By Will Novosedlik
As we confront the prospect of irreversible climate change and a resulting breakdown of social order, some organizations are keen to understand what business is doing to help prevent it. Is it reasonable to expect enterprise-level action on sustainability?
With a global practice in leadership advisory and executive search, succession and performance, Russell Reynolds Associates (RRA) is exploring where executives and their employees lie on the spectrum of attitudes and actions related to building a sustainable future.
The firm recently released a research report entitled Divides and Dividends Canada: Leadership Actions for a More Sustainable Future. RRA surveyed 697 employees and next-generation leaders, as well as 94 C-suite execs in Canada – out of 9,500 people in 11 countries – between April and May, 2021. What they learned about Canada is not encouraging.
Topline, Canadian organizations fall behind multiple countries when it comes to integrating sustainability objectives into their core business and clearly communicating it. More importantly, but not surprisingly, the study finds that Canadian C-suite leaders and employees hold different opinions on the importance of sustainability as a business priority.
Broadly speaking, employees are mindful of environmental challenges, such as climate change, pollution and a throwaway culture. C-suite leaders are much more focused on economic issues, such as corruption and power abuses, as well as geopolitical conflicts and trade wars. It found that 37% of employees perceived climate change as a key issue whereas only 17% of C-suites agreed.
In addition, there was also a significant gap on the issue of economic inequality, which concerned 27% of employees but only 18% of C-suites. This gap is reflected in the massive differences in CEO vs. employee compensation.
A 2021 study by the U.S.-based Economic Policy Institute found that, in Canada, the ratio of average annual income for CEOs vs. employees was 206:1. In other words, it would take an employee five weeks to earn what their CEO earns in one hour, and 10 months to earn what their CEO earns in one day. The same report ventured that, since 1978, CEO pay has increased by 1,322% while worker pay has increased by roughly 15%.
While sustainability is being talked about in most businesses, there’s not a lot of action. Part of the problem lies in how this issue is understood by each group. While 41% of C-suite leaders say their organization has a sustainability strategy that has been acted upon and clearly communicated, only 24% of employees and 33% of next-generation leaders agree. Likewise, just 34% of C-level execs said their CEO is personally committed to sustainability.
Of interest to all – but particularly to marketing leaders – was the question of why their organizations were taking sustainability action. Half of C-suite leaders cited brand management concerns. In other words, they’re not motivated to consider sustainability because of the value it would create for the world, but because they don’t want their brand tarnished by negative public perception. This explains the prevalence of greenwashing.
As the report observes, a brand-first approach is unlikely to lead to the transformation required. If leaders see sustainability as a perception problem and not as a fundamental driver of business growth and value creation, they will not be willing to set aside the necessary resources to drive deep changes to business and operational models.
If it isn’t clear yet, we likely can’t rely on the current crop of CEOs to do much of the heavy lifting. That task is being passed on to the next generation of C-suite leaders. On a positive note, the report cites that over the last two years, 39% of Canada’s next generation leaders have taken on three or more responsibilities to improve environmental or social outcomes. Globally that number is 40%. Conversely, 22% of Canadian next-gen leaders have not taken on any such responsibility, a departure from the global average of 16%.
When asked exactly what they’re doing, 37% cited changing internal processes, 33% said they’re helping to make the workplace more sustainable, and 33% stated their involvement in supplier selection. Strikingly, only 14% have experience in developing more environmentally friendly products and services, compared to 27% globally. The Canadian execs cited slow-changing corporate culture as the reason.
Which brings us to the elephant in the room. Curiously, while the report recommends that next-gen leaders be incentivized to take action on sustainability, it doesn’t mention the fact that the current incentives for CEO performance in publicly traded companies are powerfully at odds with such efforts. CEOs whose pay packets are comprised mostly of stock-based compensation are not incentivized to take a long-term perspective, but to deliver short-term results to shareholders. Until that changes, progress will be very slow.
One of RRA’s recommendations for ensuring progress is to “integrate sustainability into the objectives, incentives and remuneration of CEOs and other executives.” Many would agree, but shareholders would likely interpret that as a threat to profitability.
Despite all that, RRA ends its report with other recommendations, such as: connecting your sustainability strategy with your company’s core business; createing value commercially, environmentally and socially by offering new solutions to entrenched problems (in other words, innovate); getting the board on board by giving them an active stake in setting and achieving priorities; translating enterprise-wide sustainability goals into concrete actions and metrics that can be pursued in the day-to-day activities of both leaders and employees; as well as treating employee engagement as a strategic imperative.
The report began with a hard truth: “The journey to sustainable business will require complex tradeoffs – and bold leadership.” Until sustainability becomes a strategic imperative, business will do little to support it.
