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Five features of great socially responsible leadership

Date: 16 Feb 2009

Looking for excellence

The new CEO of GlaxoSmithKline Andrew Witty has startled commentators, campaigners, and probably a few shareholders, with his announcement that the company would slash the cost of many of its drugs to people that need them in developing countries. It was a perfect example of the difference that leadership can make. It raises the question - what counts as great leadership in socially responsible business?

There is a wider list to be produced on that topic, but I wanted to highlight here five key thoughts in the light of the GlaxoSmithKline example and a few other things that have appeared in the last few weeks. And we always have the sharp contract of poor leadership we have seen in the last few months of the financial crisis.

Things that count as great leadership in socially responsible businesses.

1. Being prepared to challenge the logic of your industry.
2. Doing something because it is the right thing to do, and then working out how to make it pay
3. Understanding that the leaders sets incentives - and sometimes the bottom line is the wrong incentive
4. Understanding when to follow the rules, and when to use common sense in the face of unintended outcomes
5. Knowing that just because people around you see you as a leader, it doesn't mean you're a good one.

1. Great leaders are prepared to challenge the logic of their industry.

For years, the pharmaceutical industry has said that no more could be done about the issues of drug pricing in developing countries. Having made the catastrophic mistake of banding together to sue Nelson Mandela's government some years ago, they had taken a number of steps to try to meet expectations.

But there were a number of obstacles, particularly around the sacrosanct status accorded to intellectual property. Witty has now thrown down the gauntlet on all of these by committing GSK, one of the biggest players in the industry, to a completely new approach. He would have known as he did so that it would be an action that would provoke considerable resistance from his peers. But ultimately it would force them to respond.

We rarely see this sort of leadership. We need to see the tobacco company that will step outside the defensive position of its sector. We need to see the airlines that think radical about the carbon constrained future. What's your version?

We did see it some time ago in oil, when BP left the climate change coalition set up to deny the existence of climate change. It hasn't been so much in evidence there recently.

2. Leaders are prepared to do something because it is the right thing to do, and then work out how to make it pay

Those of us that are used to promoting the business case for corporate social responsibility will struggle with this. After all, the people that argued that unless companies did things for "the right reasons" it doesn't count were always looked down upon as being unrealistic and idealistic. Often they were, because they were arguing courses of action that would be unsustainable, and often would probably not be good for society anyway.

Because that doesn't mean to say that the opposite is true - only initiatives that deliver short term cash to the bottom line can be considered. This isn't licence for companies to rush out with whacky well-meaning schemes that lose money. But it is recognition that sometimes there is a moral bottom line - there are some things you should just do, or not do, because there are human consequences that can be avoided, albeit at some cost.

When the UK company Marshalls uncovered endemic child labour in the production of Indian sandstone, they had a bunch of options about how they ensured their supply was free from it. But the key thing was that, even though it would increase costs, they knew that the idea of young children caught in the most dirty, dangerous, hard manual labour was not a cost / benefit equation - it was just not acceptable. Sometimes you have to recognise that the business case has been trumped by something starker and more human.

And you take that judgement in the face of possibly sceptical shareholders.

3. Understanding that the leaders sets incentives - and sometimes the bottom line is the wrong incentive

The whole deal about CEOs and others getting stock options in their companies was meant to be about aligning their interests with those of the shareholders. It is an approach that has not been a success. The interests of the shareholders is often used as an argument against executives exercising their judgement about the right thing to do, because the interests of shareholders are assumed always to be in maximising financial returns.

Barry Schwartz tells the story of two social scientists, Bruno Frey and Felix Oberholzer-Gee, who polled Swiss citizens about nuclear waste dumps around 15 years ago. Each person was asked one of two questions. The first group was asked whether they would be prepared to accept a nuclear waste dump in their neighbourhood. An astonishingly high 50 percent said 'yes', showing the high degree of citizenship that was a cultural fact in Switzerland. People knew that there would be a cost to them if such a dump was close by, but they understood that the dumps had to go somewhere and they had a duty of citizenship to be prepared for it to be close to them.

A second group was asked the same question, but offered six weeks' salary every year in return for saying yes. You would expect the percentage of people agreeing to this to be higher, with such a powerful incentive. Yes?

Actually, the opposite happened. Only 25 percent of people said yes to the offer with the money. By offering money, the question was moved from the zone of "what is right" to the one of "what serves my interest". In that zone, the equation was very different.

Whenever the incentives go wrong, Schwartz argues, people always say that the incentives weren't smart enough, and need to be rethought. Sometimes, however, no incentives are going to be smart enough. And people become addicted to incentives, and stop asking themselves the question "is it right?".

That is a perfect description of what went wrong in the banking community over the last few years.

4. Good leaders understand when to follow the rules, and when to use common sense in the face of unintended outcomes

This is a tricky one for those of us that promote corporate social responsibility, because half of the CSR community lives and dies by companies setting rules, assigning responsibility for those rules, and monitoring them.

After all, how can you say you have a corporate culture of behaving in a certain way unless you train your people to behave in that way? Consistently. Across the organisation. And that means that you take away people's discretion, because taking bribes should not be a matter of discretion, and neither should allowing pollution.

That is right, but it is also potentially disempowering for people who can see in front of them a problem that needs to be solved. How many customer service people have failed to help solve a customer's problem because the rules said they couldn't. It wasn't their department. They didn't have discretion. And so on.

Barry Schwartz again told the story of the father and son at a ball game. The father accidentally bought a lemonade drink for his son that contained alcohol. He didn't realise. Before you knew it, a security guard had called the police, who whisked the child off to hospital, who then put got the child placed with a foster home for three days, and then a judge said the child could go home, but only if the father checked into a hotel, and it took about two weeks to reunite the family. At every stage, the officials concerned said that they hated doing what they were about to do, but they had no choice. The rules made them do it.

It's important to note that rules like that come about because of a past failing when something went badly wrong - a child was allowed to fall into the hands of an abusive parent.

And many of the CSR rules within companies come about because somebody polluted, or bribed, or discriminated. And suddenly you get a culture of zero discretion. That is safe. But it is often also stupid.

Train your people on the spirit of the outcomes, get them to understand why, and empower them to make the best judgement. Then it will be part of the culture, even if it goes wrong occasionally.

5. Just because people around you see you as a leader, it doesn't mean you're a good one.

The governments of the world have been berating the broken shells of great leaders of finance over the last few months. "Masters of the Universe" they were called - largely because that was how they used to behave.

They were admired and feared as great leaders. It was assumed that their commanding presence was an indicator of their great judgement - their personal styles were that they did not want to waste time with people that argued or disagreed with them.

Two social scientists, Cameron Anderson and Gavin Kilduff carried out a study to understand whether people that were naturally accepted by groups as leaders were actually more competent or otherwise deserving of that status. They set up groups of strangers, and gave them a task with the incentive of a $400 prize if they won. After they worked for a while, group members rated each other for their level of competence and influence.

The people that spoke the most were rated as competent and influential. People that spoke the least, the opposite. Even on tasks that were maths based, and therefore the competence of each person's contributions could be objectively assessed, it showed that there was no link to the view of the group and actual competence.

To be regarded as a leader, in other words, only requires that you behave like one, without apparent lack of confidence or doubt. Mostly in the study, that meant talking a lot. Putting forward ideas, even if wrong.

As the 'masters of the universe' found, this is seductive and destructive. If you conspire with your co-workers to believe in the myth of your own infallibility, you are more likely to make crucial errors of judgement. And it is in the quality of your decisions and your actions that your leadership is ultimately judged.

Going back to GlaxoSmithKline, one of Andrew Witty's first actions as the new CEO of the company was to rearrange the furniture. More specifically, he pulled the top executive team off their 12th floor ivory tower, and put them on the ground floor next to the staff cafe. It was an early statement that they, as leaders, needed to be closer to the heart and soul of the organisation, and hearing the news about what was really happening. It's a good sign that he will be a good leader.

Additional reading / viewing

"Competence, is your boss faking it?", Time Magazine, Feb 11 2009
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Barry Schwartz TED lecture
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