#06 SUMMER 2022
FANTASTIC PLASTIC
WISDOM OF MANDELA
20 CHF
CULTIVATING CHARISMA
NEW POWER GENERATION INCLUSION AT THE TOP
SWEET SENSATION DATA GOLDMINE WAR BABIES
CYBERCRIME
ibyimd.org
HUMAN DESIRES
Live. Learn. Play. It’s go time. Time to get yourself out of bed and get going, because the day belongs to those who claim it. It’s go time. Time to live, love, learn, teach, work and play on SA’s Bozza Network. It’s go time. Time to rewrite your story, stake your claim, or start that start-up. Time to slay, make your moves, and add your own unique flavour to the world. It’s go time. The time for waiting is over. The time for going is here.
2 I by IMD • June 2022
*Based on MyBroadband 2020
[ Foreword ]
Let’s unleash the power of ‘us’
A
Coverphoto: Verena Berg Photography (www.verenaberg.com), Illustration: Jörn Kaspuhl
glance at the headlines and it’s easy to feel powerless. Russia’s war against Ukraine has been raging for months, inflicting unspeakable suffering and threatening a global food crisis. COVID-19 is far from over as cities in China endure lockdowns and supply chains remain strained. Record temperatures in India remind us that the climate crisis has become a full-fledged emergency. It would be easy to feel powerless, to believe that only those at the top, those at the pinnacle of government and business, have the ability to cure these ills. However, as this sixth issue of I by IMD shows, power is not about hierarchy or status. Power is an attitude. And perhaps the most important job of a leader is to empower others, to give them the confidence to believe in themselves and the impact that they – together – can have. As Barack Obama, when still a presidential candidate, said to his supporters: “We are the ones we have been waiting for!” This ability to inspire and empower was also the key to Nelson Mandela’s extraordinary leadership, as Sello Hatang and Verne Harris remind us in their front-row account. And in their contribution, Julie Battilana and Tiziana Casciaro make the link to business and show that good leaders understand their teams’ desires to unlock and unleash their creative energy. Zoe Chance argues that anybody can be powerful provided they understand human psychology and develop corresponding influence skills. It worked for Prince, who went from being booed to becoming a hugely charismatic performer. The key: inclusiveness, making everybody feel they belong and are equally worthy of attention. James Henderson and Ansgar Thiessen share practical tips on how leaders can become more inclusive and Christy Glass, Alicia Ingersoll and Alison Cook present compelling evidence that inclusive enterprises perform better.
For Borealis Executive Vice President Lucrèce Foufopoulos, inclusiveness is the key to addressing the problem of plastic waste. “We need the brightest and most creative people to help us,” she tells my IMD colleague Anand Narasimhan. “Rather than sit on the sidelines and criticize, join us and help create a net positive future.” The portrait of Gen Z and some of its emerging leaders by Emil Andersson, Tahirou Assane, and Yavnika Khanna, as well as the contribution from student leaders at the St Gallen Symposium, show how much fresh energy can be brought to bear on seemingly intractable problems when organizations empower young contributors. Here at IMD, we’re getting ready for Orchestrating Winning Performance, the first in-person edition of our signature program since the start of the pandemic. Over five days, more than 450 leaders will explore with IMD faculty and experts how to reset for sustainable and inclusive growth in this turbulent world. Howard Yu, in his contribution to this issue, puts us in the right frame of mind: “Let’s resist the urge to return to business-as-usual,” he says. “Commitment to change and innovation is more important than ever.” The challenges are daunting. I cannot pretend to know that we will overcome them. What I do know is that the only way is to believe in the power within us, to empower and inspire those around us, to include the excluded, and to embrace change. We are the ones we have been waiting for.
David Bach, Dean of Innovation at IMD June 2022 • I by IMD 1
[ CONTENTS ] 04 [ In good company ]
Jerry Davis examines the causes of a fierce
political battle over corporate ESG accountability.
36
06 [ First person ]
Susan Kersch-Kibler, founder of the Delivering Dreams Surrogacy Agency,
describes the difficulties she has faced operating her business in war-ravaged Ukraine.
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11 [ CEO dialogue ]
Julie Sweet, CEO of Accenture, explains the company’s success during the COVID-19 crisis and the importance of learning.
30 [ Equity and inclusion ]
The appointment of women and people of color in senior positions will help a company to thrive, according to new research.
14 [ Power shift ]
38 [ In the mind’s eye ]
39 [ Brain circuits ]
21 [ Technology ]
A seven-point checklist to ensure your organization has the full engagement of everyone from the shop floor to the executive suite.
Demystifying data analytics among employees will help companies unleash the power of their unused data to gain a competitive edge. Read our five-step guide to find out how.
40 [ Leadership ]
Few could be as inspirational as Nelson Mandela but there is much to learn from his leadership style, say two people who worked closely with him.
24 [ Human resources ]
2 I by IMD • June 2022
From tackling stress to climbing mountains, IMD professors recommend books for the summer that they have found inspiring and entertaining. Leaders need to get the balance right between fulfilling their own desires and the needs of others. George Kohlrieser offers his expert guidance.
An in-depth report on how to harness the power of Generation Z, the first true digital natives.
Uncovering the basic human needs of your team is a powerful tool for getting them to perform at their best. So why do so many leaders struggle to get it right?
36 [ The I reader ]
46 [ World view ]
53
Arturo Bris suggests the time may be approaching when cryptocurrencies and central banks learn to live side-by-side, to the benefit of all.
Photos: www.international-surrogacy.com, Domenico Daniele via Unspalsh, Ian Christmann
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40
48 48 [ Sustainability ]
Lucrèce Foufopoulos of the plastics group
Photos: Accenture, Artiom Vallat via Unsplash, Adobe Stock, Daniela Beranek, Matthew Willman, 2004.
Borealis urges young talent to join the industry to help find solutions to its environmental challenges.
53 [ Psychology ]
Zoe Chance discusses how to develop your charisma
by learning from the pop star Prince, and the power of saying “no”.
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56 [ Strategy ]
64 [ The forecaster ]
Is it better to back a lone genius or trust the wisdom of the crowd? An online strategy game may have the answer.
The urge to return to businessas-usual must be resisted, writes Howard Yu. Commitment to change and innovation is paramount.
59 [ Cyber security ]
Ransomware attacks are on the increase. Companies need to protect themselves before they fall victim.
68 [ Preview ]
62 [ The leading edge ]
Geopolitical shocks have added a layer of uncertainty to decision making. Our experts guide you through the maze.
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Join us in September when I by IMD will explore how to build cyber resilience and address growing threats to security, economic prosperity, and individual freedom.
June 2022 • I by IMD 3
[ In good company ]
ESG guidelines seem innocuous enough, so why the backlash? Environmental, social and governance measures have become a central battleground over the purpose of a corporation and who gets to exercise control, writes Jerry Davis
ESG is big business: according to Bloomberg, “one in four of every professionally invested US dollars is tied to environmental, social and governance criteria.” There are many alternative ESG evaluators and hundreds of competing fund products, and almost all US and European corporations listed on a major stock market are obliged to disclose ESG data. Boards are incorporating ESG incentives into executive compensation packages. Being ESG savvy also turns out to be a valuable job skill for MBAs. Yet just as ESG seemed ready to declare victory, it is facing a significant backlash from the political Right. Elon Musk tweets, "I am increasingly convinced that corporate ESG is the Devil Incarnate." Peter Thiel, the billionaire entrepreneur and co-founder of PayPal, states: "ESG is just a hate factory. It's a factory for naming enemies, and we should not be allowing them to do that. When you think ESG, you should be thinking Chinese Communist Party." And Republican state officials are lashing out at both rating agencies wielding ESG metrics and investment funds that apply standards excluding fossil fuel companies. Almost overnight, ESG has been transformed into a catch-all term used by its opponents to discredit efforts at corporate accountability, much like Critical Race Theory became a lightning rod for discussions around 4 I by IMD • June 2022
racism. Now ESG is becoming a central battleground over the purpose of the corporation and who gets to exercise corporate control. As corporate ownership becomes increasingly concentrated and potentially influential, this battle is not likely to be settled any time soon. What is ESG anyway?
"Socially responsible investing" in its current incarnation, selecting or deleting portfolio companies based on ethical criteria, dates back decades. Pension investors and others seeking to avoid industries regarded as morally questionable, such as gun or tobacco manufacturers, constituted a distinct market niche both for asset managers and data providers who compiled information to assess potential investments. In 1991 Kinder, Lydenberg, Domini Inc. (KLD) began publishing systematic annual data on roughly 650 listed corporations across several dimensions of social responsibility. Amy Domini, a principal in KLD, launched an associated index fund, the Domini 400, consisting of corporations meeting high standards for social and environmental responsibility according to KLD data. This might be seen as the birth of the contemporary ESG industry. As responsible investing gained traction in the market, a gaggle of competing vendors arose to provide ESG metrics. MSCI ESG Metrics, Bloomberg, Institutional Shareholder Services, and others offered distinct cocktails that emphasized different dimensions. Not surprisingly, companies can receive different evaluations depending on who's doing the evaluating. The Wall Street Journal reported that the ratings of three leading providers, MSCI, Sustainalytics, and Refinitive, provided surprisingly divergent evaluations yielding different market performance. The confusion around ESG is built into its definition. It is not entirely clear why E, S and G belong together. Environmental metrics assess a company's use of resources, carbon emissions, and other contributions to the natural environment. Social metrics range from the treatment
Illustration: Jörn Kaspuhl
O
ver the past three decades, socially responsible investing has shifted from the periphery to the very center of the capital markets under the banner of ESG. “Environmental, Social and Governance” describes a set of measures used to evaluate company commitments as well as a philosophy of investing. Trillions of dollars have been invested in ESG mutual funds and ETFs (exchange-traded funds) in recent years. ESG funds often implement a screen such that they only invest in corporations that exceed some threshold on ESG metrics. They may also use ESG criteria in how they vote their shares.
of employees and human rights issues in supply chains to corporate political activism. Governance metrics evaluate how well the corporation is configured to serve investor interests (or possibly “stakeholder interests”), as well as questions such as the diversity of directors. In recent years the World Economic Forum worked with the Big Four accounting firms (Deloitte, EY, KPMG, and PwC) “to identify a set of universal material ESG metrics and recommend disclosures that could be reflected in the mainstream annual reports of companies on a consistent basis across industry sectors and countries. The metrics should be capable of verification and assurance to enhance transparency and alignment among corporations, investors and all stakeholders.” The advantages of these measures are their clarity and accessibility. The optimist's case for ESG
What's the point of ESG? Why is so much capital being allocated based on a set of contentious metrics? Some investors prefer that their savings be invested in green or ethical companies. Moreover, some ESG proponents believe that this movement of investor dollars may encourage companies to become more sustainable, socially responsible, and well-governed (others strongly disagree). Requiring companies to examine and report on their practices may have a positive effect. In an ideal case, when companies find that they are competing with other companies on ESG dimensions, they will up their game, creating a positive dynamic that makes the whole field more sustainable. A race to the top, to the benefit of all. There is also the pessimist's case: our carbon-intensive economy is hurtling our species toward extinction and governments seem incapable of taking collective action on something as basic as a carbon tax. Only large investors have the muscle to force global corporations to take the actions needed.
‘ESG is just a hate factory. It's a factory for naming enemies, and we should not be allowing them to do that’ Peter Thiel
The Right's case against ESG
A set of obscure metrics that investors might use to assess their portfolio choices seems technical and anodyne. It was thus somewhat surprising to see a full-scale assault on ESG emerge this spring from business and political leaders on the Right. Musk tweeted that "ESG is a scam. It has been weaponized by phony social justice warriors". The former Vice President, Mike Pence, wrote in the Wall Street Journal that "the woke Left is poised to conquer corporate America and has set in motion a strategy to enforce their radical environmental and social agenda on publicly traded corporations … the shift is entirely manufactured by a handful of very large and powerful Wall Street financiers promoting Left-wing environmental, social, and governance goals (ESG)”.
Meanwhile, the Republican Texas legislature passed a law banning its state pension and investment funds (worth $330 billion) from working with asset managers who "boycott" investing in fossil fuels, a remit that could include many or most ESG firms. And Utah's Republican governor and senators demanded that S&P Global stop rating states and their bonds based on their ESG performance, which they claimed was politicization of a fiscal matter. The source of this hysteria is the growing realization that three giant asset managers (BlackRock, Vanguard, and State Street) own nearly a quarter of the shares of the average S&P 1500 company, a level of concentrated corporate control not seen since the Gilded Age. And those wielding the votes are not the people whose capital is at stake. This potential power was demonstrated at ExxonMobil's 2021 annual meeting, when The Big 3 index funds voted to oust three incumbent directors and replace them with more environmentally oriented board members. To hear the Republican establishment come out swinging against Wall Street, "woke” corporations, and ESG investors is something new. Railing against shareholders in the land of shareholder capitalism is puzzling. The Ayn Rand theory of corporate governance
Perhaps the real enemy is not ESG and "woke capitalism" but the threat of outside oversight and accountability, with ESG serving as an easily demonized straw man. It is notable that the most vocal opponents of ESG in the business world are the same Silicon Valley founders and VCs who resist any form of outside accountability, including by their own investors. Musk allegedly ignores Securities and Exchange Commission constraints on his public pronouncements and fails to follow timely disclosure requirements. Thiel operates the Founders Fund, which gives extreme voting rights to founders of up to 20 votes per share. Mark Zuckerberg's Class B Meta/Facebook shares give him 10 votes per share and an absolute majority at the corporate ballot box. No investor, not even the board of directors, can check his power. Behind this practice is what I call the "Ayn Rand theory of corporate governance," in which founders are visionary makers and builders while the rest of us, including their investors, are moochers and takers who are not qualified or entitled to oversee how their companies are run. From this perspective, ESG investing is just another assault on the autonomy of visionary leaders. This latest eruption in the battle for corporate control is just beginning, but it lays bare some of the fundamental questions of who has the right to control the corporation. ■
Jerry Davis is the Gilbert and Ruth Whitaker Professor of Business Administration and Professor of Sociology at the University of Michigan’s Ross School of Business. He has published widely in management, sociology and finance. His latest book, Taming Corporate Power in the 21st Century (Cambridge University Press, 2022), part of the Cambridge Elements Series on Reinventing Capitalism, has recently been published.
June 2022 • I by IMD 5
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