A thought-provoking session to re-think leadership and corporate governance in the 21st century.
The cry for a more inclusive form of capitalism is growing. But the irony is we are using the same tools that caused the excesses of shareholder capitalism to drive responsible behaviour: incentives and regulations.
18th-century economist Adam Smith propagated profit maximization as the incentive for businesses to create goods and services that society needs. Free-market competition would ensure consumers get the best quality product at the cheapest price, he argued.
200 years later, Milton Friedman agreed in his seminal 1970 New York Times op-ed that the sole responsibility of business is to maximise profits “so long as it stays within the rules of the game.” Incentives coupled with some regulations were to henceforth safeguard societal interests.
Instead, incentives created bad behaviour, and regulations were routinely bypassed with intelligent loopholes. Despite this track record, to encourage sustainability today, we are again using only incentives and regulation. That’s predominantly what the ESG framework focuses on. And what do we see? Rampant greenwashing and box-ticking.
To address today’s existential challenges, we need innovation of the highest order. Innovation can neither be legislated nor driven by extrinsic incentives alone. We need the ability to create a win-win-win future for stakeholders, society, and the environment. According to the World Economic Forum, climate change alone presents $10.1 trillion in new business opportunities a year for the next thirty years. Businesses must seek profitability and growth by addressing the very challenges that threaten us today. Based on our extensive global research, this can only be achieved by replacing outdated leadership and governance models with Steward Leadership. ESG must therefore upgrade itself to ESL, where the L stands for Steward Leadership. In ESL, G is a subset of L.