Could steward leadership be the secret to overcoming today’s biggest challenges while ensuring your company’s success and longevity?
USD30 billion was how much greenwashing cost Volkswagen.
Deutsche Bank’s investment firm DWS, USD25 million.
Against the backdrop of a transparent world, climate change, and educated consumers, companies operating on the traditional shareholder-only model are paying the price.
Some critics would argue that it’s not the business model to be blamed, but the lack of governance in the form of rules and regulations. Would such issues be prevented if there were stricter rules and governance policies in place? Volkswagen’s Dieselgate scandal was just one of several instances of greenwashing in the automobile industry over the past 50 years.
The first time Volkswagen attempted to bypass loopholes in the EPA’s Clean Air Act was in 1973. The company fitted temperature-sensing switches into their cars that deactivated the emissions control system. In 1995, GM paid USD 11 million in fines, USD 25 million to fix recalled cars, and almost USD 9 million in a “community service” penalty. It had fitted its cars with engines that turned off the emissions control system when the air conditioner was turned on. Similar cases with Honda and Ford followed in the decade after. The economic cost of unethical corporate behavior cannot be understated.
In a survey in the book Sustainable Sustainability: Why ESG Is Not Enough, we found that a majority of respondents agreed or strongly agreed that while important, rules and regulations are not enough to drive the positive action we need to solve existential challenges.
Date source: Sustainable Sustainability: Why ESG is Not Enough. Rajeev Peshawaria. (Penguin Random House SEA)
With 82 percent of survey respondents agreeing with the statement, the survey results emphasize that while laws are necessary to prevent harm, consumers know that only relying on carrots and sticks is not the answer.
The world order is shifting. Beyond providing a product or service, corporations also need a social license to operate, and doing the bare minimum is not enough. Amidst a backdrop of existential challenges like climate change, threats of nuclear wars, and socioeconomic inequality, consumers are demanding that the private sector step up to solve these mammoth problems. The challenge of modern business is finding profitable solutions to these problems. A study by McKinsey found that the average life span of companies listed on the S&P 500 was 61 years in 1958. Today, it’s less than 18 years. The “usual” in “business as usual” has changed. In a separate survey, we asked senior executives in 25 countries what they thought was the main motivator behind business leaders who demonstrated exemplary responsible behavior towards the environment and society. The results are as follows:
Date source: Sustainable Sustainability: Why ESG is Not Enough. Rajeev Peshawaria. (Penguin Random House SEA)
89.62 percent chose “proactive, genuine leadership intent to do well by doing good.” The remaining 10.38 percent was split amongst measurement and reporting, regulation and compliance, tax and compensation incentives, and cheaper capital. The growing recognition of the changing factors of success cannot be denied.
“What then is this proactive, genuine leadership intent to do well by doing good” that a staggering proportion of senior executives believe is necessary for modern success? Our research of hundreds of companies found a common thread amongst companies that achieved longevity and profitability: steward leadership.”
Steward leadership is the genuine desire and persistence to create a collective better future for stakeholders, society, future generations, and the environment. Steward leaders see themselves as stewards of Planet Earth and society and pursue a stewardship purpose larger than solely boosting their bottom line. Steward leaders also believe in and live these four stewardship values:
- Interdependence: View the world as an interconnected system in which your success depends on the success of others
- Long-term view: Create sustained value for both current and future generations
- Ownership mentality: Take proactive responsibility to create positive environmental and social impact
- Creative resilience: Persist to find innovative solutions to disruptive challenges
Faber-Castell’s Count Anton Wolfgang invested heavily in sustainable forestry in Brazil in the 1980s, although the trees would take 20 years to mature, and the rewards weren’t guaranteed. Today, the forests not only supply all the wood needed to make Faber-Castell’s famed wooden pencils, but they also neutralize the company’s carbon dioxide footprint worldwide while being home to more than 716 animal and plant species. Such long-term thinking across generations, along with sharp business acumen, has allowed the German company to survive for over 260 years.
In Vietnam, the world’s most sustainable large-scale denim producer, Saitex, found a profitable way to address resource scarcity. In 2010, Saitex embarked on its sustainability journey, recycling 98 percent of all its water and evaporating the remaining 2 percent. This cut its annual USD700,000 water bill by half. Although the water filtration system cost a hefty investment of USD 2 million, the plant broke even six years later. Each pair of jeans only requires one liter of water to make, whereas traditional processes use 80 times as much. Everlane, Ralph Lauren, Calvin Klein, and Tommy Hilfiger are among Saitex’s clients, and according to founder Sanjeev Bahl, the company is “very profitable” and debt-free.
The E/S Action Spectrum (Image credit: Rajeev Peshawaria)
Steward leaders like Faber-Castell’s Count Anton Wolfgang and Saitex’s Sanjeev Bahl have found profitable solutions to modern challenges. They take ownership of the existential challenges and believe it is their responsibility to address environmental and social issues through their business.
Corporations today have amassed an enormous amount of power. As of 2021, Apple’s market value is 2.1 times Mexico’s GDP, Amazon’s market value is 4 times Austria’s GDP, and Meta’s market value is 4.1 times New Zealand’s GDP. It’s impossible to deny the impact that the private sector has and can have on the environment and society, and we need more leaders to move towards the far right of the E/S Action Spectrum (see image above).
Business leaders who want to move towards the right side of the spectrum to become steward leaders can consider the following:
- How they can integrate the four stewardship values with their personal and organizational values.
- Based on these values, how they can articulate their stewardship purpose—what version of a collective better future do they want to create for stakeholders, society, future generations, and the environment?
- How they can ensure that everything they do during calm and turbulent times is aligned to and governed by their Steward Leadership Compass.
The journey towards a model of steward leadership is by no means easy. As alluded to throughout the article, gunning for maximum profit is almost instinctual. Owning and breathing the four stewardship values almost goes against our very existence. Being territorial, focused on our immediate surroundings, staying out of danger and choosing the path of least resistance were essential to our species’ survival. Yet, as we’ve seen from the examples at the start of the article, sacrificing environmental and social good for profit in this age is irrational. The economic and reputational costs are too much to bear.
The challenges humanity faces are too big for any single entity to overcome alone. To address the existential risks we face as a collective, we have to collaborate across industries, countries, and regions. And the journey starts with choosing steward leadership.
