For CEO’s, are the days of sidelining global challenges numbered?

40 min approx | 08 Jan 2020

“The purpose of a corporation is to serve all of its stakeholders: its customers, its employees, its communities and its shareholders. Because in the very long run you can’t take care of your shareholders unless you’ve taken care of your customers, employees and communities as well.”

"In a market system, profit is actually the signal that you’re doing a good job."

"Companies that perform well on measures around ESG actually outperform in the market for the long term.”

“There is one and only one social responsibility of business … to engage in open and free competition without deception or fraud."

“The Business Roundtable supports regulation. We want to make sure that our products are safe, that the environment is clean and that the markets are fair and transparent."

Yassmin Abdel-Magied

Welcome to The Better Question, EY’s podcast series that will answer the questions that will help you lead your business through this transformative age.

What will happen when trends that we already know are underway today start to transform society?

I’m Yassmin Abdel-Magied, engineer by trade and writer by vocation. I have here with me Chris Meyer, writer, futurist and advisor to EY’s think tank, EYQ. And today we are asking the Better Question: For CEO’s, are the days of sidelining global challenges numbered?

Chris Meyer

Hi, Yassmin. Great to be with you again.

Abdel-Magied

I know, it’s been a while, Chris. This episode, we’re focused on an idea we’re calling the CEO imperative. Chris, could you unpack that a bit for me?

Meyer

Of course. We’re always focusing at EYQ on the question, What’s after, what’s next? So, because we are trying to look out beyond today’s immediate trends, we often find unknowns and uncertainties that prompt some of EY’s Better Questions.

Abdel-Magied

Can you give me an example?

Meyer

Sure. So, if you take today’s Better Question which, as you’ve said, for CEOs, are the days of sidelining global challenges numbered? Where did that question come from? In the spring of 2018, we wanted to test an idea that global business had tipped from a world in which the prudent strategy is to keep your head down and not take a position on some of the global challenges the world faces to one where that is the riskier posture because it can impair your chance for growth.

Abdel-Magied

Tell me a little bit more. What kind of global challenges are we talking about?

Meyer

Well, they’re discussed all the time. Things like income inequality or climate change are good examples. And these issues have risen to the point where they pose real risks to the global economy. And individuals, whether they’re an employee or a customer of a business, are looking to large companies to take the lead on these issues because it appears they’re the only ones who can. So now it’s begun to create more risk for companies to stay silent than to take a position. It also creates some opportunities for companies that meet these expectations to take a leadership position.

Abdel-Magied

Is part of the reason that we’re talking about this related to the statement in August by the Business Roundtable that businesses should address the needs of all of their stakeholders? Not just investors but also employees, communities, etc.?

Meyer

Yeah, exactly. And I think the Business Roundtable statement is hugely important. I think it is the bellwether of business paying attention to its role in society and holding itself accountable to having a positive impact.

Abdel-Magied

What is this Business Roundtable anyway?

Meyer

Yeah, right. It’s a group of about 200 CEOs of US-based but global companies. And it’s pretty influential because the companies amount to US$7 trillion of revenue and 15 million employees.

Abdel-Magied

That’s hefty.

Meyer

So, what they say represents a hefty chunk of the economy. And EY’s Global Chairman, Carmine Di Sibio, is a member as well and signed this statement.

And so we did a survey and we interviewed 200 CEOs of Forbes Global 2000 Companies to get not only their views but their plans for addressing some of these global challenges. And EY did that over a year and their research came out in July, right before the Roundtable statement.

Abdel-Magied

It’s really quite a fortuitous synergy there, which would imply that actually the statement, the Roundtable statement, wasn’t just a kind of a one off but it’s something that CEOs have been thinking about for a little while. What’s interesting to me is sometimes when you do hear from CEOs about why they aren’t doing something more on a particular issue, they might say, oh Wall Street won’t let me or something similar to that. And, I mean, that’s even if they engage with the question. So, does it actually matter what the CEOs individually think, is that where the leverage is to make companies change?

Meyer

So, our survey was designed to get to both of those concerns. First, in addition to interviewing the CEOs, we interviewed a hundred independent directors and a hundred large institutional investors, like pension funds and insurance funds and independent asset managers who were also distributed about equally across Asia, Europe, and the Americas, to see how their views compared with those of CEOs. Because “Wall Street won’t let me” really means the board will worry about the valuations and the investors won’t like it. So, we wanted to get those two constituencies on record as well.

And regarding the question of words versus actions, beyond asking for attitudes we asked CEOs about the specific plans they had for integrating global challenges into corporate strategy or linking internal performance measures, which tend to be where the rubber meets the road for getting corporate objectives achieved, to global challenge-related objectives.

Abdel-Magied

Okay. So, you were asking for deeds as well as words. What did you find out?

Meyer

Yeah, well, a lot, of course. More than we can discuss today. But three key findings. And maybe the most powerful, investors and board members are more, not less, convinced that companies should be highly engaged in addressing global challenges. Fifty-one percent of the CEOs said they should be engaged to a great or very great extent and the proportion for investors and for board members is higher.

Second finding, the majority of CEOs, board members and investors say that CEOs must step out of their comfort zones and lead on global challenges.

So, let me get to the third piece. We did ask the CEOs, what steps have they taken and what are they actively planning to execute this higher level of engagement? Nearly half are actively planning three approaches: changing their board compositions to reflect the specific challenges their companies want to engage with, leveraging their company’s purchasing power to drive change in the supply chain, and significantly increasing their spending to programs related to the issues they’re engaging with.

So, what we’re talking about is not a remedial program bolted onto the strategy being executed as usual to maximize profits alone; it is a growth strategy for the business. And it resonates with what Kees Kruythoff said about Unilever in our episode on the social contract. It started with a plan for sustainable living and that rolled out through Unilever as the way to execute that point of view.

Abdel-Magied

Which all our listeners should subscribe to is the What’s After, What’s Next episodes of The Better Question podcast. I’m just going to put that in there.

Meyer

Absolutely. So, to close the loop on the question you asked me some time ago, when EYQ did this research, we came to the conclusion that we’ve reached a tipping point when the proportion of the world’s largest companies strongly supporting this idea has passed the halfway mark, we’ve come a long way. And it leads to the CEO Imperative. It is time to get ahead of this curve before you’re behind it. And only the CEO can start this process.

Abdel-Magied

So, this is some really great research, Chris, but how do you know that this really describes the world of the CEO today?

Meyer

That’s the question we want to put to our guests and consistent with the stakeholder model that guided this research, we’ve invited Jan Babiak.

Jan Babiak

Hi, I’m Jan Babiak. I currently sit on five boards in four countries, three continents, two hemispheres, five different sectors. Only three are public and the others sit within private equity and private companies, which gives me a very interesting perspective on a number of subjects.

Meyer

And Daryl Brewster.

Daryl Brewster

I’m Daryl Brewster, longtime corporate executive, CEO of publicly listed companies. And today, I lead an organization called CECP, Chief Executives for Corporate Purpose. And we work with well over 200 of the world’s leading companies to really encourage them to drive their social strategy and sustainable business, and to truly be a force for good in the world.

Abdel-Magied

Let’s get into it.

Meyer

All right. Jan and Daryl, welcome to EY’s Better Questions Podcast.

Brewster

Thanks, Chris. Glad to be here.

Babiak

Thank you.

Meyer

So, Jan, we asked you to join us to offer the board member perspective. And Daryl, we’ve asked you to represent the CEO perspective, based you know both on your operating experience with companies like Kraft and Campbell’s in the US and Europe, and now as CEO of the Chief Executives for Corporate Purpose.

Brewster

Great.

Meyer

So, we’ve set up a little bit of an opposition here between board and CEO that we hope to expand our perspectives with.

At the top of the show, we mentioned the Business Roundtable restatement of the purpose of the corporation, which I know you’re both familiar with. So, let me ask you both, why is it that 181 prominent CEOs of global companies from industrials like GM and tech companies like Amazon get together and committed, in their words, “to lead their companies for the benefit of all stakeholders, customers, employees, suppliers, communities, and shareholders”? Daryl, you want to take it first?

Brewster

Yeah. And I, I think it’s really a powerful statement by the Business Roundtable. And I think what it does is it really captures a notion that kind of is common sense. And it kind of gets us back to when corporations were founded. And I think we kind of got away from that really, this notion that you’re going to have great performance with investors if you take care of your key significant stakeholders. And so, I think the notion of looking at consumers, looking at your suppliers, certainly your employees, your communities – and in there, I think that also includes the environment – as well as your investors, makes sense. And balancing those, I think, is a key responsibility for CEOs, as well as a responsibility for boards. This is how you’re going to drive sustainable value over time. You may give up some short-term bumps of positive, but this is about building sustainable businesses over time.

Meyer

Jan, what’s your reaction?

Babiak

It’s interesting as we talk about this internationally – the reaction tends to be to this announcement in the US that it’s about time – that the rest of the world recognizes that their responsibility isn’t just to the equity shareholders, if you will. But the challenge that I think we see – while I agree completely 100% with everything Daryl says, I think the litigation environment that we live in – you know, I, I had all, you know, my friends who are in the, uh, legal space kind of going, oh my God, you know, how does this align with case law, and what does that mean if you do take prevalence, one group over the other and all that. So, they started getting into the practicalities of how this will work while everyone agrees that it’s a good idea.

Meyer

Daryl, do you want to just respond?

Brewster

These are tradeoffs that boards and companies make on a regular basis. And I think that short-term-ism that we’ve seen so much of and reinforced through quarterly reporting and incentives and the like, has really gotten us off-track.

Meyer

Yeah.

Brewster

And the research, is increasingly clear. The companies that are run for the long-term outperform over the long-term. And I think that’s what the Business Roundtable statement tries to capture.

Meyer

So, why do you think the Business Roundtable or the CEOs who make it up, why do you think now was the time?

Brewster

I think in today’s era of social media, of globalization around the businesses, challenges on things like the climate, income inequality and all, it’s a time for CEOs to step up. And I think CEOs of the world’s largest companies, in this case, have seen that as a responsibility.

Meyer

Yeah.

Brewster

Over 80% of people around the world agree that business can make a profit and also be a positive force in society. 80% of the people around the world, as we know, can’t agree on anything. But the fact that they agree on this, I think, is a real shift for this, this whole notion of sustainable business and creating value over time. This does not exclude shareholders. This just makes them part of the discussion.

Meyer

Sure. So, Jan, what do you think about the timing? Is there some precipitating event or development?

Babiak

You know, there’s a, an old saying that what interests my boss fascinates me.  And, you know, when I look at the study that EY’s done, you know, we say that 60% of corporate investment wants to address these challenges and all that, but I think the reality is, is that the voice that gets heard most is sell side, the people who are on their calls, the quarterly analyst calls.

And I’ve seen over the last few years a move from where ESG was kind of mentioned on the side to where it was probably the dominant topic in this summer. And I keep asking them why – you know, we hear from you how important this is, and you’re talking to us as board members, saying, you know, this is important to us. But yet, the people who are asking the calls and who write the research reports that say invest or not, there’s still quite a lot of short-term-ism in that.

But I do see that there’s some shifting balance within the investor community, which, as I said, it’s starting to interest my boss, therefore it’s going to fascinate me. So, I think companies are actually – you know, while their hearts may have always said this was good, they were always looking at the fact that yes, but if we don’t make the next quarter, then we won’t have any shareholders to make happy in the long-term. So, I think there’s a shift going on right in the investor community.

Meyer

Jan, I want to quote Daryl to you from the Huffington Post.

Brewster

Uh-oh.

Meyer

Daryl, said to them, “While Wall Street and its day traders remain dominant, leading companies and investors are rubbing their eyes and allowing material, long-term, and environmental, social, and governance, ESG, issues to come into focus.” So, if you were on Daryl’s board at, say, Kraft or Campbell’s or something, and he came in and told you he was going to shift the corporate strategy, to a more long-term view, how would you have reacted?

Babiak

Well, you know, it depends. And the answer has to be it depends on a number of factors that are going on in an organization. I’ll give you an example. On one of the boards I’m on, which is in the construction industry, they’re working with construction around coal power plants around the world. And they have people outside protesting, saying, you know, how evil the company is. When in reality, what they’re doing is helping these coal companies move to greener and transition. And somebody’s got to help those who are wanting to do better. But if you have people who are voting against you – and this happens to be a private company, so they will stand it in a different way. But if it’s a private company, you have to think about in the boardroom, you know, how do you help those who want to do better? And I think that’s where it’s not as black and white as it’s good or it’s bad that they take a position.

Brewster

Yeah. I think one of the pieces we’re seeing, though is investors looking to understand a company’s purpose, its values, its significant stakeholders, as well as its material ESG risks, and understanding what those look like so you can actually make a wise decision as you think about what that business is, and then to hold that business as well as the board’s role, and sitting on a number of public and private boards as well, but to be able to hold the management accountable.

Meyer

What I’m hearing there is you treat the investor as a stakeholder too, who thinks about something besides the short-term trade.

Brewster

Yeah. And recognize there’s different investors, right?

Meyer

Yeah.

Brewster

Again, some are traders, and they get a lot of time and attention. But as, you know, we learned from my good friend Paul Polman at Unilever, you know 70%, 80% of his shareholders have been with him for over seven years. But they were getting 10% of his communication time.

Meyer

Yeah. Jan, you were going to say something?

Babiak

So frequently, we’ll have, you know, very, very minority positions being very, very loud. And there’s a need to respond to that. You also have to look at the fact that an action that is supported by 70, 80% – if it’s not supported by 10, they’ll still file derivative lawsuits. You do have to make sure that under the business judgment rule and the duty of care that you’re actually going through and really thinking through the pros and cons, and why something is the right thing.

Meyer

It’s interesting. I hear a pattern in Jan’s reactions of getting to the particulars, right? It always depends on who you are and where you stand – I’m looking at the EY survey again. And if you ask CEOs what actions have they taken to move in this direction of more balanced treatment of stakeholders, you know, 60% of them say, we’ve linked our corporate purpose to address global challenges. And that’s by far the highest number there.

Brewster

Right.

Meyer

But it’s kind of easy, right? Because linking to a challenge is – you know, it doesn’t say what you’re doing about it. But what you do see is 45% of the companies say they are participating in industry or cross-industry coalitions. And 39% of them do say public advocacy on one or more global challenges. So, if you’re picking the right issue, there are things you can do that do actually have an effect.

Babiak

Well, in looking at the survey I observed that four out of the five, to be honest, are pretty easy to get everybody to circle around. You know, we all think we need better cyber security to fight the bad actors. We all need to deal with technology-induced job losses, which, by the way, there’s also technology-induced shortages of people in a lot of areas. You know, AI, climate change. But I think where the real challenges come is when you get into some things that are maybe – use the word, they’re global, but they’re maybe a bit more domestic. I think a lot of the issues that are at the global level, it’s easier to get around. But some of the things that we have to deal with in the board room that are social issues, more domestic, are much, much harder.

Brewster

Right. And this is one of the great challenges that I think the board and CEOs have, which is how do you balance that, particularly if issues get into the political side of, of things, because people have different views.

Babiak

I’ll take something like gender diversity, which sits within the ESG group. And we’re all very proud of the fact that we now have, you know, uh, 100% at least a woman on all the Fortune 500 now. But in the Russell 3000, we still have 504 that have no women. And then we have another 500 or so that have one as a token. So, we can celebrate one end of the spectrum, but I guess part of it to me is, what are we going to do about the laggards to continue to, make money off of and fully exploit the fact that they are not taking some of these measures into consideration?

Brewster

I think it’s a great point from Jan. And the good news is the Fortune 500s, at least in the States, is 70% of market cap, so it’s the bulk of where the value is. That’s why I think the Business Roundtable statement, coming from those big companies really helps to set a tone. They also manage a supplier base. And I think that may be an area where we’re going to see some increasing interest, and to really help those small and middle-sized companies, with some smaller companies, of getting them to think about these issues where you don’t have the breadth of size, a board that’s going to be as experienced, perhaps, as others.

Babiak

Well, and it goes back to my earlier point about what interests my boss fascinates me. And if those suppliers want to continue to provide to those Fortune 500 companies, then they will be, you know, responsive to that.

The other thing too, though, that’s interesting – it works in a lot of the rest of the world. The UK uses a model that is called comply or explain. And so, they’ll issue governance guidance that says, this is good behavior. And if you can’t do it, why don’t you explain why not? And, they separate chairman and CEO.

Brewster

Right.

Babiak

And before that happened, everybody said, oh no, couldn’t possibly, for all the reasons that you hear here. Well, when they moved to comply or explain, it took only a couple of years for them to move completely, because those who were trying to explain that somebody was indispensable and the only one who could do it, everybody went, yeah, really?

Meyer

Yeah.

Babiak

And so, that got challenged. And the same thing happened when they moved from 12% women on boards to 25% in three years, based solely on supplier comply or explain. And so, I think there is something that, you know, if you have some transparency around when people choose not to, and they have to at least put it in writing, that in and of itself will change some of these behaviors.

Meyer

Let’s pick on the CEO for a minute. The research that EY did suggests that each stakeholder – boards, investors, employees, and customers – all think that it is specifically the CEO’s role to be out front articulating their organization’s positions on these global issues. And my question is, are CEOs well-equipped to play this role, and will it separate them from their board’s positions?

Brewster

Yeah. Some CEOs get it and are leading the way. Others are wrestling through this. And I think what they need to do on the issues that are most material to a company, ought to have had a conversation with their boards ahead of time, if you can, or the way they’re going to think about that than not.

Babiak

Well, it’s interesting, because you set this up by saying, you know, when boards and CEOs are not necessarily on the same page. I think it doesn’t always start with the CEO. Sometimes it’s the board saying, are we thinking about this? Why don’t you go away and come back and tell us what you think about that?

So, I don’t start from the default position that it was necessarily the CEO that came forward with something. We as board members, we do have choices about the boards we go on. And I have to say that I am very careful to look at companies that take ESG as a priority. And I probably wouldn’t join a board unless their goal was to step it up, and they needed to get somebody who had some skills in that area who could help them with that. So, I think the board conversation, like Daryl said, is going to be different for different companies. But it also is going to start with, who are your board members and how do they select which boards they want to go on? Because there are certain industries that I just fundamentally would choose not to go on the board.

So, it’s not just the CEO’s leadership. It’s around making sure you have board members who also buy into that. And that’s something that the investor community also votes on. So, I would say that it’s more than just that. And then it’s also around how the CEO hires their team. Because, you know, if you’re a big global company, you get the message from the top, but somebody’s got to drive it forward. So, I think it’s about building the team around it, having a board that supports it, as well as having that CEO in place.

Brewster

I think Jan is so right, that the board’s role in identifying these issues I think at the same time, and I go back about five years ago, I was asked to speak by the New York Stock Exchange’s governance education program. It’s since been sold by the NYSE. And I had my first slide presentation on ESG. And I was learning about it and the whole area. I talked to a lot of experts at EY and other groups. And I put up my first PowerPoint. And this is a group of about 100 directors, mostly middle market companies. Put up ESG, explained it, and from the back of the room, a guy yelled, “Sounds like Communism!”

And the whole group, which had not at that point had any insight into what ESG was – again, those middle market companies that Jan spoke about – and I ripped up my presentation and said, no, these are about Section 1.1 in your 10K, which is about material risks.

Meyer

Yeah.

Babiak

Correct.

Brewster

Oh. And we had to go through a whole other conversation, Because that language was new. Now, one of the interesting pieces that has happened even since then, where many of these were former CEOs – this topic had never come up before. They’d never heard the letters. They couldn’t spell ESG. Now, as we’ve increased the diversity of boards – and still a long way to go. But the diversity of boards, we’ve begun also to age down boards a little bit, broaden the group who’s part of it. These issues are now becoming very real. And back to our earlier question –

Meyer

Yes, the why now.

Brewster

It may be in fact be one of the reasons that it’s why now. We really have more to go. But we have new voices on the board that are raising really critical questions.

Babiak

Interestingly enough, if I were to listen to the voices in the room, it’s often the ones who have been there for a while that are raising the issues, as opposed to new, newer people, because the newer ones are, you know, often there because – they have a strong technology piece. But I would say that there is an interesting thing about, your point, Daryl, about the fact that the board has the – I’ll use the word luxury of thinking about the future, but in reality, we also have the responsibility, because the average tenure of a CEO, I’m sure Daryl you will probably tell me somewhere around five years or so, and the average tenure of a board member is at least double that.

Brewster

Yeah.

Meyer

Yeah.

Babiak

And so, you know, I’m always looking to say, yeah, he or she may not be here, but I will be. And so I am thinking about that long-term sustainability factor. And I’m not saying that CEOs don’t, because a lot of them are very passionate about it too. But I do think that the longer tenure of the board members actually help that thought process.

Meyer

So, let me take us down to a more operational level for a minute. In the survey, board and investor respondents both prioritized certain actions corporations could take. And they specifically talked about aligning metrics and rewards and governance with these broader statements of purpose. So that’s when people’s paychecks start to change, and metrics and promotions start to change. Are companies ready to do that, even after they make a statement like the roundtable statement?

Brewster

I think some companies are already doing it. It’s less so in the States today. But others are beginning to think about it, I think we’re starting to get a little bit longer-term thought processes into some of the compensation. That hasn’t happened as much on the investor side of things.

Meyer

Jan, what are you seeing, and does it vary around the world?

Babiak

Well, I don’t see that it varies around the world other than there are other parts of the world that are more advanced than this, and I’ve been looking at this for probably over a decade. So, they’re a little bit more advanced. But I think part of the challenge is that we expect so much of our leaders – the CEO, the C-suite – we expect so much of them. And then we make very public through compensation reporting, you know, what we’re measuring them on. And the reality is, if you start measuring people on too many things, nothing gets done, because it gets overwhelming. So, my personal interest in the measurement – take something like climate change, I’ve seen some investors want that to be part of the definition of the compensation for CEO and things like that. I’m less concerned about whether or not it sits there as much as I’m interested in whether or not the CEO has people who wake up every day, 100% of their time, all they think about is how we embed this in this company. And then they have the  budget and they have the authority and the support of the CEO to do same. And so, I’m very much interested in making sure we don’t just stay at the top of the tree when we’re looking at these measures, and we’re building that throughout the fabric of the organization.

Brewster

Yeah, and I think Jan’s absolutely right. I mean, the things that get done are the things that get recorded. Then they have to be reported. Ultimately, they can be rewarded. But that can happen at multiple levels with an organization.

I do think that corporate disclosure on some of these topics, those that are most material – not everything – can really help on that. Because that’s going to get the topics. Here’s our commitment on this. Here’s the progress that we’re looking to make. And by the way, here’s why it’s also connected to sustainable long-term value. Because it’s going to reduce or risk as a company if we can help reduce climate change or as a broader area, or it’s going to help us attract more employees because we are having appropriate focus by the organization.

Meyer

So, let me put you both in a scene where you’ve been invited into the executive committee meeting of a Fortune 50 or global top 200 corporation. And the executive’s committee is discussing the meaning and impact of paying attention to all stakeholders. So, what three things would you tell that executive committee?

Brewster

First, align and agree on your significant stakeholders. You can’t deal with all of them. Who are the really critical ones that matter to your group? Second, as you think about that, also identify and determine your plans relative to your material, environmental, social, and governance risks. Understand that. And I think third is put those in the context of how you’re going to be creating value over the long-term.

Meyer

All right. That’s pretty succinct. Jan, what are your three?

Babiak

I think that those are three very good items. I guess I would be interested in taking that stakeholder piece and breaking it down a little more, because of the fact that when you start to look at stakeholders’ take in the investor community, you’re going to have different constituencies, and you can’t think of stakeholders as one. I think the other thing is, you’ve got to look at the things that you’re going to do, and you’ve got to think about the financial implications of it, both in the short-term, medium-term, and long-term, because that tends to build the story around this. And if you can be persuasive in building the story, there are patient investors who will look at that, that longer-term piece of it.

And the third thing is around your people. I think that we tend to think of our employees kind of as employees, but they’re actually the ones who are going to drive this. But how do we build that into the fabric of the employee base?

Meyer

So now, it’s 2030, and the two of you have addressed a sufficient number of these executive committees that your advice has been taken. And so, we have companies that are in touch with all their shareholders, have aligned their purpose and their business strategy, and the other things you articulated. What will a company look like, and how will business be different in that world?

Brewster

I would like to envision a world in 2030, you know, business’ trust in society has gone up even higher, that really, people are looking for businesses, particularly global business, to provide a leading role within that. And the businesses are seen as like a positive force for good in the world. And I think a new narrative for business that is how business is really meeting the needs of society for a profit, rather than perhaps the old narrative which was just about just make money, and damn how you do it.

Meyer

Jan, what do you think?

Babiak

You know, it’s interesting. What I would love to see, when certainly the United States was set up, government was not meant to be a career for life. It was people who, you know, ran businesses, and they came in to help the government run better. I would love to see businesses doing so well that they were viewed as a source of great recruitment into government roles that people weren’t necessarily in forever, and that we learned a better commercial approach to how we approach society – bringing together the individuals within society, government, and business, working toward common objectives that we all agree.

Meyer

If what this is about is a rebalancing the attention given to the different stakeholders, and therefore the resources devoted to their objectives, I think you’re both describing a world in which that rebalancing has happened, and therefore, Jan, the alignment that you’re talking about, business and government are not adversarial, not business and citizens, nor customers, nor employees.

Jan, what would that priority be to get things better in balance?

Babiak

I think we have got to deal with something around climate change. I really believe that we’re going to have a lot of displacement around the world if we don’t start thinking about that in a way that’s not political, but is right for the rest of the world. I think also, it’s been amazing what we have achieved technologically in the last 20 years. But we’ve done it absent of any kind of you know it’s kind of like the Wild West in terms of the regulatory environment around it. And then we’ve got the income inequality and, and social safety nets that come with that, whether that’s, you know, through healthcare or other things.

So, I don’t think that we have that luxury of choosing one. And so, I think it will take us all sitting down and saying, you know, we want society for our children, our godchildren, in my case, our grandchildren to be better than what we’ve, we’ve got right now.

Meyer

Well, I think maybe we’ll close and say we can be hopeful that things like the EY research findings, and the Business Roundtable announcement, and the kind of meetings that each of you have alluded to where international or cross-industry groups are trying to hang onto or you know attack part of some of these issues, whether it’s climate change, or security, or inequality.

Brewster

Right.

Meyer

At least maybe they’re symptomatic of a lot of the people who lead what’s happening out there are realizing this need and thanks for shining some light on that.

Brewster

Very good. Thank you. Thanks, Chris. Thanks, Jan.

Babiak

Thank you for having us. That’s great.

Meyer

Yassmin, you were concerned that CEOs might be paying lip service to these ideas and it was all talk. Did you come away thinking it was more than that?

Abdel-Magied

It did definitely give me a better understanding of the challenges, though I will say that people have been talking about these challenges for a while. It’s only now that it’s become a business imperative that people are listening. Does that make sense?

Meyer

Yeah, I think it makes total sense and one of the really interesting things here is it’s been widely written that people are losing trust in institutions. I think instead of being top down regulation heavy, this change is happening one company at a time. Ernest Hemingway wrote this wonderful phrase about this, he said, how does change happen? It happens gradually then suddenly. And I thought it was fascinating hearing Jan and Daryl talk about how CEOs figure out where they should be on this curve.

In any case, and I guess this is the core message for the CEO here, don’t wait for regulatory policy to overtake you unprepared.

Abdel-Magied

The role of the board is quite fascinating in this, I think, because, yes, we’re focused on the CEO and the CEO imperative but there is also not just the stakeholders being the shareholders and your consumers but also the fact that you have to deal with a board that has a particular sort of outlook and may outlast you.

Meyer

Yeah, I think, Jan made that point that you as a board member might be there 15 years and that you might outlive three CEOs in that time period. And so I think that is an important add to the CEO Imperative research and that is that the board can help contribute to and reinforce that long-term perspective.

Abdel-Magied

Yeah. I mean, it does mean that there’s a challenge for the CEO, right, in terms of like who are they meant to be in this changing landscape, and who are they meant to answer to, is it a much more individualistic sort of I’m going to have this vision and I’m going to drive this company towards this vision or I’m going to crowd source what it is.

Meyer

Yeah, Jan said a couple of times I think what interests my boss fascinates me. So, we’re sort of accustomed to thinking of the CEO as the boss but who is the CEO’s boss? And two of them are the board and the investors but ultimately, if they want to make a profit, it’s the customers and employees they depend on that they’re going to have to get more fascinated with here. So, all of these people the CEO works for are becoming aligned around the idea that it’s time for corporations to take a leadership role around some global issues that otherwise may never get dealt with.

Abdel-Magied

It is almost impossible to completely ignore global challenges and the question is, how much can CEOs learn to embrace them? We’ve obviously seen that they’re attempting to through things like the Business Roundtable. But I mean where does this leave us?

Meyer

Well, I think your point about the challenges being global is pivotal here, because it is corporations, not governments, that exercise the most economic power across national borders. And it’s not surprising, therefore, that we’re looking to them to act on the global issues. The society as a whole is creating incentives for companies to pay attention to different values besides investors.

Abdel-Magied

A hundred percent.

Meyer

And we’re watching that process play out. I think that’s what the research and the comments by Jan and Daryl have shown us.

Abdel-Magied

So, where are we now, Chris?

Meyer

I think, four of the points that strike me as most salient, for hopefully all of our listeners in business and outside of it. And first, the idea of paying attention to global challenges like climate change or inequality or the impact of automation on jobs is beyond the realm of corporate social responsibility and has moved into the place where leadership on these issues has become an imperative for growth.

Second, every company has to choose the commitments that fit its own industry or its geography or its trajectory or its purpose. It’s not one set of moves that fit everybody. Third is with support from and guidance from and direction from the board, it is really up to the CEO to lead. Because until the CEO of a company makes it clear that the company is going in this direction, it’s very hard for people who’ve learned that their mission is to maximize short-term profit to do something beside that.

And finally, maybe the biggest surprise. CEOs, boards, and investors are well aligned in support of companies taking this journey from pure profit maximizers to creating value for all stakeholders, as the Business Roundtable Statement suggests. And this change, you know, like any change that shapes society, does not happen overnight. But I take away from the research that we’re passing from the gradually phase to the time when change will come suddenly.

Abdel-Magied

And that is exciting. I can’t wait, to be honest, because I think a world where business interests are not just about profit but about all of us, that can only be a better thing for us all.

And so that concludes today’s episode of The Better Question. For more on this subject, search for CEO Imperative on ey.com.

If you would like to share your Better Question with us, please leave a review.

I’m Yassmin Abdel-Magied. The better the question, the better the answer, the better the world works. Until next time.

Disclaimer: The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.