The Only Way to Serve Shareholders is to Care About Your Stakeholders
Halla Tómasdóttir, CEO of The B Team, put the need for urgent sustainable action center stage during a conversation with YPO member Maurice Ostro, OBE and Founder of Entrepreneurial Giving at the YPO Hub in Davos during the 2020 World Economic Forum annual meeting.
“The way we have been doing business has left us with a burning planet, a melting ice cap, a broken social contract, unsustainable levels of inequality in the world and the lowest trust in business,” says Tómasdóttir, highlighting the urgent need for companies and investors to broaden their efforts to act on multiple fronts. These include not only addressing the climate crisis, which was at the top of the agenda at WEF this year, but also addressing workplace inequalities and governance criteria.
“It has been 50 years since Milton Friedman put the idea that the purpose of an organization was to maximize return to shareholders. The current economic system is making us question that notion,” says Tómasdóttir. “But even if you think the purpose of the organization is to serve only the shareholder, because expectations in society have changed, the only way to serve the shareholder in the long term is to take care of your employees, your customers and your planet. That is what the new generation of talent wants from you. That’s what your customers expect from you. And that’s what investors are increasingly looking for as they start to invest with what we typically call an environmental, social and governance lens or ESD [Education for Sustainable Development].”
Tómasdóttir warns that as society’s norms quickly shift, large businesses are falling behind integrating sustainability into corporate strategy. “As a business leader, and even in your personal life, if you are not embracing responsibility for the sustainability of your organization or your lifestyle, if you are not setting a goal to try to be carbon neutral on half your emissions by 2030, then you are probably going to face irrelevance, because that is not only what we need to do, but it’s also what you are now expected to do.”
She credits today’s ‘woke’ youth for asking some of the challenging questions. “They are asking us to hold ourselves responsible, not just for our short-term success but to the long-term success that they can face,” she adds. “Kids, please continue to raise your voices.”
Gender balance in leadership
Tómasdóttir prioritizes gender-balanced leadership, a cause that she has been passionate about for the past 25 years, as the key driver for the transformation to sustainability. Throughout her career, as an entrepreneur, investor and presidential candidate (she got the second highest share of votes after the winner of the 2016 presidency of Iceland), she has been dedicated to introducing “feminine values” into business.
“I’m not here to say that this is only about women’s or human rights … I’m here to say that gender balance goes beyond counting women versus men,” says Tómasdóttir. “Gender balance is about what are the values at the heart of how we do business and how we think about our economy. If we get that gender balance right, we allow men to embrace feminine leadership because feminine leadership is urgently needed now.”
She adds that from her experience with greater gender balance in the boardroom, “we are far more likely to talk, not just about how to compete hard, but also how to care deeply about people and the planet. And without caring deeply about people and the planet, we are not going to attract the best talent in the world or maintain customer loyalty.”
Inclusion beyond gender
For Tómasdóttir, inclusion and diversity go beyond gender. “Inclusion is also about ethnic backgrounds, about disability, about paying living wages and listening to all the people that feel left behind and are now increasingly feeling desperate because their quality of life hasn’t gone up.” She also expressed the importance of closing the generational gap. “We are just not in touch with how this next generation feels, and we need to hear their voices.
While acknowledging that there are systemic issues and challenges in addressing the diversity issue, she challenges global business leaders to think about these questions every time they are recruiting for new board positions or in the workspace: “Do you have a diverse slate? Is it gender balanced? Do you have ethnic representation? How are you thinking about filling your boardrooms?” She adds, “It is actually about the past versus the future. And if you want to be future-proof, you just have to create organizations that embrace diversity or you are going to lose somehow.”
Deliberate, collective action
Tómasdóttir agrees that leaders need to first “clean their own house and lead by brave action in their own businesses.” But she also advocates for government involvement.
“There are some things that are going to require policies or simple policy interventions. We (business) can’t fix everything,” she says. “Even in the progressive area of the Nordics, we did not have gender balance in the boardroom until we had a gender quota (imposed). And when it comes to taking responsibility for the supply chain and the treatment of people, I actually think that there might be some good evidence for some policies.”
Tómasdóttir also called on leaders to redefine success through what they audit and disclose, putting targets beyond financial profit and measuring them with transparency. “So, whether we call that ESG or something else, we need to start with setting measurement and accountability [standards].”
Her advice for leaders of small- and medium-sized companies: “We may be working with the biggest global business in the world, and they have a lot of power, but ultimately about 90% of the economy is small, medium-size, privately held businesses. So, you are the real change catalyst to driving the sustainable transformation of our economy.”
View the full discussion with Halla Tómasdóttir