Set your leadership compass for a journey of self-discovery Set your leadership compass - Self-discovery

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Understanding your leadership style and how to adopt or blend different approaches will improve your ability to respond to intensifying challenges and stakeholder expectations.

Think about a business that doesn’t monitor its supply chain for child labor or exploits indigenous communities. Or a company that commits to ambitious climate targets but engages in greenwashing PR instead of action. If ignored, it’s not long before stories find their way to social media, triggering boycotts or threatening the social license to operate. If the firm’s leaders are unable to resolve the issue and rebuild public trust, the business can decline.
Rather than allowing problems to fester, responsible leaders act proactively with relational intelligence and moral imagination to ensure long-term business success.

Peter Wuffli*, a former finance industry CEO and chairman who now sits on multiple boards, told us recently that responsible leadership seems to be gaining tremendous momentum and has made it onto the CEO agenda. However, there appears to be a knowing-doing gap. An important step to closing this gap is for leaders to be aware of the values, behavior, and beliefs that drive decision-making. As Wuffli, the founder of social impact investment organization elea, stressed: “More than ever, [leaders] have a responsibility to articulate what they believe in, what their ethical stand is, what their values are that they are guided with.”
Knowing to whom and for what you owe responsibility, your reason for being and thus the purpose of your business, and how to engage with stakeholders and approach the grand challenges of our time – this is what responsible leadership is all about.

It helps link sustainability, corporate social responsibility (CSR), and performance to the actions of policymakers and leaders. In a world where trust in leaders is low and the reputations of firms are often called into question, it can help close the gap between public perception and increased accountability to all stakeholders.

Through our research into different iterations of responsible leadership, we have created a framework to help leaders develop awareness, identify their mission, and articulate their approach.

We are investing in environmentally cleaner technology because we believe it will increase our revenue, our value, and our profits, not because it is trendy or moral, but because it will accelerate our growth and make us more competitive.

'Opportunity seeker' Jeff Immelt, the former CEO of GE.

The four archetypes of responsible leadership

Based on a qualitative analysis of 25 business leaders and entrepreneurs, including Richard Branson of Virgin and former Shell CEO Peter Voser, we identified four orientations leaders use to demonstrate responsibility and implement CSR: traditionalists, opportunity seekers, integrators, and idealists.

Crucially, our framework highlights differences in leaders’ perceptions of responsible leadership: it is not the same concept in the minds of all. These perceived responsibilities range from a limited, traditional focus on serving the needs of stockholders and owners, complying with laws and regulations, and creating jobs to those leaders who use the ingenuity of business as a force for good to solve social problems.

Traditionalists see their purpose as maximizing profit and creating short-term economic value for shareholders. This type of responsible leader will likely be risk-averse, highly rational and analytical, and reserved or defensive regarding CSR. Any CSR initiatives are determined on a strict economic cost-benefit basis, ensuring basic compliance with laws and industry norms. Traditionalists are profit-driven leaders who invest in CSR and sustainability because it pays or is required by law: climate action (reducing water and energy use, for example) saves costs and positively affects the bottom line.

Opportunity seekers share some of the characteristics of the traditionalist. However, they view CSR and sustainability as strategic opportunities to maximize shareholder value and improve financial performance. They create social value because it is also good for business and has reputational benefits: their motto is “doing well by doing good”. However, as ESG targets have gained prominence, the opportunity seeker is conscious that CSR must be more than just a PR tool. They avoid window dressing and greenwashing. Instead, they invest in those societal issues that are aligned with the corporate strategy and realize win-win outcomes such as building new markets or serving new customer groups.

Jeff Immelt, the former CEO of GE, exemplifies this mindset: “We are investing in environmentally cleaner technology because we believe it will increase our revenue, our value, and our profits, not because it is trendy or moral, but because it will accelerate our growth and make us more competitive.”

Integrators go beyond economic, legal, or strategic concerns to incorporate a broader purpose-driven perspective: “Doing the right thing is the right thing to do.” They show relational intelligence in their engagement with stakeholders and pursue a proactive approach towards CSR with the ambition to drive positive change and integrative value creation in business and society.

In contrast to opportunity seekers, the integrator’s stronger sense of accountability towards stakeholders means they try to deliver on and optimize multiple bottom lines (profit, people, planet) and respond to the demands of all legitimate stakeholders, not just financiers and the powerful. Their outlook is shaped by the belief that profits will come if a business is run responsibly and purposefully.

Examples include Yvon Chouinard, the founder of the outdoor clothing company Patagonia, and the late Dame Anita Roddick, who showed it is possible to integrate profit, purpose, and principles. With the launch of The Body Shop at the London Stock Exchange 40 years ago, Roddick dedicated the business to “the pursuit of social and environmental change”. She demonstrated that you could drive a successful business model by focusing on different stakeholders in an inclusive, responsible, and profitable way (by sourcing products from indigenous communities, for example).

Idealists dedicate their businesses and energy to solving societal challenges like social entrepreneurs. They are driven by strong moral intentions, seeing the business as a means (not an end) to tackle social problems, even if that may impede a business’s growth or risk its longevity.

Joe Madiath, founder and Chairman of Gram Vikas, an Indian developmental organization that strengthens capabilities and mobilizes resources in rural communities, is a perfect example. “My motivation was always the self-satisfaction I get when I can in some way change the lives of people for the better,” he said.

My motivation was always the self-satisfaction I get when I can in some way change the lives of people for the better,

'Idealist' Joe Madiath, founder and Chairman of Gram Vikas.

Avoiding the traps

Before determining the mindset that could best guide your future decision-making, it is essential to be conscious of the pros and cons of each one.

The idealist: beware of underperformance or burnout

Idealist leaders are well suited to tackle problems that government and large businesses do not engage in (e.g., rare diseases) and can realize a substantial positive impact on society. However, they often lack a business education background and need to build the management and leadership capabilities necessary to run and grow the organization effectively. If they do not invest in developing them, the idealist can be caught in an underperformance trap or risk the organization’s very existence. The breadth and depth of their challenges also leave them more at risk of burnout.

The traditionalist: myopia can lead to disaster

In contrast to the idealist, the traditionalist is mainly driven by self-interest with a primary, inward-looking focus on responsibility. This approach can work well in uncontested markets and when public scrutiny is absent. However, past scandals have shown that an internal orientation coupled with excessive self-interest and greed can result in behavior that pushes individuals or organizations outside the responsible leadership framework altogether, destroying jobs and shareholder value and threatening the company’s survival.

Learnings from the financial crises and corporate scandals have shown that the scope of responsibility has broadened, with growing stakeholder expectations for business leaders to do better. First, unchecked self-interest and narcissism do not lead to better business outcomes but expose the fault lines of selfish leadership. Second, too strict a focus on profit maximization and financiers can foster an inward orientation, neglecting stakeholders and perspective-taking. This may result in a “myopia” trap – where leaders are unable or unwilling to respond to stakeholder expectations. Stakeholder concerns are not heard, resulting in stakeholder conflicts or a corporate crisis. It is important to understand the limits of a myopic approach to CSR and that long-term success and legitimacy depend on an organization’s adherence to basic forms of social responsibility and, as Milton Friedman said, standards of common decency.

The opportunity seeker: ‘profit first’ can erode trust

What, instead, if one looked at ESG and CSR as an opportunity for growth and market success? Opportunity seekers do just that. They are very clear about their intentions, engage with a larger group of stakeholders, and realize win-win gains at the interface of business and society in the pursuit of creating shared value. The positive impact and scale can be enormous, as initiatives led by executives at GE, Nestlé, Unilever, and Walmart have proven.

However, opportunity seekers pursue a “profit +” approach: their triple-bottom-line (people, planet, profit) is still based on the primacy of profit. They will only pursue social and environmental objectives if they benefit business. In critical situations, they would make decisions based on economic cost-benefit analysis. As a result, this approach is at risk of the credibility trap. Suppose leadership decides to scale back or stop social and/or environmental initiatives altogether, perhaps because of profit warnings or shareholder pressure. In that case, other stakeholders may interpret this as evidence that any former engagement was simply window-dressing or greenwashing, putting the social license at risk. As Warren Buffett said: “It takes 20 years to build a reputation and five minutes to ruin it.”

As a case in point, with Unilever’s recent shift in its sustainability focus, senior leadership has been harshly criticized for its attempt to streamline its approach in light of shareholders’ pressure to cut costs.

The integrator: don’t lose focus

The integrator engages with all relevant stakeholders and tries to optimize or integrate value creation regarding profit, planet, and people. In critical situations, they would make decisions based on principles and a moral compass, not only a cost-benefit analysis. They may even pursue sustainability or CSR initiatives if integrity demands it, at the risk of temporarily hurting the economic bottom line because, for them, it is the right thing to do. That principled stewardship will always pay off in the longer run is the integrator’s core conviction. Take the example of CEO James Burke of Johnson&Johnson, who cleared the shelves of all pharmacies and supermarkets in the US when someone tampered with Tylenol bottles. While share prices dropped at first, the decision was eventually rewarded with increased consumer trust.

It can be argued that an integrative approach is best suited to lead a business in a market of virtue – where ethics is rewarded – and to build an authentic, purposeful, trust-based brand. With growing expectations not just to do better but also to do more, integrators may be exposed to priority traps. As Paul Polman has cautioned: “You have to be careful that you do not get involved in a million things as the world has so many problems but ensure that the issues you do take on link to your business model and that you stay focused.” Focus, consistency, and purpose are key, as is a moral compass.

Elevating your scope of responsibility

While these four mindsets are distinct regarding their underlying motivation, values, and reach, leaders can – and perhaps should – change between quadrants; for example, from an integrator to an opportunity seeker or from a traditionalist to an integrator. The latter is exactly what the late Ray Anderson, CEO of flooring manufacturer Interface, did when he realized that the way he led his company was unsustainable. This kind of transformation, however, requires a deliberate approach that starts with a journey of self-awareness and reflection on values and intentions.

For CEOs of established companies, such introspection can help them adjust to changing expectations in a complex stakeholder environment and a market of virtue. Consider GE’s Jeff Immelt and the “Eco Imagination” campaign or Nestle’s “Creating Shared Value” strategy, both leading to a solid positioning in the opportunity seeker quadrant. Or former Danone CEO Franck Riboud who, based on the existential realization that “there is only one earth, we only live once”, developed a new health-oriented strategy and business model guided by the mission to bring “health through food to as many people as possible”.

But what about companies and leaders that come from a controversial industry background or emerge from a crisis? What about those who wish to rise from the ashes of irresponsibility?

The most demanding transformation requires leaders to rebuild public trust and transition into the realm of responsible leadership. These leaders may face resistance within the company and skepticism from stakeholders. Being seen as a responsible leader requires integrity, trustworthiness, and a social license to operate. These must be earned through dedicated, responsible, consistent behavior, relentless stakeholder engagement, and sustainable change.

Ray Anderson’s overhaul of Interface from a toxic carpet manufacturer into a role model of sustainability took almost 25 years. He started by reflecting on his values, beliefs, and the question of the purpose of business and concluded: “For those who think business only exists to make a profit, I suggest they think again. Business makes a profit to exist. Surely, it must exist for some higher, nobler purpose than that.” Based on this broader mission, which he first communicated in 1994, and with the goal of eliminating any negative environmental impact by 2020, Interface completed “Mission Zero” in 2019. It took an integrative approach, stakeholder engagement, sustainable innovation, courage, and perseverance. Today, Interface is working to reverse global warming with its “Climate Take Back” mission.

Tying it back to you

So, how can the different orientations or combinations of responsible leadership help others navigate today’s challenges to achieve substantial, sustainable change?

Start by using the responsible leadership compass: Where do you sit in the landscape of orientations? Do you see yourself as a traditionalist, an opportunity seeker, an integrator, or an idealist? Does that position future-proof you and your organization? Does it help you to make the world a better place? Would you change your mindset and style to embrace aspects of another orientation that could enhance your approach? Would you partner with others to enrich diversity of thinking?

The key to authentic responsible leadership is to be willing to adapt your orientation to help shape or refine your strategy in partnership with others. Management and leadership development play an important role here. For example, learning the ways of the opportunity seeker might help move a traditional economist orientation to a more enlightened perspective that views the business in relation to a broader set of stakeholders. Adopting the integrator’s approach of combining strategic thinking with social ideals could have significant implications for developing the identity and purpose of the organization, influencing strategy formulation, the quality of stakeholder engagement, brand building, and leadership development.

Coaching and training can also help you understand your leadership orientation and areas for improvement to reduce the risk of falling into the traps described in this article. The idealist might benefit from finance, operations, and people management training to avoid the “underperformance” trap. The traditionalist might need to make an effort to get to know a broader range of stakeholders or to take a deep dive into the shifting sands of the social license to operate to avoid the “myopia” trap. The opportunity seeker might need support to reflect on how to align CSR and sustainability with corporate purpose and to integrate it into the organization’s strategy to avoid the “credibility” trap. The integrative leader might benefit from help balancing triple-bottom-line objectives, setting priorities, and identifying and coping with multiple and often conflicting stakeholder demands to escape the “priority” trap.

Leadership is about choices. Our framework offers you a chance to reflect on the status quo and how to adapt as circumstances and expectations change. It can help to crystalize your values, purpose, and beliefs, articulate them, and translate them into your aspirations and vision through strategic responsible leadership. The four mindsets shape responsibility in different ways along the fault lines of leadership: creating meaningful work environments where people are, in the words of Nick Craig, Bill George, and Scott Snook, aligned, empowered, and committed to serving a broad set of constituencies; navigating a business successfully and sustainably in times of polycrisis; and making wise decisions when faced with complex problems and moral dilemmas.

*Dr. Peter Wuffli is IMD’s Honorary Chairman, since 2020; Board member from 1995-2019, Chairman from 2011-2019.

Authors

Nicola Pless

Chair of Positive Business at the University of South Australia

Nicola Pless is Chair of Positive Business at the University of South Australia and former Vice President of Leadership Development at a Fortune Global 500 company. In consecutive years, she has been listed among the world’s top 2% of scientists by Stanford University. She received the Faculty Pioneer Award for Teaching Innovation and Excellence from the Aspen Institute.

Thomas Maak

Chair of Ethics at The University of Queensland Business School

Thomas Maak is Chair of Ethics at The University of Queensland Business School. Previously, he was Director of the Centre for Workplace Leadership and Professor of Leadership at the University of Melbourne. Maak is a global authority on ethics and responsible leadership.