Contemporary CEOs should not only be experts in addressing the business realities of products, markets and competitors. She must have the experience and ability to address business-society issues – legislation, regulation, investigations, enforcement and litigation – that now pose risks and opportunities in all dimensions of corporate activity.
Recent world events highlight the importance of these social issues. The US presidential election and transition presents a confusing (and messy) mix of pro-business and anti-business themes. On the one hand, protectionism, populism, and widespread distrust of the role of business in politics threaten multinational corporations (think Carrier, Boeing, and tariffs/taxes for off-shoring and outsourcing). On the other hand, tax reforms, infrastructure, deregulation and inclusion of more professionals in the cabinet may create opportunities for them. Likewise, it remains uncertain whether the Brexit vote last June will help or hurt businesses in the UK and EU.
But the US election and Brexit are only the most recent examples of the wider, growing importance for corporations of business-in-society issues. In virtually every country around the world, a wide range of governmental and ethical issues directly and immediately shape what companies can and cannot do. They introduce ever-changing, ever-expanding, and often inconsistent rules and regulations to promote economic growth and protect workers, consumers, investors, communities, and the public welfare. And they can change dramatically as the political pendulum swings back and forth in different nations.
Indeed, systematically dealing with the risks of anti-business/anti-globalization proposals and the opportunities for pro-growth policies has become as important as addressing production, market and economic issues for global corporations.
The challenges of business-society problems arise in many different settings. These include legislation, regulation, investigation, enforcement, litigation, ethics, reputation, crisis management, corporate citizenship and pressure from public officials, NGOs and the media. In a globalized economy, these challenges stem from broader, sometimes catastrophic, problems in international business: cronyism, mistrust, and labor issues, as well as trade, environmental, tax, and supply chain issues.
They arise in confusing and challenging ways from important geopolitical developments: e.g. populism, nationalism and protectionism in the US and the European Union; Russian Resurgence in Eastern Europe; Chinese assertiveness in Southeast Asia; rampant corruption in Brazil; and tribal hatreds and religious conflicts in the Middle East.
CEO acumen on business-in-society issues is thus essential to solving fundamental corporate problems, from business strategy to adherence to ethical standards to risk management.
For example, in setting strategy in a large multinational corporation, a CEO has to navigate different political-economic systems that range from state capitalism to government-centered industrial policy nations to market-centered mixed economies. In turn, those systems involve categorizing different ideologies about how government should work: liberal to conservative to populist to libertarian to socialist. To ensure legal compliance and mitigate legal risk, CEOs and senior staff must contend with complex, conflicting, and uncertain regulations, enforcement practices, and legal cultures across numerous regional, national, and subnational jurisdictions.
CEOs can also voluntarily set global ethical standards required by law, in part to prevent additional regulation. Setting such standards involves a delicate balancing of the interests of the corporation and the rights and duties of shareholders. These ethical questions arise across the entire range of corporate activities, from technology and manufacturing to marketing and sales.
Or, to take a final example, a CEO’s risk mitigation ability includes identifying, understanding, and prioritizing various financial and non-financial threats to the corporation, particularly those presenting difficult geographic, terrorist, or cyber threats. The CEO must then set up robust, cross-functional systems and processes to prevent, mitigate and respond to those risks, always keeping in mind the critical challenges of the different national cultures where the company operates.
These ethical questions arise across the entire range of corporate activities, from technology and manufacturing to marketing and sales. Or, to take a final example, a CEO’s risk mitigation ability includes identifying, understanding, and prioritizing various financial and non-financial threats to the corporation, particularly those presenting difficult geographic, terrorist, or cyber threats. The CEO must then set up robust, cross-functional systems and processes to prevent, mitigate and respond to those risks, always keeping in mind the critical challenges of the different national cultures where the company operates. These ethical questions arise across the entire range of corporate activities, from technology and manufacturing to marketing and sales.
Or, to take a final example, a CEO’s risk mitigation ability includes identifying, understanding, and prioritizing various financial and non-financial threats to the corporation, particularly those presenting difficult geographic, terrorist, or cyber threats. The CEO must then set up robust, cross-functional systems and processes to prevent, mitigate and respond to those risks, always keeping in mind the critical challenges of the different national cultures where the company operates. and prioritizing various economic and non-economic threats to the corporation, particularly those presenting difficult geopolitical, terrorist or cyber threats.
The CEO must then set up robust, cross-functional systems and processes to prevent, mitigate and respond to those risks, always keeping in mind the critical challenges of the different national cultures where the company operates. and prioritizing various economic and non-economic threats to the corporation, particularly those presenting difficult geopolitical, terrorist or cyber threats. The CEO must then set up robust, cross-functional systems and processes to prevent, mitigate and respond to those risks, always keeping in mind the critical challenges of the different national cultures where the company operates.
The board of directors plays an important role in assuring that the CEO brings a critical business-to-society perspective to her job. Critical selection processes must change by ensuring that leadership development includes broad integrity, key experience on risk and public issues – and then selecting CEOs with the necessary breadth and commitment. It needs to focus its oversight function by clearly defining key operating objectives for the 15 highest priority risks and opportunities that encompass business and community issues.
Both cash and equity compensation must be linked to a detailed record of those goals (not just general stock market movements). And stronger risk and public accountability committees need to be established for more comprehensive reviews of these broader issues. The board also needs to ensure that executives reporting to the CEO are not just experts in the business, but also people with a deep understanding of politics, policy, ethics, social trends, country risk, modern communications and corporate citizenship.
A prime example is the internal consulting revolution of the past 20 years. In many large US companies, the General Counsel is now a key member of top management – asking not just “Is an action legal” but ultimately, “Is it right. ” The GC now has an importance and stature comparable to that of the Chief Financial Officer as the corporation’s health requires it to navigate the complex and rapidly changing demands of legislators, regulators, investigators, enforcers and interest group critics around the world.
The importance of business-in-society issues is, finally, reflected in the basic mission of the global enterprise: the fusion of high efficiency with high integrity and risk management.
This is the essence of corporate citizenship. It should include CEO leadership on core public policy that secures, in a comprehensive and balanced way, public goods that the market cannot create — and that avoids narrow-minded crony capitalism (the cause of much public opposition). It also includes the following political processes that address the dysfunctions of our political culture: temperance with money, fairness in facts, balance in measures, nonpartisanship in politics, and broad coalitions rather than narrow trade unions.
Accomplishing this achievement with a mission of integrity depends on integrating business-in-the-economy and business-in-society approaches. Failure to do so can lead to serious corporate damage, as the performance and integrity scandals of this century show – think of Enron, WorldCom, Siemens, BP, VW and Wells Fargo, to name just a few of the possible examples.
But success in this mission can achieve more than just avoiding disaster. It also creates value and benefits within the corporation, in the marketplace, and in the broader global community — and ultimately creates the fundamental trust that is the foundation of corporate sustainability and sustainability and that endures beyond changes in government.