How CEOs make decisions where ethics does not pay

Chief Executive Officers (CEOs), like ordinary citizens, are driven by their values and convictions. These values and decisions may not necessarily be ‘good for business’. Examples abound. Tim Cook, CEO of Apple, speaks strongly for the LGBT community. Salesforce (CRM) CEO Marc Benioff, speaks strongly against pay inequality. Laurence Douglas Fink, chairman and CEO of BlackRock, is passionate about the incorporation of Environmental, Social, and Governance (ESG) risks in investment decisions and speaks strongly against extreme shareholder short-termism. One thing common amongst these examples is that the debate on how good or bad leaders’ espoused beliefs and convictions are for business is not yet settled (see Gaines-Ross, 2016).

When it comes to social injustice/politics, business leaders can no longer stand by and watch from the sidelines. They must take action: an expectation not only from their employees, but their customers and wider society. But they may have political views that do not align with some of their employees or corporate partners, so how are they supposed to take a stand and please everybody at the same time?*

This is usually a very delicate one, which requires carefulness and fine balancing. Yes, it is not possible to please everyone. Business leaders can wield significant powers. From Brexit to global poverty debates, to tax havens, there is no shortage of business leaders with opinions on these matters. In all these, authenticity matters. Stakeholders are not unreasonable. They understand that individuals are free to uphold and air views they are passionate about. They respect such leaders, even when they disagree with them. However, what they do not like is prevarication and hypocrisy. They can easily see through that when it happens.

The former CEO of Unilever, Paul Polman, was passionate about the sustainable development goals. He did not hide this passion. He allowed it to flow through his leadership – even to the point of threatening and challenging the market on quarterly reporting of performance, which he saw as antithetical to the long term agenda of sustainability. Unilever did not suffer, as a result. Contrary to Paul Polman’s position on sustainability was Steve Jobs, the former CEO of Apple. Despite his not too passionate approach to sustainability, he was believed as someone who stood for his passion in technology and innovation.

In other words, the problem is not necessarily having a political view. Employees, customers, and investors expect business leaders to be truthful and authentic. At least, they want and expect them to be much better than your average politician. They get into trouble when they miss this mark.  But what happens when said decisions have an indirect negative impact on the business? Such as boycotting a market because of social injustice that then leads to reduced revenues.

Most people are usually supportive of social justice. They see it as something positive and good for society. Business leaders and businesses lending their voices to bring down apartheid in South Africa did not rub off negatively on them. Therefore, it is a bit odd and absurd to expect people to boycott a market or a business, if a market or a business stands or speaks out against social injustice. They can only punish a business whose leader is perceived to be on the side of social injustice. However, what is perceived as just or unjust can vary from context to context, as well as from people to people.

The thinking, nonetheless, is that at each point in time, there will be possible supporters of a view – whether good or bad. When revenues reduce as a result of a leader’s espoused belief and conviction, it would be sensible for the leader, if he or she is truly genuine, to find ways to address the value mismatch/clash between personal and organisational beliefs. This may mean stepping down or aside, where the disparity is very obvious and damaging. Again, it takes authenticity to arrive at this point. Notwithstanding, there are instances where stepping down or aside may not be the answer.

Imagine a situation where a CEO decides to do the right thing and take a strong stand against bribery and corruption, or operates in an environment where the character of incumbent wielders of state power defines social justice and politics, for instance. This is likely to be a very expensive strategy where bribery and corruption is rife and normal or where wielders of state power are inclined towards poor governance. This is usually the case in many emerging economies with very weak market and democratic institutions.

In such situations, it would appear that doing the right thing is a luxury (unless it pays), and the incentive to engage in it would be very low – thereby leading to a fragmented two-tier market system. Given this probable disincentive to act responsibly, it becomes counter-intuitive to expect business leaders to do the right thing in such adverse situations; and this leaves one with a puzzle: how can a CEO who still wants to commit to do the right thing compete in such a harsh environment?

Innovation and creativity might hold the key to success here. Colleagues and I (Amaeshi et al., 2018) articulated C.L.E.A.R strategies as possible innovative steps for dealing with situations and challenges like this, as highlighted below.

*Collaborate.* The idea here is for CEOs to enrol other actors onto their institutional change initiatives (e.g. standard setting, social projects, et cetera). This might involve partnerships with non-business actors like the NGOs. Collaboration is likely to reduce the cost of free-riding. There are also occasions when it might be better for CEOs to go alone, especially where there is a clear competitive advantage to be gained by doing so. However, a CEO needs to decide on when and how to either collaborate with competition and or other partnerships in pursuing his or her responsible business practice agenda.

*Lobby.* CEOs keen to do the right thing in challenging and threatening environments are usually better off lobbying the relevant authorities and governance actors to ensure that the players adhere to the rules, where they exist, and or to raise the bar and change the rules of the game, where existing rules do not support doing the right thing. This is also likely to minimise the cost and threat of free-riding, and in addition create some competitive advantage for the lobbyist firm(s).

*Educate.* Where, for instance, doing the right thing is not appropriately rewarded for lack of understanding by stakeholders – e.g. where consumers are not prepared to pay for green products and sustainable innovation, the CEO may want to engage and educate the relevant stakeholder groups. The enlightened consumers, in this case, are likely to constitute a new market and or pressure group to raise the bar for the entire industry. This does not only apply to consumers but can be also extended to other stakeholder groups such as regulators, employees, investors, et cetera.

*Align.* The CEO needs to be consistent in its practices, whilst ensuring good internal and external alignment to its core values and purpose. He or she does not want to be seen as green-washing. A good case example of this would be the leaders of BP in the early 2000s. At that time, BP claimed to aspire towards good green credentials, on one hand, and, on the other hand, it was part of a coalition lobbying the US government against climate change policies that would have catalysed the emergence of the green economy in the US. This can be damaging.

*Renewal.* All of the strategies highlighted above will need to be continuously re-enforced, and not just treated as one-off activities. That way, the CEO recreates and proactively adapts to the ethical demands of the operating environment.

In sum, ethical challenges and dilemmas will never go away but how responsible leaders deal with them will make or mar them. Sticking to one’s beliefs and convictions, stepping aside or down when beliefs and convictions become overwhelmingly detrimental to business, and being innovative at doing the right thing, appear to hold the key to effective responsible leadership.

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Kenneth Amaeshi is a policy analyst and professor of business and sustainable development at the University of Edinburgh. Contact details: kenneth.amaeshi@ed.ac.uk (email) and @kenamaeshi (twitter)