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The Leadership-challenge in Sustainability

by Julius Hargitai - July 21st 2021

In the age of digitalization, normative orientation in economic activity is becoming increasingly complicated and more complex. Thanks to the wealth of technical, financial, and scientific possibilities that our rapidly evolving times hold in store, we are gaining the freedom to do what we think is "right. But having freedom in making decisions tempts us to make wrong decisions. So what needs to be done, and where do we go from here? The leadership of a company or companies that have committed their business activities to sustainable development (SD) can align their course so that it leads to as many good acts and results as possible and improves living conditions and sustainable development leads to further development?

When new ideas, concepts, growth, and development opportunities arise that the market sees as profitable, the question arises: How can companies integrate this concept meaningfully into their business model and their daily activities? However, this seemingly logical and comprehensible question is easier to answer than to implement because it involves dimensions that executives have not previously been confronted with on this scale and with this relevance. So what should executives place more emphasis on in terms of sustainability? On the results (what), on the social, economic, financial, and political actions, or the steps (how) themselves?

Goethe's imperative is: Consider the "what," but equally consider the "how." From this perspective, the question arises of the extent to which the Western world is technically capable of driving SD forward within the respective corporate framework of action and how the challenge of social and sustainable responsibility is handled. This "how" should also find its way to employees throughout the company at the leadership level. Employees can and will make comprehensibly meaningful contributions (in whatever form) out of conviction toward SD if they acquire further competencies in the process as part of their professional activities, the entire company benefit. In addition, the (value) contribution that a company has to make in its social responsibility will increase (improvement of reputation). This process is part of organizational learning.

Implementing a strategy as an adaptive challenge

The early days of digitization showed that even in large corporations with a significant amount of professional strategic experience, the implementation of new business strategies often happened "too fast" and failed with an almost self-deceptive maneuver. That meant substantial cost losses, which ultimately could - and did - cost the CEO's position. The following examples clarify which effects and setbacks companies and their leadership had to cope with, but they had to take responsibility for a wrongly implemented strategy even more. In doing so, author Blake Morgan describes failed strategy by large corporations in a 2019 Forbes article: The majority of digital transformation efforts encounter resistance and fail. For example, General Electric/GE created a new digital business unit but focused on the scale instead of quality. In addition, the group quickly fell into the pattern of having to report profits to shareholders and was more focused on short-term goals and profits than long-term innovative goals and returns. As a result, the CEO was soon fired.

Ford launched a new digital service that was separate from the rest of the company, rather than integrating digital solutions. The goal was to build digitally capable cars with improved mobility. Ford's problems had arisen while the new segment was not integrated with the rest of the company. Not only was it headquartered far from the rest of the company, but it was seen as a separate entity with no cohesion with other business units. While Ford was pouring vast sums of money into the new venture, there were quality problems in other parts. Ford's stock price dropped dramatically, and the CEO resigned a few years later.

The preceding examples highlight the importance of the "how" in integrating an effective strategy. But also how this is accomplished when attention is paid only to the "what."

Sustainability should not be treated as a separate entity to be managed and integrated by the Sustainability X department, nor as a product to be taken care of by Marketing. Nor should it be used for advertising purposes, merely to enhance a company's reputation so that it looks good and can keep up with others. Instead, corporate action geared to the future in the sense of sustainability should be active, well-considered, integrative, and innovative, but in no case rash.

Leadership paired with an understanding of systems

"There is nothing more practical than a good theory."

Kurt Lewin

What is meant by rash action is that the first action should not belong to texts on company websites. Still, the wise and complete integration of a mindset that, simply put, integrates a company's corporate DNA into the company culture. When this succeeds, neither employees nor managers need to explicitly think about it or even be reminded of it because everyone knows how they should act in the company's best interests.

Today, many companies are likely to hear: Oh, your company is involved in sustainability? But in the future, it will be more likely to say: Why haven't you integrated sustainability into your corporate strategy yet? However, it is legitimate to wonder why people are still asking why a company should participate in SD instead of taking it for granted. When you, as a leader, address this question, you are not creating a moral dilemma but rather reflecting on how SD makes sense in terms of your company's business processes. These considerations are based on both your values and those of your company. By answering this question or questions, you also reach the point where you ask yourself why your company, in particular, should integrate sustainable action into its strategy.

In 2017, Jeffrey Sachs, professor of sustainable economics and special advisor to former UN Secretary-General Ban Ki-moon, highlights the meaningfulness of sustainable development in a Q&A at Oxford University. He quoted an and if not the ancient "problem" addressed by Aristotle in his work Politeia: politics in its noble sense is the pursuit of the common good. Sachs says that sustainable development is the business task of reconciling the totality of four global, complex, interconnected systems. In the global view, first are the techno-economic aspects, which are the technological drivers of our time and whose impact managers should understand. Second, it includes the Earth's systems (eco-systems/environment), whose impact has substantial effects on the agricultural economy and its products, i.e., on the production of our food. Third, social dynamics reflect a society's commitment to a common goal, approached with expanded trust and cooperation to avoid scarcity of goods and social unrest, resulting in undesirable consequences. And finally, fourthly, governance, economic and political leadership cannot be ignored, which is the most effective and capable system that can bring about SD's positive and decisive development.

First of all, it is essential to emphasize that the four systems, although interconnected, form separate entities. In this regard, Sachs emphasizes two ways of looking at them. The first is the analytical way of thinking, which seeks a holistic approach to viewing and learning how to deal with complex and interconnected systems. It emphasizes the importance of thought and learning and the curiosity necessary to maintain the thinking and learning process. The second way of looking at it is again the normative concept in acting morally and ethically and striving for a balanced society, which provides for social, environmental, and economic balance. The essence of this is to familiarize oneself as a manager with this challenge, address it adequately, and develop solution strategies.

The mindset for sustainable development

The speed of implementation depends on the company's size, market position, and resources. However, one thing is sure, the longer a company waits to implement a sustainable strategy, or even delays and lacks commitment, the less time it will take to make an adequate impact in the world. Delaying not only deprives the world of positive development opportunities, but as time passes at the same time, the reputation of the company in question declines. George Serafeim, professor of business administration and chairman of the Impact-Weighted Account Project at Harvard Business School, describes in an article in the September 2020 issue of Harvard Business Review that investors are meticulous about ensuring that they invest in companies whose sustainability strategies score highly according to environmental, social and governance (ESG) assessments. If this is not the case, the financial subsidies do not materialize. In this way, investors take it upon themselves to adhere to the sustainability cycle and make a corresponding contribution.

Implementing such a forward-looking concept requires first and foremost clarity in leadership, especially about why a company is dedicating itself to this task. At the same time, it is open to leaving behind some outdated concepts and beliefs to face the uncertainties that will always arise in the future.

In conversation with Klaus M. Leisinger, Professor of Sociology at the University of Basel, who former Special Advisor to the UN Secretary-General on the UN Global Compact by Kofi Annan in 2005. Mr. Leisinger emphasized that an enlightened leader differs from her or his peers in that he or she recognizes the signs of times. Thus, the leader's own free will, with appropriate orientation, strategically realigns himself or herself and courageously embarks on a new path - independently of the previous achievements of others - decisively and responsibly.

In addition, Roland Heifetz, founder of the Center for Public Leadership at the Harvard Kennedy School, states the following: "People are not afraid of change, but they are fearful of losing the old. So you as a leader will be able to identify the overarching meaning primarily for yourself and then for your company, and you can even clearly demonstrate to everyone why sustainable action will be significant in your company's future, you will not only have convinced them factually, you may also have won their hearts.


Blake Morgan /Forbes Magazin:

Jeffrey Sachs Q&A at Oxford University:

Jeffrey Sachs - The Age of Sustainable Development:

George Serafeim Harvard Business School/Harvard Business Riview article:

Leisinger, Klaus M. Integrität im geschäftlichen Handeln. 1. Auflage. Basel: Friedrich Reinhardt Verlag, 2020. Print.

Heifetz, Roland Abadian et al. The Practice of Adaptive Leadership: Tools and Tactics for Changing Your Organization and the World. Boston, Mass: Harvard Business Press, 2009. Print.

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