In the court of public opinion, the business world is losing trust but still has more trust than the government. This may help explain why the recent push around corporate social responsibility has given rise to a new optimism for progress around major social issues like inequality or climate change: Perhaps, if the business world does its part, we can meaningfully address these issues.
Recent commentary, research, and reporting, however, suggest this optimism may be misplaced, or worse, a smokescreen that will prevent us from actually solving these problems.
“Most of ESG in this country right now for investors and companies is greenwashing,” says Susan H. Mac Cormac, partner at Morrison & Foerster in San Francisco and chair of its energy, social enterprise, and impact investing practices. “There are a ton of people who are just putting up [an attorney] who used to be an environmental lawyer, and it’s all compliance-based, checking the box.”
Tariq Fancy, the former head of sustainable investments at BlackRock, a firm that many see as being on the forefront of the new era of stakeholder capitalism and corporate accountability, wrote a scathing review of these efforts from his view behind the curtain.
Fancy wrote that ESG investing represents “a highly profitable and fast-growing business line for BlackRock and other financial institutions” and that even the most ambitious funds that are thoughtfully pursuing sustainable investing are “a drop in the bucket against a tidal wave that was going in the opposite direction.” He noted the irony of flying on private jets to “hock low-carbon investment products.”
Inessa Liskovich, an economist who Fancy interviewed to be the lead ESG researcher at BlackRock, concluded that there are no conclusions to be made on the connection between ESG and profit right now. At best, she says, it is economically “a luxury good”—something that is nice to have if you can afford it.
Baruch Lev, an accounting and finance professor at NYU’s Stern School of Business, previously explained to me that the companies that are strongest in ESG or CSR tend to simply be the ones that are the most profitable. If that’s the case, companies like Google, Facebook, and Netflix have a responsibility to lead in ways that go beyond throwing money around.
A corporate ESG strategy that is merely investing in sustainable funds or supporting nonprofits isn’t enough, nor is divesting from “bad” businesses. Philanthropic capital efforts are far too small to make a difference against the urgent spectre of climate change, as Mac Cormac, Fancy, and many other ESG skeptics have stated. Unless businesses are willing to move away from the practices that are causing the most harm, the rest of their efforts are noise.
“If you have a good policy around ESG, great,” Mac Cormac says. “But I want to change your whole operations.”
Fancy wrote: “When our leading experts conclude that a certain highly lucrative business activity is a grave danger to society, the machine ‘innovates’ to protect its profits any way it can. … the fact remains that if the referees won’t penalize players for doing business in a way that yields huge profits at our collective expense and then playing down those negative side effects, they’ll generally keep on doing it.”
Businesses can make philanthropic commitments for 1% of their profits and push as many CSR initiatives as they can afford, but as long as they are collectively destroying the environment, deploying artificial intelligence irresponsibly, and lobbying against regulations that would develop stronger environmental and social responsibility standards, they’re just building facades.
Philanthropy or divestment are not strong enough on their own to address the climate issue, and with the many ethical failings of the technology and internet companies that have contributed to inequality and social disarray, a stronger level of accountability is necessary in order to secure a stable future via responsible business.
“There’s a difference between excusing yourself of something you do not wish to partake in and actively fighting against something you think needs to stop for everyone’s sake,” Fancy wrote.
The most responsible companies are the ones doing the latter.
Aman Kidwai
aman.kidwai@fortune.com
Ask an academic
What is the best way for new leaders to build trust with their teams?
When a new leader starts their job, conventional wisdom suggests they want to build up their trust as high as possible. Recent research suggests a more modest approach could work better.
Kurt T. Dirks, vice chancellor of international affairs and leadership professor at Washington University in St. Louis, recently co-authored a study on trust and expectations for leaders and how those factors change over time. The study, recently published in The Journal of Business Ethics and summarized in this article, collected data at four different points in time from 500 individuals on 130 teams at the U.S. Military Academy in West Point. Squad members reported on their trust in their direct leader. Additionally, leadership one level above the unit leader responded about unit effectiveness.
What they found was that most leaders who started with higher-than-average trust experienced a decline in trust over time, and those that started with lower trust but were able to build it over time succeeded. This suggests that companies installing a new leader should think about how they work to build trust in that new leader before they even start. The research also covered how new leaders can build trust over time.
The Modern Board spoke with Dirks to learn more.
Do the findings of your study mean that new managers should try to curb expectations when starting a new job?
Kurt Dirks: Expectations and trust can come from all different places when you walk into a new role: maybe reputation or what people are saying about you in the press, what you've done in the past, the relationships that you might have, and then maybe even what you look like. … some of those things you can’t do much about. The thing you can do is purposely set expectations for what they should expect from you over the next few months, but be cognizant to not try to over-inflate or overpromise and set clear and realistic expectations.
What can managers do to build trust when they start and across their tenure?
KD: No matter where you start out, in terms of trust, there are certain behaviors which are really important when they start out. One of them was investing time to build personal relationships with subordinates, which may not be surprising but it just turned out to be so crucial in this notion of building early trust, and talking about values… those sets of behaviors really mattered. And there’s the set of implications around managing expectations.
If new leaders want to keep expectations modest, how does someone who comes in with a great resume curb the high levels of trust that come with being associated with those prestigious institutions?
KD: It’s important to just be very clear about expectations, what the next few months will look like, being honest about the challenges, and what performance monitoring will look like. Clarity of lots of communication early on can help overcome some of the assumptions that people may walk in with.
This study was conducted at the US Military Academy at West Point, is that very applicable to corporate business leaders?
KD: Many of the dynamics of trust and leadership we have found across nearly every study ... We've seen it in sports, we've seen plenty of health care teams. Other colleagues have done it with restaurants and Fortune 500 companies. The dynamics of trust and performance and the factors which drive trust seem to be fairly constant across organization types of organizations and organizational cultures, and there is even actually quite a bit of similarity across national cultures.
What are the connections between trust, ethics and performance?
KD: We saw those leaders who were either maintaining high trust, or more importantly rapidly building trust, discussing their values and living up to those values. We probably can call that having integrity … The individuals who talk about their values, how they connect with the company's values, and grow their moral values are the ones maintaining trust and driving high performance.
Headlines
Facebook’s problems aired out
The company that wants to connect the world may have gone too far, connecting people to misinformation, mental health trauma, and sociopolitical instability in its zeal to drive usage of its platform, according to Frances Haugen and Sophie Zhang, two former employees of the social media giant that have spoken out this year.
“I have blood on my hands,” Zhang wrote in a memo that became public in September. She detailed numerous harrowing accounts of trying to suppress hate speech and politically destructive behavior on Facebook.
“Facebook’s products harm children, stoke division and weaken our democracy,” said Haugen, a former researcher who went public with a TV interview on ‘60 Minutes’ and testified in Congress on October 5. “The company’s leadership knows how to make Facebook and Instagram safer but won’t make the necessary changes because they have put their astronomical profits before people.”
Remote work improves the Black worker experience
Bloomberg’s Matthew Boyle writes about a study from a Slack-funded research group which finds that Black workers in office roles “are more likely to say they’ve been treated more fairly, value their co-workers more and feel more supported by management.”
This finding is important to remember when creating a working model for the future. Remote work is an enabler of inclusion in many different ways, including this one.
The SEC opening comments for new sustainability rules
Bruce Rule at Fortune reports on the likelihood of the SEC issuing new guidance requiring companies to “disclose information that may include data on greenhouse gas emissions, the financial impacts of climate change on operations, and progress toward stated climate-related goals.”
Netflix disappoints its employees
After numerous trans employees and LGBTQ+ supporters raised displeasure with anti-trans commentary in a recent Dave Chappelle comedy special on Netflix, the streaming entertainment company’s CEO responded by essentially praising the profitability of Chappelle’s previous special. He added that they would not be taking this new special down despite the requests of employees.
Zoe Schiffer of The Verge has reported thoroughly on this story, and adds that the trans employee resource group is planning a walkout on October 20th.
Netflix could have handled this better, in my opinion.
What does corporate social responsibility (CSR) mean to you?
Sunny Gupta, co-founder and CEO at Apptio
“Employees, customers and board of directors are increasingly looking to businesses to demonstrate leadership on a variety of societal issues. Having a purpose, strategy, and taking specific actions on these issues is critical–and at Apptio, we strive to balance this with the for-profit elements of our business. I believe this is achievable and needs to be driven from the top-down in any organization. Corporate social responsibility is an opportunity to lead with empathy, make meaningful contributions to our communities, and take action on important initiatives like diversity and inclusion. Companies hold the power to build a future where everyone can live to their full potential and those that lead with empathy are the ones that will make the greatest impact.”
Ariel Kaye, founder and CEO of Parachute
“When I started Parachute I vowed to always be transparent. I’ve also learned the importance of leading with empathy and being vulnerable in order to rise above and inspire others to dream big. At Parachute, we are committed to taking care of each other – from our people and partners to customers and the planet – in order to build a successful, socially responsible brand.
Sustainability is one of the biggest challenges facing our generation. I believe in the importance of fostering a sustainable business and doing our part to reduce our environmental impact. As an organization, we want to shift the consumer mindset to prioritize quality over quantity. We want to move away from fast fashion and focus on responsibly-made, timeless goods. ... While we are always learning and adjusting, our goal is to consistently do right by our community and environment.”
One good idea
Internal mobility
With employee engagement and creative career pathing being top-of-mind for business leaders amid “The Great Resignation,” internal mobility is an answer for retention, skill-building, and employee development.
While business leaders can boost internal mobility by updating company policies and making it easier for employees to find other opportunities in different departments—it’s not that simple.
Managers prefer to hoard talent, and often don’t seem to care if their star employee leaves the company or their team—it’s all the same to them. The company, of course, would prefer to hold on to that individual, especially during this time of high turnover.
Many companies also have restrictive internal transfer policies that require employees to remain in a job for multiple years before seeking other opportunities internally. In many cases, they solve the problem by looking externally. On top of that, people are still most comfortable staying in one department in order to maintain the highest chances of moving up and earning more year-over-year, a sentiment that is shared by managers and employees.
In many ways, closed-mindedness also impedes internal mobility.
“To me, typical HR was always to look at it from the lens of the enterprise,” Jean Pelletier, vice president of digital talent transformation at Schneider Electric, told Fortune. “Everything is designed to make sure that the business has continuity and is growing for the future and remains competitive.”
Pelletier made the push to improve talent mobility within Schneider Electric based on a data point that stood out to her in exit interviews: nearly half of all departing employees said they were leaving because they felt they did not have enough opportunities for career advancement.
Another inhibitor of internal mobility is that employees often don’t have a very good sense of the talent needs within other parts of their company, and it can be challenging, or even controversial, to pursue conversations around it. This is where digital solutions, such as an internal job board and talent marketplace, allow companies to make those opportunities more well-known across the organization.
Jeff Schwartz spent 30+ years working in talent consulting at PwC and Deloitte, most recently as a principal in Deloitte’s Future of Work practice. He recently joined Gloat, an internal talent marketplace software, as its VP of insight and impact. Schwartz notes that a platform won’t work without the right structure and support internally.
“You need to get your business leadership, and your business managers, as well as your HR and talent managers on board, that we are going from a system of linear career paths that are controlled by HR and talent to a notion that employees are working with business leaders to actually have agency over their own career path,” Schwartz said.
“It's a reframing of the way talent exists and thrives in an organization.”
DEI blind spots
Workplace harassment continued despite remote work
Even though most office workers were working remotely, bullying, inappropriate commentary, or discriminatory bias still occurred over the past year.
AllVoices, an employee feedback platform, conducted a survey finding that 44% of full-time employees have experienced harassment at work and 38% still experienced harassment remotely: through email, video conferencing, chat apps, or by phone. Only 50% have reported harassment and 28% said they believe their employer does not encourage employees to raise issues of harassment.
“People are still experiencing harassment remotely but what it looks like is different,” says Claire Schmidt, founder and CEO of AllVoices. “This report reveals that even in a work from home or hybrid environment, harassment doesn't disappear.”
In the same survey, 54% of respondents said incidents of harassment were fully addressed and resolved, but 12% saw no action from their workplace and 14.7% aren’t aware of any action taken. Thirty-four percent have left a job because of unresolved harassment issues.
Schmidt explained that the informality of online channels may be why some people fall into these kinds of behaviors remotely. Also, miscommunications leading to disagreement can fester when people can’t meet in person. She adds that companies and managers need to make expectations around behavior very clear, and perhaps update them to consider forms of harassment that may occur across virtual channels. They also need to act on issues as they arise and move quickly to resolve them.
Numbers that matter
28%
This is the number of new Fortune 500 board directors that were Black, an increase from 10% the year before “and years of little progress before that,” according to research from Heidrick & Struggles.
This is the web version of The Modern Board, a newsletter focusing on mastering the new rules of corporate leadership. Sign up to get it delivered free to your inbox.
