now for the hard-nosed side of the answer. This refers to the impact a leader with empathy can have on a company’s financial performance. For example:

The 2016 study by the Harvard Business Review (HBR) used a Global Empathy Index to measure how much empathy was happening in a company. It found the top 10 companies in terms of empathy increased in financial value more than twice as much as the bottom 100. Surprising eh? 

Also, what HBR calls high empathy performers generated 50% more earnings  than their less empathic competitors. Or putting it slightly differently, firms with higher empathy scores correlated strongly (80%) with high performers.

Successful ethical leaders do a good job of conveying empathy. This partly explains their success—whether you define this in financial or non-financial ways. Let’s take a closer look at this empathy thing in action. 

Deconstructing Empathy

It’s almost impossible to untangle ethics from empathy. Describing what makes an ethical leader means you are talking about someone who also conveys empathy.

Let’s start the de-construction with ethical issues. At some time in their business life most responsible leaders find themselves wrestling with ethical issues. It could be bad things happening down the supply chain. Or employees whose behaviour undermines the firm’s core values.

Or it might be the challenge of  “doing what’s right”. This may not be at all obvious at first and the smart business leader therefore stays ready to hear different perspectives.

Also the leader takes care to avoid punishing those who express challenging views.  Such opinions surface due to a readiness to listen, to hear what others have to say despite disagreeing with them.  Achieving a diversity of views can be as important to company success as diversity of employment. 

Empathy is notoriously hard to measure convincingly. And because it’s not obviously connected to a company’s bottom line even a responsible leader may not feel on safe ground talking about it. Yet empathy can be measured–see box on the right suggesting some ways.

And like engagement, empathy is a proven critical factor behind leadership success in business. Why?  No leader enjoys being told they’re wrong. Which is why showing empathy is seldom as easy as it appears

Major current influences on how one leads in business include teams, globalisation and the need to retain talent. Yet all three require the leader to do far more than just talk the talk. They requires leaders to take into account others’ feelings when making decisions.

Many corporate environments do the reverse. They short-circuit our natural capacity for cooperation and compassion. Instead much of business promotes paranoia, cynicism and self-interest. The space for empathy remains small.

If you’re someone who lives life as a zero sum game—”if I win you must lose. “That empathy actually produces great business results seems counter intuitive  As one critic of the way so many businesses operate argues:

“In business we give bonuses to people who gained when others sacrificed.”
Simon Sinek, author   

The ethical leader does more than spout platitudes about “doing what’s right” or “I strongly believe in our values.”

Instead, an ethical leader pays close attention to how others are being, not just doing. It is hardly surprising an attention focusing discipline such as “mindfulness” appears to be making a serious impact in many parts of business.

For example, everyday gestures, such as holding an elevator door open for others or refilling the coffee machine can seem irrelevant to the wider business goals of success. Yet neuroscience reveals how even small acts of kindness release a tiny shot of feel-good oxytocin. Feed people with oxygtocin and you have a sure way to gain friends and influence people.         

Research also suggests around half of all practising mangers are ineffective. In which case it’s a smart move to find out what skills really matter. One of them turns out to be the ability to convey empathy.

“Our results reveal that empathy is positively related to job performance. Managers who show more empathy toward direct reports are viewed as better performers in their job by their bosses.”
W. Gentry et al, Empathy in the Workplace

Empathy generates an interest in and appreciation of others. It paves the way to more productive working relationships. For the ethical leader empathy is therefore more than just a tool of management to be learned alongside other techniques.

It is an important way of being, it helps them work across organisational and even cultural boundaries. As mentioned earlier, empathy helps to understand people with different perspectives and experiences.

“Let’s cut to chase” you may well be muttering by now!  What are some simple ways for an ethical leader can show empathy in business:

Partly adapted from B Martinuzzi: What’s empathy got to do with it?, Mind Tools

Sources:

  1. C. Cherniss The Business Case for Emotional Intelligence, Consortium for research in emotional intelligence, 1999
  2. B. Parmar, The Most Empathetic Companies, HBR December 2016
  3. S. Levitt, Why the Empathetic Leader Is the Best Leader, Success Magazine, March 15, 2017
  4. W. Gentry et al, Empathy in the Workplace: A Tool for Effective Leadership, Centre for Creative Leadership 2007
  5. J. Meister, Future Of Work: Mindfulness As A Leadership Practice, Forbes, April 27th 2015
  6. Building the Case for Mindfulness in the Workplace: The Mindfulness Initiative Private Sector Working Group, 2016
  7. C. Chi, 7 Books to help you develop more empathy, Hub Spot

    1) Mindsight: Transform Your Brain with the New Science of Empathy

    2) The Age of Empathy: Nature’s Lessons for a Kinder Society

    3) Well-Designed: How to Use How to Use Empathy to Create Products People

    4) Wired to Care: How Companies Prosper When They Create Widespread Empathy

    5) The Art of Empathy: A Complete Guide to Life’s Most Essential Skill

    6) Empathy: Why It Matters, and How to Get It

    7) Empathy

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