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A Different Path

08 April 2020 by Anthony Hilton

In order for a company to become sustainable, leaders require empathy, compassion, honesty and humility.

Investment products linked to environmental social and governance issues were worth $31 trillion in 2018 and have the potential to top $40 trillion this year, according to the Global Sustainable Investment Alliance.

In Europe, if not in America, sustainability is becoming mainstream.

This is a problem for executives. In the past most regarded sustainability as little more than good PR, using small projects which kept the pressure groups happy, but did not impact on the company’s profitability. But now it is more than that. With the above growth of shareholder activism and ESG funds, companies are realising they will have to respond even if it hits profits.

This will impact leaders. To transform our economic model, which is what sustainability and ESG demand if we are to cope with climate change and the rest, leaders will have to put their company’s interests above their own. They will have to make major changes to their company’s production and consumption processes, which may well reduce profitability particularly in the short term. The corporate pie will shrink and the executive’s share will too.

Some executives accept this, but most do not – or have not thought about it. Also the standard line about people who rise to the top in business is that they have narcissist tendencies – they are self-centred, they exaggerate their talents, and they lack empathy. A study done last year by the consultancy TalentSmart found that chief executives had the lowest emotional intelligence of anyone in the workplace.

Bullying is one aspect of this. A Danish study said 8.3% of employees had been bullied in the past year. In another study of 4,500 people in Germany, 13.5% said their boss had had bullied them. And while organisations are hierarchies, and CEOs are in charge, they do not perhaps realise how bullying affects morale. Some psychologists say that it takes ten good things to counteract one bad thing in the workplace – which means it takes a major effort to negate one example of bullying. And this affects the workforce. People do not forget when they have been told off without having the right of reply.

Making the company really sustainable requires empathy, compassion, honesty and humility – hardly the qualities of most leaders of large corporates. But this is not necessarily their fault. It was the board which appointed them. And it is the board, or its committee, which usually says the executive has to be hard driving, self-confident, focused on the bottom line, able to execute and deliver and so on. So, it is the board which needs, in future, to select executives who may have these above abilities, but who also demonstrate honesty, humility and compassion.

MWM Consulting shows how much boards need to change if they are to cope with narcissistic executives: “It is those with great self-confidence who are most subject to hubris. It is the determined and decisive who will drive though bad decisions, brooking no opposition. It is those who are unafraid of risk who will take one that is too big. It is the ambitious who will not tolerate what they see as threats to their power. It is those with great influencing skills who can persuade a board to do something foolish. It is the very clever who will not listen to home spun common sense. It is the high flyers who have moved so far so fast that they have never had to experience the legacy effects of past actions. It is the feted leader who becomes delusional and vain, believing his own myth, believing he is really worth his remuneration package,” they wrote.

Alice Steenland, a lecturer at the Ecole Polytechnique in Paris says there are at least three things boards could do. First, they should focus on succession planning to make sure that all future candidates have the new skills needed and, if they don’t, discard them.
Second is the of use software and artificial intelligence to help objectively identify these future leadership skills so that the board removes its own biases from the equation.

Third – the FCA or another regulator should certify whether the executive has sufficient empathy. While this may seem over the top, it is a fact that doctors, engineers, and lawyers have to submit to background checks and sign a code of ethics. So why not?

Nevertheless, it is interesting to see how political leaders who also have more power than is justified, cope when challenged. In Charles Moore’s biography of Margaret Thatcher, John Hoskyns who was then head of the Number 10 Policy Unit, sent the Prime Minister a memo which if nothing else was astonishing for its candour. “You lack management competence. Your own leadership style is wrong. You break every rule of good management. You bully your weaker colleagues. You criticise colleagues in front of each other and in front of their officials...You give little praise or credit…The result is an unhappy ship,” he wrote.

Thatcher took no notice.

So changing executives will not be easy.

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