CEO’s Guide for Being an Effective Sustainability Leader

Surveys, such as one completed by Boyden in 2017 among adults in the United Kingdom, repeatedly confirm that the public strongly believes that the CEO must play an active role in the CSR activities of his or her company and act as a spokesperson for those activities.  Participation and engagement by employees throughout the organization is essential for effective CSR implementation and the CEO is the only person in a position to communicate and demonstrate the values associated with CSR in a way that will integrate CSR into the corporate culture and the way that employees work on a day-to-day basis.  It should be noted that CSR has become a significant driver of employee engagement, particularly among Millennials who are more willing to accept lower wages in exchange for working with a company committed to sustainability, and that the CEOs efforts to engage employees in this area will improve the company’s ability to attract and retain talented workers.  CEOs must also develop the soft skills necessary to communicate and engage with multiple stakeholders, each of which has different values and attitudes about how society should function and the role that the firm should play.  CEOs must be able to engage in civil dialogue, approach the problems and challenges that are raised by stakeholders with an open mind and a focus on identifying and implementing innovative solutions and developing tools that will help measure and demonstrate the effectiveness and value of the company’s CSR initiatives.

This article is adapted from material in Corporate Governance: A Handbook for Sustainable Entrepreneurs, which is prepared and distributed by the Sustainable Entrepreneurship Project and can be downloaded here.

Since studies are clear that the attitudes, actions and skills of the CEO are essential to the success of CSR initiatives and ensuring that they are perceived positively among the various stakeholder groups of the company, the CEO must be prepared for his or her role and understand and cultivate the appropriate mindset.  For sustainable entrepreneurs, enthusiastic passion for environmentally or socially responsible business activities comes naturally, and he or she will willingly jump into the fray and engage with stakeholders from the very beginning of the venture.  However, in order for all this work to be effective, and sustainable and credible, the CEO needs to understand certain “best practices” that have been identified by consultants, scholars and CEOs themselves.

CEO Selection and Allocation of Founders’ Duties

One of the first things to consider, and arguably the most important decision for the founders to make, is just who among the initial drivers of the company will assume the position of CEO.  In many cases the choice is obvious, but what may seem to make sense in the early days of the company may not be what is necessary as the business model evolves and more and more stakeholder engagement, particularly with investors, becomes necessary.  One thing that cannot be overemphasized is that good CSR-related skills are in addition to, not in lieu of, top-notch leadership and management competencies.  It is not sufficient to be passionate about the “cause” if the CEO is not able to grasp basic principles of strategy, finance, sales, marketing and technology.

Another thing to consider is how the CSR-related energy and skills of the members of the founding team who are not the CEO can be leveraged while not muddying up the messaging from the CEO.  The CEO needs to continuously communicate with the other members of the founding team, as well as senior managers brought in to assist with launching the venture, to understand their views on the mission of the enterprise and ensure that everyone is speaking in the same voice when interviewing prospective employees, talking to investors, engaging with strategic partners and going about their business in the communities in which the company is operating.  Sometimes new companies will appoint one of the founders to serve as “chief sustainability officer”.  This is fine; however, the position should be designed to support execution of the CEO’s vision and decisions regarding CSR rather than a way to separate those issues from the CEO’s portfolio.

Whoever is selected as the CEO needs to carefully consider how his or her background will be presented to the company’s various stakeholders during the engagement process.  Stakeholders will seek out authenticity and practical experience when assessing the skills and trustworthiness of the CEO and the story line needs to be settled well in advance of what will quickly become a tumultuous schedule of meetings and other communications with stakeholders.  The “best” scenario is a CEO who can describe how he or she came upon a particular environmental and/or social problem or opportunity and provide his or her experiences in identifying and developing solutions that can credibly form a foundation for a viable business.  The CEO also needs to be able to demonstrate how his or her prior professional experiences and network align with the actions that will need to be taken in order for the company to fulfill its mission.

Public Relations

While a worthy cause is important for sustainable entrepreneurship, sustainability of the business itself depends on developing and maintaining a loyal customer basis that will buy the company’s products and services and recommend them to others so that the company can survive and fulfill its stated mission.  Surveys show that customers will pay a modest premium for sustainable products and services from brands that are trusted and known as being environmentally friendly and for their social value.  As such, the CEO needs to understand and practice the tools of public relations in all of his or her interactions with internal and external stakeholders.  A useful set of guidelines are the Page Principles, which have been developed by the Arthur W. Page Society to help communications professionals, including CEOs, to practice public relations effectively.  Let’s see how these seven principles, all of which were based on the premise that all stakeholders, not just shareholders, needed to be taken into account, might be used by a CEO in the context of executing CSR initiatives:

  • Tell the truth: Trust begins with confidence that the CEO is telling the public the truth about what is happening with the company with honesty and good intentions.  It is incumbent on the CEO to provide an ethically accurate picture of the company’s character, values, ideals and actions in every dialogue with stakeholders, even when the news is not as good as the CEO would like.
  • Prove it with action: CSR is often quickly dismissed as a “PR stunt” and such a hasty verdict is warranted in many cases when a company’s CSR initiatives are “all talk and no action”. The CEO needs to remember that the public perception of the company’s CSR initiatives will be determined 90% by what it does and just 10% by what it says and this means that concrete CSR actions must be on the company’s strategic agenda from the very beginning, rather than being deferred until there is more money and other resources available.
  • Listen to stakeholders: Stakeholder engagement needs to be one of the most important priorities for the CEO and this means adding regular and personal dialogue with key stakeholders to the CEO already full plate of other activities.  The need to listen to stakeholders and engage in inclusive dialogue is what makes being a CEO of a sustainable venture extremely challenging; however, the CEO needs to understand what each stakeholder group wants and needs from the company and keep top decisions makers and other employees informed about stakeholder reaction to the company’s products, policies and practices.
  • Manage for tomorrow: Corporate sustainability is based on a long-term perspective for the business and the CEO of a sustainable enterprise needs to be particularly tuned in to managing now only for the present moment but also for tomorrow and the future generations of employees and leaders of the company. It is the duty and obligation of the CEO to proactively identify and remediate practices that might undermine the company’s goodwill with its stakeholders and to anticipate both challenges and opportunities relating to the environment and social issues that need to be addressed in the company’s strategies.
  • Conduct public relations as if the whole enterprise depends on it: There is no better way to prioritize the importance of stakeholder engagement than to act as if the success and survival of the entire enterprise depends on it.  While the CEO may naturally feel that the interests of investors should be prioritized when setting the company’s strategy, no decision should be made without considering the impact on all of the company stakeholders, since without their support a strategy cannot succeed regardless of how well funded it might be.  Public relations in this context is not just about marketing, it is a full-blown management and policymaking function designed to identify and consider the diverse views, values, experiences, expectations and aspirations of all stakeholders.
  • Realize an enterprise’s true character is expressed by its people: It is well-accepted that the CEO is expected to set the appropriate “tone at the top” and the CEO needs to recognize that every employee, active or retired, is involved with public relations and that their words and actions will shape the public’s opinion of the company.  The CEO should advocate and demand respect, diversity and inclusion in the workforce and support each employee’s capability and desire to be an honest, knowledgeable ambassador to customers, friends, shareholders and public officials.  To do this, the CEO must continuously engage with employees throughout the company on fundamental matters such as “mission” and “vision” so that employees understand how to act and how to explain the company’s purpose for being to outsiders.
  • Remain calm, patient and good-humored: Stakeholder engagement is not always pleasant and the CEO will often find that the demands and expectations of stakeholders are beyond what the company can reasonably promise or deliver.  In those situations, the CEO must remain calm, patience and good-humored and focus on listening to the legitimate concerns of stakeholders and provide stakeholders with reliable information and reasoned analysis with respect to the decisions that are made, always being mindful of the impact of such decisions on all of the stakeholders.

Ethics and Social Responsibility

Ethics and social responsibility need to be important priorities for the CEO.  He or she must have and express personal values that support ethical and socially responsible behavior by the company and its employees and must ensure that those values are integrated into the company’s culture and communications with external stakeholders.  The specific value set of an effective CSR-focused CEO should include the following:

  • Business has an environmental and social responsibility beyond making a profit and management must identify and articulate the specific social responsibility that the company will seek to address.
  • Although output quality and profitability is essential to the long-term success of the firm, being ethical and socially responsible is the most important thing a company can do and is essential to the company’s long-term profitability and sustainability.
  • Corporate planning and goal setting sessions should include discussions of ethics and social responsibility and decisions regarding operational tactics should never include bending or breaking the rules in order to achieve a profit.
  • Ethical and socially responsible behavior should be tracked and measured and factored into assessments of the overall effectiveness of the company.
  • Ethics, social responsibility and profitability can be compatible and ethics and responsibility are essential to remaining competitive in a global environment.
  • Operational excellence is an important driver of how a company is perceived; however, engagement, purpose, integrity and ethical and socially responsible commercialization of products and services have become just as important, if not more important, in the eyes of the public and the way they assess a firm’s reputation.
  • A company’s first priority should be employee morale and achieving and maintaining fluent communication between employees and management so that employees can comfortably share their ideas and opinions and there is a cooperative atmosphere that benefits group success.
  • Taking the ethical and socially responsible approach is always good business even when the survival of the business appears to be at stake and there is a temptation to cut corners and cheat.
  • Stockholders can, and must be made to, understand how ethical and socially responsible behavior will enhance the long-term value of the company and their ownership stake therein.

Operationalizing CSR

Actions speak louder than words and one of the actions that the CEO can take from the very beginning of the company’s journey is establishing and maintaining CSR practices and policies that are compatible with the company’s size and resources.  Many sustainable entrepreneurs argue that they simply have too much to do during the early days of their firm—finishing the first product, hiring new employees, talking with investors to raise seed capital and trying to engage with strategic partners—to worry about implementing formal policies and procedures.  They often say that there is no point since it is impossible to know how quickly the company will grow and whatever is agreed upon in the first few months will be obsolete by the end of the first year.  While it is true that things are changing quickly during the launch stage, it can be the best time to begin laying the foundation for ethics and social responsibility throughout every aspect of the organization and its activities.

At a minimum, the CEO should establish, in consultation with board members, other members of the senior management team and a representative group of employees from throughout the organization, a mission statement that explicitly incorporates ethical and socially responsible behavior and a concise code of ethics or conduct that can be used by everyone as guiding principles for their decisions and as an agenda for training and orienting new employees about the organizational culture.  Environmental and social responsibility should also be explicitly woven into strategic planning and performance metrics and the CEO should make sure that the company’s sustainability initiatives are tracked formally and reported on regularly to all of the company’s stakeholders, even if the company is not yet ready to adopt one of the sophisticated reporting frameworks that have emerged and are now being regularly used by larger businesses.  Performance relating to environmental and social responsibility should be formally incorporated into compensation arrangements for the CEO and other senior executives from the very beginning since research shows that CEOs who are compensated based only on economic factors are less motivated to push CSR initiatives.  Finally, a compliance program to satisfy specific formal legal requirements should be established, not only for its own sake but as a good first step in implementing one or more of the voluntary certification standards that may be applicable to the business (e.g., ISO 9001 for quality management; ISO 14001 for environmental management; OHSAS 18001 for occupational health and safety and ISO 26000 for social responsibility).

Innovative Ways to Practice CSR

CEOs should look for new and innovative ways to conduct CSR, strategies and methods that are more in line with what businesses do best on a day-to-day basis.  For example, rather than replicating the same menu of CSR initiatives that other companies are doing, the CEO should look for ways that their companies can specialize in areas that are consistent with their competitive advantages in the marketplace.  Not every company can be like Ben & Jerry’s and have a social mission at the core of their brand, but most businesses have a core competency they can deploy, such as the way that UPS has provided logistics support to help deliver emergency supplies.  Aggressive collaboration with other companies, and with government policymakers, is another way that companies can have a great environmental and social impact.  CEOs building and operating companies in the technology sectors, which require fewer employees than traditional businesses, can nonetheless make a valuable contribution to society by participating in effort to retrain displaced workers so they can be competitive in the new job market.  Retraining programs can also help the CEO fill positions at his or her company, since many technology companies are still struggling to find qualified applicants for all of the activities they need in order to be successful.  The bottom line is that CEOs should continuously think about how their companies can leverage their core competencies in innovative ways to have a positive impact on society and mitigate and reduce the potential negative effects of their business activities.

Engagement

Gone are the days that the CEO can simply hunker down and spend all of his or her time on internal issues and activities such as product development, manufacturing and human resources issues.  It is clear that that a substantial slice of its earnings and opportunities are dependent on the relationships of the company, and its CEO in particular, with external stakeholders.  Research confirms that while operational excellence, including returns to investors, remains an important driver of a firm’s reputation among the general public, other factors have emerged as drivers of brand goodwill, and thus potential overall value, including engagement, purpose, integrity and the environmental and social impact of the company’s products and services.

As such, stakeholder engagement has become a top priority for CEOs and he and she must understand how to do engagement efficiently and successfully.  In the past, a CEO would delegate CSR to another person or group and the primary focus was often on philanthropy or modest collaborations with outside groups interested in environmental and social issues and problems.  Now the CSR efforts of the company must be integrated into each of its core commercial activities, as well as its overall strategy and operational planning.  Even the CEOs of the companies that have enjoyed the most financial success in recent years, such as Tim Cook of Apple, have only a limited amount of time to enjoy increases in revenues and earnings and the development of new products since they must now deal with intense and continuous criticism of the environmental and social impact of their operations and calls for operational changes thought by others to be necessary to achieve diversity and address income inequality.

A good general rule regarding engagement is to authentically communicate often with all of the company’s key stakeholders and do so in a way that stakeholders can trust that their concerns and ideas are being heard and considered seriously.  The CEO needs to understand that the company’s agenda for CSR cannot be dictated by the company and must be mutually agreed upon by the company and each of its stakeholders since CSR has only limited value if it is not perceived by stakeholders as being responsive to their needs and expectations.  That said, the CEO must prioritize his or her CSR activities, and the associated engagement, around the issues that are most important for the long-term success and sustainability of the company.  For some companies, this may mean getting involved in developing new solutions for environmental problems, which means that the CEO will need to become engaged in industry-wide discussions and work with customers on ideas for new products and employees on how to help them develop the skills necessary to work with new technologies.  Many companies have focused on diversity and ensuring that everyone has better opportunities for employment with the company and advancement to higher levels of the organization.  Whatever the issue might be, the CEO needs to be clear about the purposes and goals of the company with respect to CSR, set the proper “tone at the top” and be able to explain to everyone involved with the company, inside and outside, why pursuit and attainment of those goals will be in the best interests of all of the stakeholders.  This is particular true for employees since motivated and engaged employees will be more productive and loyal and help the company deliver better results for customers and shareholders.

While discussions of CSR engagement are typically focused on how companies can develop and maintain relationships with stakeholders beyond shareholders, investors still remain first among equals in the stakeholder universe and CEOs need to be particularly careful in how they engage with investors on CSR initiatives.  For a long time, caution was needed because many investors were skeptical of their portfolio companies deviating too much from a focus on financial performance; however, the pendulum has swung dramatically among institutional investors that now expect CEOs to develop and lead appropriate CSR initiatives and establish CSR reporting mechanisms.  CEOs are not expected to be experts on a particular environmental or social issue, but they do need to have a plan and be able to demonstrate to investors that they have invested adequate resources for the company to fulfill its public commitments on environmental and social topics.  Another important role of the CEO in the eyes of investors is oversight of the company’s organizational culture and human capital.  The CEO should be able to explain to investors how much time and effort he or she spends in talking with employees from all levels of the organization and disseminating a strong message regarding the company’s commitments to environmental and social goals.  Investors also want evidence that the CEO is creating and maintaining a diverse group of senior managers and other key decision makers and is implementing compensation and performance measurement systems that give due weight to contributions to CSR.  Finally, CEO should be prepared to share with large investors the results of the company’s own assessment of its CSR initiatives and processes and the steps that the CEO is taking to make necessary improvements in the way in which the company conducts its business.

Personal Values and Risks

While most of what a CEO does with respect to CSR occurs in the public domain, there are very personal issues and risks that the CEO also needs to consider.  First of all, there is no such thing as privacy for the CEO when a crisis occurs with respect to whether or not his or her company has failed to fulfill expectations with respect to ethics and social responsibility.  The CEO’s official actions will be scrutinized and more likely than not someone will pry into personal matters such as whether the CEO’s lifestyle is inconsistent with concerns about income inequality.  By the way, some studies have found that companies with materialistic CEOs have lower CSR performance scores.  Second, high profile CEOs may be expected to take positions in social and political controversies, even getting involved is not directly related to a specific CSR initiative or goal of the company.  Many CEOs, while comfortable with certain social issues, prefer not to become regular participants in the marketplace of opinions; however, it has been argued that CEOs are in a unique position to frame the dialogue on certain issues and that CEOs that take a position on a controversial issue can actually bring more new business to the company.  Finally, while CEOs that champion CSR initiatives are generally praised for such work when things are going well, research shows that if a CEO has invested in CSR and the firm performs poorly, he or she is much more likely to be dismissed.

Note on Sources: The Arthur W. Page Society considers itself to be the world’s leading professional association for senior public relations and corporate communications executives and educators who seek to enrich and strengthen their profession. Membership in the Society consists primarily of chief communications officers of Fortune 500 corporations and leading non-profit organizations and the CEOs of the world’s foremost public relations agencies. The discussion of the principles relating to “public relations” is adapted from https://awpagesociety.com/site/the-page-principles

This article is adapted from material in Corporate Governance: A Handbook for Sustainable Entrepreneurs, which is prepared and distributed by the Sustainable Entrepreneurship Project and can be downloaded here.

Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business.  Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedInTwitter and Facebook.

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