How Business Can Do the Right Thing in a Turbulent World – A Conversation with Alison Taylor.

How Business Can Do the Right Thing in a Turbulent World – A Conversation with Alison Taylor.

Corporations are powerful actors in society whose decisions matter profoundly. Everyone wants to work for, and buy from, companies whose values align with their own. But what are we really asking of business today? Over the past decade, corporations have been drawn into ever more polarizing social turmoil. Business has become political, transparency has become a weapon, and the professional has become personal. While much of the public demands that corporations address poverty, pollution, corruption, and racial injustice—not to mention their environmental impacts and human rights abuses in supply chains—everyone still wants that stuff they ordered, right now.

Alison Taylor is a clinical associate professor at NYU Stern School of Business, and the executive director at Ethical Systems. Her previous work experience includes being a Managing Director at non-profit business network BSR and a Senior Managing Director at Control Risks. She holds advisory roles at VentureESG, sustainability non-profit BSR, Pictet Group, and KKR, and is a member of the World Economic Forum Global Future Council on Good Governance. She has expertise in strategy, sustainability, political and social risk, culture and behaviour, human rights, ethics and compliance, stakeholder engagement, anti-corruption and professional responsibility. In her new book, HIGHER GROUND: How Business Can Do the Right Thing in a Turbulent World, Alison Taylor gives leaders a guide to help their companies navigate the new era of ethical challenges and risks that are evolving in ever less predictable ways.

In this interview I speak to Alison Taylor, one of the world’s foremost experts on business ethics, strategy & risk. We discuss the fundamentals of how businesses can do the right thing in a turbulent world including the need for meaningful values alignment, what it means to be a responsible business and how to focus efforts in a way that balances shareholder, stakeholder and societal interests. We also discuss the role of leadership & governance and how to navigate a world of so many competing social & environmental challenges.

Q: Why are we hitting so many issues when navigating the world of responsible business today?

[Alison Taylor]: We have experienced significant changes over the last decade, such as the emergence of social media and a new level of transparency, the increasing involvement of businesses in political discourse, and a shift in the perception of work and the expectations of the younger workforce. These transformations are pivotal.

Our traditional tools- tools, tropes, truisms, and clichés previously relied upon to navigate the pressures of conducting responsible business- are inadequate today. While these strategies served their purpose effectively in the 20th century, their efficacy has waned in the present day. I dissect these myths one by one, illustrating how each truism or myth links to subsequent chapters, thus outlining the structure of the book.

The core argument I propose is that what we commonly refer to as business ethics—or whatever the current terminology might be—bears little resemblance to ethics in its conventional sense. Instead, it functions more as a defensive strategy designed to shield corporate value from the scrutiny of regulations and public perception. This approach treats every measure, whether a compliance program to appease regulators or a sustainability narrative to placate stakeholders and the media, as part of a defensive perimeter established to protect the corporate entity, perceived as a self-serving monolith.

However, this perspective fails to acknowledge that an organisation is, by nature, an open and evolving system. The real issue, therefore, lies not just in the inadequacy of our tools but in the fundamental metaphors we employ to conceptualize organizations. Viewing them as isolated, self-interested entities is a notion that no longer holds water in the 2020s.

Q: Do we need to reimagine the philosophy of what it means to be a corporation?

[Alison Taylor]: Our primary objectives and the financial systems in place compel us to approach and conceptualize these issues in a specific manner. Given your background in economics, you’re aware that negative externalities are often disregarded in the pursuit of profit; the idea that a business can pollute a river and then rely on the government for clean-up is seen as beneficial from a corporate standpoint.

Furthermore, corporate law introduces the concept of the corporate principle, emphasising the protection of this principle above all else. I came across a striking quote from John Coffey, a Professor at Harvard, in Chapter 2 of my book. He states that having a fiduciary duty implies an undivided loyalty to corporate interests, arguing that it’s impossible to hold a fiduciary duty towards stakeholders since they are considered natural adversaries. Thus, according to the law, stakeholders are viewed as opponents.

This leads us to a paradox where, despite the rhetoric of stakeholder capitalism, the underlying intent remains to safeguard corporate value against stakeholder perceptions. It boils down to a philosophical debate and the metaphors we employ to frame these discussions. The issue lies in the fact that these metaphors, tools, and frameworks are deeply entrenched in our legal and financial systems, rendering them counterproductive in today’s context. The prevailing metaphors no longer serve to facilitate our understanding or management of these challenges.

Q: How can businesses know what to prioritise now socially, environmentally, fiscally?

[Alison Taylor]: We’ve gradually distanced ourselves from Milton Friedman’s doctrine, which posited that the sole concern of business should be shareholder value. This shift is particularly relevant in the context of polarisation in the US. It seems we’re caught in a dichotomy. On one side, there’s a faction that dismisses ESG and related stakeholder-focused initiatives as ideological folly, dubbing it stealth socialism or a violation of fiduciary duty, advocating a return to Friedman’s principles. The irony is, attempting to attract the under-30 demographic with such a stance is futile.

Equally concerning, yet less frequently addressed, is the sentiment at the progressive end of the spectrum. This viewpoint, often echoed by younger employees, suggests that no corporate effort is sufficient; if any stakeholder group is concerned, the company is expected to address and resolve the issue comprehensively. Corporations, in an attempt to appeal to these demands for PR reasons and struggling to evolve beyond outdated metaphors, inadvertently open themselves up to a barrage of criticism. By acknowledging concerns beyond shareholder value, they invite relentless scrutiny and demands.

Corporations find themselves in a bind, torn between clinging to the notion of solely enhancing shareholder value and making vague promises to cater to all stakeholders, which can be perilously misleading. What I observe in the classroom amplifies this dilemma: students questioning the efficacy of voting compared to exerting pressure on brands to address societal issues. This fosters an unrealistic expectation of the problems corporations can solve, fuelled by PR spin, overcommitments, and a misalignment with political contributions. Yet, few have the boldness to assert, “Not my circus, not my monkeys,” choosing to focus on select issues rather than superficially ticking off an extensive list, a trend further propelled by ESG reporting requirements.

Q: How should corporations today respond to the massive pressures from the public and groups on the wide range of issues we face?

[Alison Taylor]: Firstly, CEOs often find themselves caught between the advice of their general counsel and their head of communications or corporate affairs, both of whom can foster a sense of paranoia. Additionally, there’s the widespread belief, propagated by sources like the Edelman Trust Barometer, that anchoring to reputational risk is paramount. This notion forms the crux of the argument for ESG and sustainability initiatives, suggesting that such efforts will bolster stakeholder trust and result in a win-win situation. However, the reality is more complex; aligning solely with reputational risk is misleading. It’s a myth that only doing good guarantees a better reputation. In fact, activists frequently target both the highest and lowest performers, with companies like Unilever facing criticism aimed at prompting industry-wide changes.

There’s also a common misconception that companies receiving the most criticism are the worst performers, when they’re often at the forefront of their sectors. This is particularly evident in industries like food and clothing, where despite significant efforts in supply chain oversight due to consumer interest, these sectors are mistakenly perceived as the most problematic based on negative news coverage. This misunderstanding prevents learning and progress, as companies leading in certain areas can also be those generating the most controversy.

The narrative that reputational risk management can safeguard a company is flawed, leading to directionless strategies. This was exemplified by Bud Light’s mishandled marketing attempt with a transgender influencer, which resulted in a hasty retraction and portrayed the company as indecisive and unprincipled.

The solution, I argue, lies in focusing on the external impact on human beings. Human rights frameworks, while not a panacea, offer a more grounded approach by defining corporate and governmental responsibilities without imposing values on those who may not share them. This approach necessitates a shift towards honesty and specificity in corporate strategy. For instance, Unilever’s materiality map addresses broad societal challenges such as inequality, poverty, and gender issues, highlighting the need for corporations to acknowledge the limits of their influence on global issues like climate change without supportive public policy.

Therefore, a more transparent dialogue is needed about the scope of problems corporations can realistically address. Companies should openly recognise what they can achieve independently, like reducing energy costs, and what lies beyond their reach, such as solving inequality, especially when not directly related to their core business. This honesty will foster a more meaningful conversation about the role of corporations in addressing societal challenges.

Q: How can companies authentically engage?

[Alison Taylor]: Focusing on material issues should be the priority for any business, especially those aspects directly tied to its revenue generation. An illustrative example from my book is Chobani, a company that produces dairy products and thus concentrates on the U.S. food system, agricultural workers, and ensuring the rights of its factory employees—addressing challenges it is genuinely equipped to tackle. This approach underscores a crucial aspect of corporate responsibility.

However, navigating issues related to culture, diversity, equity, inclusion (DEI), and social identity presents complexities, as these matters are pertinent to every company. It’s unrealistic for companies to dismiss topics such as reproductive rights, race, or gender as irrelevant to their operations. This doesn’t provide a panacea for all issues, but it’s a vital consideration.

Moreover, before companies embark on public relations campaigns, it’s essential they have their internal affairs in order—ensuring alignment between what they profess publicly and their actions. I’m sceptical that corporate statements have swayed public opinion on deeply divisive issues, such as abortion rights or the situation in Gaza. This disconnect between corporate speech and action is a notable concern.

I advocate for a more subdued approach to corporate advocacy, favouring “green hushing” over vocal pronouncements, coupled with more measured and thoughtful disclosures. This perspective stems from an alarming trend I’ve observed among students, who question the efficacy of voting or engaging in traditional forms of activism, instead looking to corporations as vehicles for change. This mindset reflects a broader crisis of agency within our democracies and a misplaced reliance on corporations to fill the void left by political and civic disengagement.

The solution lies in reemphasizing personal responsibility and encouraging employees to participate in the political process rather than expecting corporate leadership to address societal issues single-handedly. This shift towards individual engagement and responsibility is crucial for addressing the challenges we face.

Q: What are your views on corporate transparency initiatives?

[Alison Taylor]: It’s as if the concept of transparency in responsible business has taken on an almost quasi-religious significance. It’s heralded as the panacea for all ills, the initial step towards accountability. Yet, what’s striking is the example of the Carbon Disclosure Project (CDP), established in 2000. The idea was to harness investor interest, promote disclosure, and then watch as collective action unfolds. Fast forward 24 years, and the debate over what companies should disclose is still raging.

In the meantime, an entire ecosystem of consultants, accountants, and vested interests has burgeoned around the ESG reporting industry. There’s a significant overestimation of the role of the recipient of this information, whether it be an informed investor or an average consumer, in their capacity to assess corporate activities and hold companies to account in the manner many of us idealize. This leaves us, the consumers, bewildered in supermarket aisles, questioning which coffee brand to choose, overwhelmed by an abundance of labels and claims.

This notion that the general public is actively engaging with these disclosures is, for the most part, a fantasy. Disclosures are becoming increasingly complex, fuelling the debate over ESG reporting. Even without deliberate attempts by companies to spin or obfuscate, interpreting this information is challenging. Naturally, when companies are told they’ll be scored and rated on these disclosures, and that these ratings could influence where capital flows, they’re inclined to present their activities in the most favourable light. After all, wouldn’t you do the same?

This leads to a situation where everything is open to interpretation, landing us right back where we started. The cycle of disclosure, evaluation, and action remains fraught with complexity and ambiguity, leaving stakeholders navigating a murky sea of information.

Q: Do we need to financialise impact in accounts for it to be the right incentive?

[Alison Taylor]: … the ascent of ESG is largely attributable to the transition from tangible to intangible assets. While not all intangible values fall under ESG categories, elements like stakeholder trust, reputation, network effects, and branding are certainly interconnected. Our traditional financial and legal frameworks fall short in acknowledging that a significant portion of a company’s value now resides in these intangible assets.

Theoretically, if we could devise methods to measure and quantify impact accurately, we might resolve many of our current dilemmas. However, consider a straightforward question: What is the impact of Coca-Cola’s sugary drinks on diabetes prevalence in America? Attributing causation and conducting the necessary measurements and quantifications presents a formidable challenge. Thus, while the potential for impact quantification is promising, I’m concerned it could lead us down a path of endless debate and delay, spanning another half-century as we strive to pinpoint impacts to the nth degree.

There’s a tendency to stall action under the guise of needing absolute precision, such as determining our exact scope of emissions down to the last decimal before taking any steps. Yet, directionally, it’s evident that products like Coca-Cola’s sugary drinks contribute negatively to diabetes rates, even without a precise numerical impact.

This brings me back to the utility of human rights frameworks. These frameworks offer a lens through which we can evaluate the sources of intangible value, addressing the core issue at hand. Hopefully, we are on the cusp of developing the tools and insights necessary to understand and navigate the complexities of intangible value, which at its heart, encapsulates the essence of the challenges we face.

Q: Do leaders need different skills for today’s complex, volatile & ESG focussed world?

[Alison Taylor]: The landscape of leadership is undergoing a profound transformation, evidenced by the evolving criteria in CEO job descriptions. These changes reflect a broader, more global approach to sourcing talent, with a notable increase in international candidates, women, and individuals from diverse backgrounds. There’s a growing emphasis on social skills, sustainability, and an understanding of diversity issues. The shift suggests a move away from traditional command-and-control models towards a style of leadership that prioritizes influence and collaboration across an organization.

In classrooms and workplaces alike, there’s a palpable change in how young employees engage with hierarchy. They’re more inclined to question authority, seek mentorship, and demand a workplace that not only attracts but also cares for them. This indicates a departure from conventional leadership models towards more empathetic, inclusive approaches.

However, it’s crucial to acknowledge the coexistence of contrasting ideals. Despite these progressive shifts, the business world continues to celebrate figures like Elon Musk, who embody more individualistic, assertive leadership styles. This duality creates a set of schizophrenic expectations around what leadership should look like.

But as millennials begin to assume more control within companies and Gen Z enters the workforce, it’s clear that expectations for leadership are changing dramatically. The message is clear: adapt or risk obsolescence. This evolution suggests that future leaders must be flexible, empathetic, and adept at navigating an increasingly complex and diverse corporate landscape.

Q: How will governance need to adapt to this new world?

[Alison Taylor]: …the complexity of the issues we’re facing today presents a significant challenge, primarily because they don’t align neatly within the traditional structures of corporate departments. When we move beyond viewing these issues as mere communication challenges, we encounter the public’s heightened sensitivity to hypocrisy. This creates a “gotcha” culture, where discrepancies between what a company says and does are eagerly pointed out. However, such inconsistencies often stem not from a lack of integrity but from inadequate coordination among various departments like HR, risk management, strategy, sustainability, governance relations, and the CEO’s office. A company may inadvertently project hypocrisy simply by failing to synchronize its actions and values, as exemplified by the Bud Light incident, which appeared disjointed due to a misalignment between its messaging and core values.

Furthermore, the traditional division of ethics and compliance as strictly legal concerns, distinct from sustainability’s broader stakeholder focus, is becoming untenable. As ESG issues increasingly fall under regulatory scrutiny, the old bifurcation of responsibilities no longer suffices. This leaves companies in a quandary, lacking a clear departmental home for these challenges. Attempts to address this, such as appointing a head of diversity without providing adequate resources or unrealistic expectations, underscore the desperation to find solutions within outdated frameworks.

This dilemma extends to the placement of sustainability within organizational structures—whether it belongs under risk, marketing, legal, or strategy—highlighting profound governance and risk management challenges. The crux of the matter is that there’s no consensus on the governance aspect of ESG, the “G” in ESG, reflecting a broader confusion about how to effectively integrate these critical issues into corporate governance frameworks. The search for solutions continues amid these vast and complex governance challenges, illustrating the need for a more integrated and coherent approach to corporate responsibility and sustainability.

Q: …and what about the tendency of businesses to try and solve these problems through the recruitment of a role or department?

[Alison Taylor]: The approach to diversity in the corporate landscape, particularly pronounced in the U.S. but also a concern in Britain, often resembles a checkbox exercise, reducing complex social identities to mere categories for the sake of representation. This method is akin to loading Noah’s Ark with a prescribed number of each ‘type,’ which is inherently flawed. It presupposes that individuals, whether they are white women, black men, or members of the LGBTQ community, hold specific opinions and political stances based solely on their identity. This oversimplification fails to capture the essence of true diversity, reducing it to a legalistic tick-box exercise.

Moreover, corporations tend to respond to emerging challenges by creating new executive positions—a Chief Medical Officer, Chief Happiness Officer, Chief AI Officer, and Chief Diversity Officer, among others. This proliferation of ‘chiefs’ highlights a broader issue: a lack of integration within the organisation. Rather than embedding these critical functions into the core operations and strategy, companies add layers, leading to overly complex matrix structures that hinder effective integration.

Compounding this issue is the pervasive focus on reputation. The drive to maintain a positive public image often underpins these diversity initiatives, rather than a genuine commitment to fostering an inclusive and diverse corporate culture. This reputation-centric approach detracts from the deeper, more meaningful engagement with diversity and inclusion, reducing it to a superficial attempt to mitigate reputational risks.

Q: What do you wish all business were doing… to take the higher ground?

[Alison Taylor]: There’s a prevailing tendency to conflate ethics with ideology, framing current discussions as predominantly ideological or political battles. It’s essential to recognize that business inherently intersects with politics, and to claim otherwise is to ignore reality. To illustrate this point, consider three incidents that transcend partisan divides:

  1. Hertz, the car rental company, faced a fine exceeding $200 million after numerous customers, including a woman who spent over a month in jail in Florida, were wrongfully arrested for car theft due to the company’s oversight in tracking its vehicles.
  2. Amazon faced scrutiny when warehouse workers reported being compelled to work adjacent to a deceased colleague’s body, highlighting severe workplace issues.
  3. The Norfolk Southern train derailment in Ohio raised significant concerns about corporate responsibility and safety standards.

In each of these cases, one must question the extent to which these issues are genuinely partisan. Is there a substantial disagreement within society over the principles that companies should:

– Primarily aim to cause no harm and address their own mistakes?

– Treat individuals with dignity and respect?

– Concentrate on challenges they are actually equipped to resolve?

– Cease the grandiose declarations of world improvement, focusing instead on enhancing their own operations?

These principles, far from being contentious, underscore a universal expectation of corporate conduct. The term “yodelling,” as my friend aptly describes the act of loudly proclaiming a commitment to global betterment, captures the essence of what many businesses mistakenly prioritize. A shift in focus towards rectifying internal issues and genuinely improving business practices could lead to a more ethically grounded and universally respected corporate landscape.

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.

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