Why boards must act to tackle inequality

The Vatican announced in December the names of the Guardians of a newly formed Council of Inclusive Capitalism – a group of chief executives and former chief executives of globally significant enterprises with vast financial and human resources. The Council is committed to a set of ideas that should sound familiar by now – that speak to the promise of capitalism to be fair and sustainable.

It’s hard to top the convening power of the Papacy and the list of participants is impressive. Yet one has to wonder how this new Council will be any different from the dozens of similar networks and initiatives that have emerged over recent years. They go by various names that modify capitalism or encourage its agents.

Conscious Capitalism. Stakeholder Capitalism. Social Ventures. Impact Investors. Benefit Corporations. The British Academy has weighed in. The statement on corporate purpose of the US Business Roundtable gets cited a lot, as does the World Economic Forum’s New Paradigm, and of course the founding principles of the UN Global Compact and the Sustainable Development Goals. The Aspen Institute has its own guiding principles.

I believe in the power of coalitions; by some measure we can’t have enough of them. When we face existential risks, it requires collaboration and co-creation to break through. It’s a big, global world out there and a lot is at risk in the moment.

But as inequality grows, and wealth concentrates and the planet warms, we need to clarify and simplify and focus on the how, not the what. Simply put, how will the change we are all seeking take place? Who will lead?

Specifically, what is the board’s job, and if we accept that executives and boards have to be a bigger part of the solution on the road to equity and sustainability, what do they do differently?

What can boards do now? Even without a coalition or a herd?

The answer, ultimately, will not come from global leaders. It certainly won’t come from consumers who consistently seek out low price and convenience, nor from professional advisors still acting in the thrall of share price, nor investors who keep the pressure on the share price and punish companies that pay decent wages. Regulators and outside agitators have an important role to play but ultimately the first mover is the business. The most meaningful efforts will come from within companies that set intentions and then begin to act in a way that works for their employees as well as society.

Here are four disruptive ideas for business leaders and boards managing in a complex world – let’s call it stakeholder capitalism in practice:

1. What are our choice points? Boards can begin with an internal audit – where do we as a business have real agency when it comes to being inclusive, equitable and fair? What levers can we actually pull? For example, who gets what share of the profits? Where do we have power to influence the health of a local economy, or our own industry? What are our employees telling us about what matters most to the health of the community?

2. What are we paying our executives to do? Are we prepared to disrupt the system of rewards that put the stock price at the centre of value? What percentage of profits is allocated to the executive team? Distributed to shareholders? Shared with employees?

3. To whom do we listen? Do our management systems and governance structures enable real engagement with employees? Do we consider them a cost of doing business, or real allies – able to identify both risk and opportunity in pursuit of changes to align internal practices with the health of the commons? And if they are allies, how do our protocols and system of governance need to evolve to assure effective communication, and a workforce that mirrors our future?

4. Is our pipeline for leadership up to managing massive change, and to rebuilding trust? Is the Board designed for change?

Korn Ferry recently released a study that shows the key differential between high performing companies and those that perform less well is trust in leaders — overwhelmingly so. At the same time, Heidrick & Struggles reports that corporate boards have become more conservative in their search for talent – at least in this remarkably disruptive moment.

A seasoned or well-known executive may instill confidence. Is that the same as trust?

The acid test for any business today is whether it creates fair value for its contributors – within the business, through the supply chain, and in the give and take of the licence to operate. Boards are under the microscope from a set of players that are looking for accountability. That licence to operate is the cornerstone of public trust.

Has business earned it?

While a more conventional – less diverse – pipeline may feel comfortable when everything is at risk, what is our next move when the capitalist system itself is at risk? The job of the CEO and board has changed. We don’t address the big problems – inequality, climate, racism, and real change in winner-take-all business models, with the same attitudes and mindset that got us here.

Here’s to the real disruptors. The need for change is compelling. Courage is needed.