9 minute read 4 Aug 2020
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How responsive leadership can help to reduce economic inequality

By EY Global

Ernst & Young Global Ltd.

9 minute read 4 Aug 2020

In an era of diminished economic opportunity for the middle and working classes, there is a desperate need for responsive leadership.

The acrid divisiveness of the 2016 US presidential campaign, the voting outcome and the post-election protests all indicate the importance of paying attention to both political messages and cultural divisiveness. At first, many seemed to think the vote was a referendum on cultural values. But then we saw that US voters delivered a clear message about an economy that had excluded them.

Working-class America wanted someone to pay attention to the fact that their jobs have been dislocated by technology and by globalization. They want to work. They want the dignity that comes from that work. But the work has disappeared. They want someone to fix it. They need leaders to listen. And they voted accordingly.

While business wasn’t on the ballot, I found myself, as a representative of a multinational organization, looking in the mirror when I considered the election outcome. Multinational organizations and businesses have prospered through globalization and incredible advances in technology. Many innovations and improvements have come from these trends. But they have also led to the perception that jobs were outsourced and manufacturing was moved to parts of the world capable of performing at lower costs. The resulting public realization is that we need long-term economic considerations to drive decisions that have widespread social consequences.

And this unrest is not limited to the US — there is increasing anxiety about Europe’s future as Brexit negotiations begin. National votes in other European countries will likely challenge the principles of openness and integration. And any resumption of large refugee inflows could present an existential threat to European unity.

The economic inequality message has been clear. And in the aftermath of 2016, we have societies pulling apart, finding it hard to resist trends toward nationalism and a rejection of those who are different. We need to listen. We need to act. We need to practice responsive leadership.

Responsive leadership means recognizing the increasing frustration and discontent among those not experiencing economic development and social progress.
Professor Klaus Schwab
Founder and Executive Chairman of the World Economic Forum

First up: recognizing the problem

The first step in responsive leadership is to define the problem — and the advanced economies are beginning to identify three trends setting off warning signals across the political and economic landscape:

1. Diminished economic opportunities for the middle and working classes

Immigration and globalization are commonly viewed as the culprits, but chronic slow growth and innovation fueled by technology are at the heart of the challenge of economic inclusion.

2. A sense that urban elites — in government, the media and business — are distant and unable to solve problems

The issues facing many advanced economies today feel existential:

  • Chronic slow growth and economic inequality
  • Fragile banking systems
  • Aging and social insecurity
  • Terrorism
  • Porous borders
  • Rapid change in community identities

And these issues play out in people’s lives every day.

3. Social media and hyper-connectivity dividing as much as they unite

Being provocative is essential to gaining visibility in today’s crowded media landscape, and this imperative promotes extreme points of view, polarization and alternative realities. This pressures policymakers to react — even though governments in representative democracies are designed to be deliberative and consensual.

Let’s learn from past mistakes

What worries me is that the lure of less regulation and tax reform has blown oxygen into US markets. I hear business leaders expressing hope for economic growth. And while that is all good, I have to question whether that economic growth will simply repeat the mistakes of the last decade, when we experienced economic growth that was not inclusive.

An effective response to today’s political disruptions means addressing all forms of inequality. Incentives and priorities must be changed. We need to make responsible corporate citizenship central to how we run our businesses.

It is time to rethink corporate governance — the ecosystem of core values, norms and tensions and pressures that drive corporate behavior. Executives, boards and investors — all stakeholders, including governments — can help create a long-term, conscientious response to populist pressures on businesses by paying closer attention to the social and political implications of their actions.

Multinational organizations need to seriously consider how decisions about outsourcing operations, shifting profits and finding tax advantages overseas will be perceived. Will cutting employment and job-training programs land the company in the headlines? If technology creates great efficiencies that result in the elimination of jobs, what will cause the company to think about how to help those dislocated workers? What will motivate them to do so? What will allow and encourage workers to remain equipped to stay engaged in the workforce?

In a volatile and “post-truth” media environment, blaming government and ramping up lobbying and education efforts — insisting that globalization is good, for instance — are unlikely to be very effective. They are more likely to backfire.

What multinationals must do

Multinational organizations helped create the problem, and we should have a role to play in the solution by working with governments and listening to the public. It’s time for all of us to step up and:

  • Own our role in the problems we helped create and actively work with others to seek innovative policy reforms that deliver solutions
  • Make our workplaces safe for dialogue and difference, grounded in the belief that difference brings value every day
  • Rethink the existing social contract between business and society, then imagine a new kind of corporate governance that can both support that social contract and apply the pressures needed for that contract to evolve to deliver more equitable inclusion, both economically and culturally

Responsive leadership is what is required for multinational organizations to address the issues we face — leadership that is not a symptom of the problems but a solution to those challenges. Now is the time for multinational organizations to find common ground with governments and envision a new way forward. If we do so, we can help build a better and more inclusive working world in which we all can thrive.

I’m ever hopeful.

A version of this article was originally published under the title This is what we need to talk about in Davos on www.weforum.org.


To address the huge challenges we face, we need responsive leadership from multinationals to help us find a way forward.

About this article

By EY Global

Ernst & Young Global Ltd.