I by IMD magazine - The inclusive issue by IbyIMD

#10 JUNE-AUG 2023

INCLUSIVE LEADERSHIP

SCENARIO CLOSING THE PLANNING GENDER GAP

AI: OPPORTUNITIES AND DANGER

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FOLLOW THE FIVE Cs RACIAL EQUITY – GETTING IT RIGHT

CREATING SYNERGY FROM DIVERSITY THE RISE OF THE ‘DESI’ CEOs

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[ Foreword ]

Take a deep dive and refresh your thinking

earning to be an inclusive leader is a lifelong project. Growing up in India – with degrees in engineering and management, much like the two Desi CEOs interviewed in this issue of I by IMD – I was aware of how inequity can be piled up as with the caste system and the imperative for diversity. I “woke up” to the limitations of my worldview with a failing grade in my first graduate essay at Vanderbilt. The professor excoriated me for the use of words such as “mankind”. I was puzzled. My fellow student Mary Watson compassionately explained to me the biases that are embedded in language and took me along to a Gloria Steinem book signing. Fast forward a few decades, and I’ve been subject – in a very welcome way, I must say – to boot camps on various aspects of intersectionality by my teenage daughter, who is now herself off to college. It’s always great to have a deep dive when you want a quick refresher or when you’re just wading into a topic of interest. If that topic is “inclusive leadership”, you are in luck because this issue of I by IMD provides just such a deep dive. We have a great mix of articles – easy-to-use frameworks, tested tools, expert opinion, and sound advice – that will quickly get you up to speed.

Illustration: Jörn Kaspuhl

IMD professor Alyson Meister opens with a case study of Wonya Lucas, the CEO of Hallmark Media, to walk us through a simple, insightful, and actionable framework for becoming a more inclusive leader. How do you know if your organization is doing well in fostering inclusiveness? Silke Muenster and Alexander Fleishmann suggest a simple question: “Would employees recommend your firm as an inclusive place to work?" They describe the development of the inclusiveness Net Promoter Score (iNPS), its pilot implementation, and its embedding at Philip Morris International. Clearly, a “next practice” tool that other organizations can learn from. Shereen Daniels, an expert on systemic racism, explains the crucial difference between racial equality and racial equity. Our new

columnist Shelley Zalis, founder and CEO of The Female Quotient, provides practical advice on how leaders can rewire their organizations to make them more inclusive. In their insightful article on how to be inclusive by design, Professor Vanessa Patrick and Senior Lecturer Candice Hollenbeck note the trap of designing for the “target market” that is often full of taken-for-granted assumptions that can be self-defeating. They advocate focusing on the “edge customer” – someone overlooked or invisible in the marketplace – just as OXO did in designing kitchen tools for arthritic seniors that led to solutions that appeal to the broadest possible market. Once you’ve had your deep dive into inclusive leadership, you might want to explore the other features in this issue. Generative artificial intelligence (AI) is another topic of focus. IMD professor Amit Joshi provides insights on how organizations should be thinking about deploying generative AI. Jérôme Duberry of the Geneva Graduate Institute notes in his article that diversifying the data engineers working on AI is a key imperative. And IMD professor Öykü Işık cautions businesses to ensure that ethical considerations guide their use of this new technology. Our regular columnist Jerry Davis provides an insightful look into the fallacy of counting the countable with outdated tools. Many devices for making sense of contemporary organizations and industries, he notes, date from the Great Depression and so it is about time that a new information infrastructure is put in place to make organizations more transparent and accountable. ■ Happy diving!

Anand Narasimhan, Dean of Research June-Aug 2023 • I by IMD 1

[ CONTENTS ] 04 [ In good company ]

It’s time to create better data maps to navigate our increasingly complex technology-driven business world, argues Jerry Davis.

#10 JUNE-AUG 2023

[ Inclusive leadership ]

How do you become a truly inclusive leader? What action must you take and what are the traps to avoid? Our 38-page special report guides you through the complexities of diversity, equity, and inclusion.

FOLLOW THE FIVE Cs RACIAL EQUITY – GETTING IT RIGHT CREATING SYNERGY FROM DIVERSITY THE RISE OF THE ‘DESI’ CEOs

ibyimd.org 10_IMD_2023_Edition_10_JUNE_2023_COVER_Final_Eyes.indd 5

05.06.23 09:11

Cover picture: Unsplash

07 Alyson Meister, Professor of Leadership and Organizational Behavior at IMD, explains the importance of what she calls the ‘five Cs’ of inclusive leadership. 11 The Inclusion Net Promoter Score, developed by IMD, is a simple but effective tool to measure your organization’s progress in becoming more inclusive. Alexander Fleischmann explains how it works and talks to Silke Muenster, Chief Diversity Officer at Philip Morris International, about her company’s success in using it. 16 Leaders must acknowledge and act decisively to dismantle the apparatus of systemic racism that still plagues organizations, writes Shereen Daniels. 19 Leaders need to come from more diverse backgrounds if we are to achieve equity in the workplace, Black Lives Matter co-founder Ayọ Tometi tells Martina Fuchs. 2 I by IMD • June-Aug 2023

21 Don’t sideline older workers, writes

28 There are clear benefits for companies

George Kohlrieser, because combining

that embrace the principles of inclusive design. Vanessa Patrick and Candice Hollenbeck offer a step-by-step framework to ensure your products and services meet the needs of all consumers.

22 Vanessa Moungar, Chief Diversity and

32 Banning salary histories may not help level the playing field between men and women. It’s time for organizations to take bolder action on pay, argues Raina Brands.

25 Rather than focusing on our return on investment, let’s focus on a return on inclusion, says new columnist Shelley Zalis.

35 Corinne Post and Jordan Borisuk explode

26 The I reader offers a wide range of

36 Business leaders of Indian origin

their wisdom and experience with the skills and agility of younger people is a winning combination.

Inclusion Officer at LVMH, tells Heather Cairns-Lee how luxury brands can ‘walk the talk’ when it comes to LGBTQ+.

books recommendations by IMD professors to help you get a deeper understanding of the issues surrounding inclusion.

27 Be inspired by some pearls of wisdom taken from a book of quotations compiled by IMD’s Dominique Turpin.

some common myths surrounding gender equity.

are starting to make a real mark globally.

Anand Narasimhan examines the reasons

behind the rise of the ‘Desi CEOs’.

42 Daan van Knippenberg explains why it’s im-

portant to allow your teams to ‘agree to disagree’ if you want to create synergy from diversity.

Illustration: Jörn Kaspuhl (2), Photos: Laurence Griffiths - The FA/The FA via Getty Images, O'Shea Tometi

INCLUSIVE LEADERSHIP

SCENARIO CLOSING THE PLANNING GENDER GAP

AI: OPPORTUNITIES AND DANGER

20 CHF

44 [ Leadership challenge ]

In an I by IMD interview, Ukrainian human rights lawyer Oleksandra Matviichuk implores business leaders to stop taking their democratic freedoms for granted and to look beyond the blind pursuit of profit.

46 [ AI report ]

How can executives leverage generative AI tools without overshooting or falling foul of the pitfalls? Amit Joshi offers expert guidance.

48 Öykü Işık suggests four ways to ensure that

your AI products and tools are ethical.

50 We need to ensure that the introduction of

AI benefits us all, and the risks do not undermine our rights and freedoms, argues Jérôme Duberry.

53 [ Conversation piece ]

Olympian Rebecca Wardell tells Heather Cairns-Lee how a 20,000 km bike ride taught her the importance of setting goals, teamwork, and managing her mindset.

Photos: Wikipedia, Fenty Beauty, Hallmark Media, Sergei Gapon/AFP via Getty Images

[ Business ethics ] 56 In the age of social media, Michael Skapinker

explores how organizations can manage the tension between freedom of expression and corporate interests and values.

[ CEO dialogue ] 58 Mostafa Terrab, CEO and Chairman of the

Moroccan fertilizer group OCP, explains to IMD President Jean-François Manzoni why he believes people are the company’s most valuable resource.

62 [ World view ]

Japan’s in need of another economic miracle. Radical changes are needed if it is to avoid a downward spiral, argues Arturo Bris.

44 64 [ Human resources ]

Christian Schmeichel, Chief Future of Work

28 70 [ The forecaster ]

Officer at the business software group SAP, explains to Anand Narasimhan what his company’s experience can teach others.

The best ‘future-ready’ companies are always poised to pivot quickly to take advantage of the latest trends, writes Howard Yu.

68 [ Sustainability ]

72 [ Preview ]

Organizations need to take actions on both strategic and leadership dimensions of sustainability transformations to achieve impact, say James Henderson, Julia Binder, and Knut Haanaes.

Join us in September when I by IMD will offer insights and analysis on how leaders can create sustainable organizations to succeed in turbulent times. June-Aug 2023 • I by IMD 3

[ In good company ]

The perils of navigating the economy using out-of-date maps Outdated tools make it hard to answer even basic economic questions, much less create thoughtful policy, argues Jerry Davis. It’s time to create a better data architecture for mapping our increasingly complex technology-driven business world

What happens when the tools and categories you use for your map no longer work? For much of the 20th century, you could reasonably describe the US economy using a simple set of nested categories; industries consisted of firms that operated establishments (factories, offices, stores) staffed by employees who engaged in occupations. Today, not so much: when crypto exchange Coinbase went public in 2021, its prospectus noted that it did not have a physical headquarters for its (minuscule) workforce because it was a remote-first company, and declared its industry to be “business services, not elsewhere classified”. We still use tools created during the Great Depression to map an economy in which work-from-home contractors directed by placeless “algos” contribute to virtual goods sold on global app stores. Our outdated tools make it hard to answer even basic questions, much less create thoughtful policy. It’s time to create a better data architecture for mapping the 21st century economy – particularly when it comes to employment. 4 I by IMD • June-Aug 2023

Seeing like a state

Twenty five years ago, Yale’s James C Scott published a remarkable book, Seeing Like a State: How Certain Schemes to Improve the Human Condition have Failed. The book described high modernism, where governments aim to make societies more legible and easier to manage by imposing simplified categories on a complex world. States like to have a synoptic view – like a London Underground map – and often seek to impose a map that does not fit. Sometimes these mapping efforts are benign – say, naming roads and numbering houses that make it easier to deliver mail. Other efforts to impose a map have been disastrous, from “urban renewal” that bulldozed thriving neighborhoods for highways to Stalin’s forced collectivization. Scott describes an early version of high modernism with the birth of German forestry science in the 18th century. One of the important sources of royal wealth was ownership of forests, and forestry science was developed to help estimate how much board wood and cord wood could be produced each year. The forest contained much beyond this, but monarchs were most concerned with the revenue-producing parts of their holdings, and not so much the flowers, fruits, shrubs, mushrooms, and rodents. Of course, a forest would be a lot more efficient if it included only cash crops like Norway spruce or Scotch pine, planted in even rows and columns – easier to plant, manage, harvest, and count. On the other hand, a monocrop production forest is far more susceptible to disease and blight, which provides a telling analogy for other high modernist efforts.

Illustration: Jörn Kaspuhl

t is hard to know where you are going if you don’t have a decent map – either a physical map, or a mental map based on experience. First-time visitors to London can be forgiven for wondering why there are so many “High Streets” in the same city, or how they wound up in Westminster or St John’s Wood when they thought they were in London. The London Tube map – stylized, simplified, and necessarily inaccurate – turns out to be an indispensable guide for getting around a charmingly idiosyncratic city.

Human cognition at Walmart vs Amazon

Those who design our world often aim to make it legible and easy to navigate. A typical Walmart store contains 142,000 different products on its shelves, and yet most shoppers can find what they are looking for thanks to the intuitive layout of the store, with different sections for dairy products, men’s clothing, sporting goods, electronics, and so on. This is high modernism in action. Contrast this with an Amazon warehouse, which is a riot of items with no obvious categorization in place. As Amazon describes it: “Instead of storing items as a retail store would – electronics on one aisle, books on another – all of the inventory at Amazon fulfillment centers is stowed randomly. Yellow-tiered ‘pods’ stack bins full of unrelated items, all of them tracked by computers. This counterintuitive method makes it easier for associates to quickly pick and pack a wide variety of products.” Information and communication technologies (ICTs) mean that the warehouse doesn’t need a map readable by humans. Technology has made a map superfluous – as if the German production forest had lapsed back into a jungle. Mapping the economy

The same process has happened to the economy as ICTs reshuffle the basic categories we use to create our economic maps. Government efforts to map American industries date back to the Napoleonic Wars and the initiation of a census of manufacturing establishments. But our contemporary mapping system was created during the Great Depression, when the need for actionable data to guide economic policy was evident. For information about corporations, the big breakthrough was the passage of the Securities Exchange Act of 1934, which created the Securities and Exchange Commission (SEC) and empowered it to require listed corporations to disclose balance sheets and income statements annually to investors and the broader public – the origin of the Form 10K we all know and love today. Three years later, the Central Statistical Board launched a committee to create a system of industry categories, which led to the creation of the Standard Industrial Classification (SIC) system, launched in 1939 and updated regularly until 1987. The same year, the US Employment Service published the first Dictionary of Occupational Titles (DOT), classifying occupations based on extensive fieldwork.

might imagine that these companies are in the restaurant industry, or at least restaurant-adjacent. But Compustat classifies them as “Web Search Portals and All Other Information Services”, where they join Bumble (dating), Qualtrics (online surveys), and Buzzfeed (viral content – don’t ask). Meanwhile, Apple is “Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing”, Netflix is “Video Tape and Disc Rental”, and Amazon is “Electronic Shopping and Mail-Order Houses”. Not exactly wrong, but not very helpful either.

‘We still use tools created during the Great Depression to map an economy in which workfrom-home contractors directed by placeless ‘algos’ contribute to virtual goods sold on global app stores’ Tech firms, particularly platforms, just don’t fit the category schemes of the SIC and NAICS system, and “platform” is not really an industry. Basic ideas like industry concentration don’t scan for these companies – they are clearly upending how competition works, but not in ways contemplated by our old system. Work and employment

The difficulty is especially acute when it comes to employment. We know surprisingly little about the American workforce. Companies that list shares on the stock market have to disclose a vast catalog of financial information every year, detailed in income statements, balance sheets, letters from management, and endless footnotes. What do they tell you about the people who work there (and who are not top executives or board members)? Until recently, two things: how many employees they have in total, and how many are union members. In recent years, we also got to know what the median annual compensation was (on the proxy statement), and a bit about the company’s employment philosophy (in a mostly uninformative section of the annual report called “Human Capital”).

The SIC system was replaced by the North American Industry Classification System (NAICS) in 1997, although SIC codes are still in wide use today. The DOT was replaced by the Occupational Information Network (O*NET) in 1998. But despite valiant efforts to stay up to date, there are some basic ontological issues with our categories. Moreover, the fact that several diverse and often uncoordinated government agencies are responsible for collecting, cataloging, and sharing economic data means that standardization is often low.

What if you wanted to know how many contractors and temporary workers are retained by the company? No dice. In 2019, it was revealed that Alphabet had substantially more temps, vendors, and contractors (TVCs) than employees, but this information only came out due to a leak. Given the minuscule (reported) workforces of younger tech companies, it’s a safe bet that large sections of the tech economy’s employment are effectively invisible. How about turnover rates, investments in training, or safety records? Nope. Without a mandate, we have no real way to find out.

What, exactly, is an “industry” today? DoorDash is a food delivery platform that dispatches drivers, and Olo is an online ordering and payment platform that conveys orders for dine-in and takeout customers. You

Of course, the COVID-19 pandemic and the large-scale move to workfrom-home has encouraged more companies to consider switching even more work from employees to contractors, and the revolution under-» June-Aug 2023 • I by IMD 5

[ In good company ]

C C C

way sparked by the release of the latest version of ChatGPT and other AI tools seems likely to lead to large-scale job displacement – at least if Wall Street’s valuations are good predictors. It seems highly likely that many workers today are juggling multiple “jobs” online and offline, and there will be more of that in the future. But given the way we collect data, we really don’t know.

Imagine finding your way around Berlin today with a map from 1988. That is the situation we are in now. Are industries becoming more concentrated, as many have claimed? It is almost impossible to know in a world where tech platforms reshape competition and the very definition of an industry (e.g., Airbnb and hotels, Uber and taxis, DoorDash and restaurants). This makes competition policy complicated. How much of the labor force consists of TVCs (who, in the US, typically do not get employer-provided healthcare and other benefits)? Is gig work a small slice of the labor force or mostly a part-time side hustle? Is it a major part of employment today? Again, it's complicated – and until we have better data, we will not be able to create smart policy.

‘Are industries becoming more concentrated, as many have claimed? It is almost impossible to know in a world where tech platforms reshape competition and the very definition of an industry’

What is to be done? Given how outdated our tools and categories are, it’s an opportune moment for a significant re-thinking of our methods of mapping the economy. One promising portent is a petition to the SEC seeking more comprehensive disclosures on the workforce (filed by a group of scholars that included me), which is supported by a large group of investors seeking to figure out how to evaluate companies that are light on tangible assets but heavy on knowledge and human capital. It would only apply to listed corporations (a dwindling part of the American economy) – but at least it’s a start. ■

C 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 on management, sociology and finance. His latest book is Taming Corporate Power in the 21st Century (Cambridge University Press, 2022), part of the Cambridge Elements Series on Reinventing Capitalism.

6 I by IMD • June-Aug 2023

C [ Inclusive leadership ]

Consciousness, curiosity, compassion, competence & courage

The five Cs of inclusive leadership

How do you become a truly inclusive leader? What action must you take and what are the traps to avoid? Our 38-page in-depth analysis opens with Alyson Meister, Professor of Leadership and Organizational Behavior at IMD, as she explains the importance of what she calls the ‘five Cs’ and how to integrate them into your own leadership practice

June-Aug 2023 • I by IMD 7

[ Inclusive leadership ]

the best of themselves to work. They build alignment, allies, and advocates across their organizations to harness the power of difference. They model a certain transparency and vulnerability. They are aware of their own limitations or biases and acknowledge that they may not have all the answers. They ask questions, challenge assumptions, and go out of their way to seek out diverse knowledge, perspectives, and expertise across the organization. Inclusive leaders embrace difference, welcome dissent, practice empathy, champion change, and do not shirk their responsibilities even if it risks their popularity at times.

Even for a seasoned leader like Lucas, this was uncharted territory. Before COVID-19, transitioning into a new role had always begun with face-toface connection, establishing relationships over time, walking the corridors to build trust and influence, and forging alliances and alignment to get the work done. With lockdowns in place, Lucas had to meet colleagues for the first time on Zoom and via email: a perilous opportunity for misunderstandings and communication breakdown.

In my research and work with leaders across the globe, I’ve observed that inclusive leadership is built on five critical qualities – five Cs – that are not necessarily innate, but that can be learned and practiced, just like any other leadership skill. These five Cs are: consciousness, curiosity, compassion, competence and courage.

Lucas made a bold decision. She scheduled Zoom calls, dozens of them, with as many different and diverse team members as possible. And rather than using these calls to dig into things like strategy, processes, structures, and problems, she instead asked individuals to tell her about themselves; to share their personal experiences, challenges, and their aspirations for the organization and their future within it. Lucas also shared information about herself: her background, her leadership approach, and her own sense of connection to the organization and its culture. This gave her the chance to do some key things, she says: to break down barriers, to discover as much as possible about the diverse people she would need to work with, to establish trust, to open bidirectional lines of communication to surface important information, and, importantly, to create a sense of hope and optimism at a time when both were in very short supply. Here’s what Lucas has to say about her first few weeks at the helm of Crown Media: “In every meeting at the height of the pandemic, I worked hard to empower my team so that people felt they could communicate openly with me. I wanted everyone to be able to share personal information with me. And, without always focusing on the negatives, I did want them to feel brave enough to tell me when things weren’t working. I wanted them all to feel that they had a voice and that they were being heard. It was also about having the courage to say to a new team: 'You know what? Yes, I am new – and no, I don't have all the answers. But this is a journey, and it's one we all share.'" A framework for inclusive leadership

Wonya Lucas and her story exemplify what I call the five Cs of inclusive leadership. Inclusive leaders are those who are committed to creating and fostering a diverse environment where everyone, however different or diverse those others might be, feels valued, respected, and empowered to bring 8 I by IMD • June-Aug 2023

Here’s a look at each of the five Cs, together with some suggestions on how to cultivate these qualities in your own leadership practice.

Inclusive leaders understand and acknowledge that difference exists – and with difference, the Consciousness potential for bias. For these leaders, the priority is not to minimize difference – be it based on race or ethnicity, gender or culture, neurodiversity, or generational differences between individuals. Instead, they strive to recognize, respect, and appreciate the value that difference can bring to their teams and organizations. At the same time, by acknowledging that bias and privilege exist, leaders accept and start to appreciate how these factors limit equity in organizations and systems. A key step here is to become more conscious of our own biases – biases we all have, and which are usually so entrenched we’re unaware we even have them. That takes deep reflection and self-analysis, not from a place of judgment, but from a desire to learn. It takes asking yourself hard questions. And it takes inviting others to share their authentic experiences with you – just as Wonya Lucas did. Inclusive leaders make it a priority to create consciousness in others and to create platforms for others who struggle to have voice and agency in the organization. And they do so in such a way that employees feel empowered and engaged to take risks, to challenge assumptions, and achieve more in so doing. As an inclusive leader, try to do more of these things: • Accept there are challenges that different employees face in different ways – be it race or gender-related, or because of where they sit in the organization. Ask yourself if and how these challenges relate to you personally in any way. • To surface your own biases, ask yourself questions. How has your background shaped things like access and experience? What privileges do you enjoy that others might not? How can you create consciousness in others?

Photo: Casey Wright, corporate.hallmark.com

hen Wonya Lucas was made CEO of the US production company Crown Media (now Hallmark Media) in 2020, she had to step up to a number of challenges – each of them daunting – and she had to go about it fast. First, she had to find her way around a new organization. Then she had to win the confidence and support of a new team. She also had to secure buy-in and build pan-organizational momentum around her vision for the company. And she had to do all of this while simultaneously navigating the vagaries of a global pandemic.

curiosity – when you explore different perspectives from a diversity of sources – you build a bigger, more robust picture of your organization, its resources, and its people. Curiosity is about asking before assuming another’s experience or ambitions. Unlocking your curiosity is the antidote to making these assumptions. Curiosity challenges entrenched biases and surfaces new ideas, while signaling to people that you are interested in them and that you care about their experience. As a part of your inclusive leadership toolkit, curiosity is a powerful means of discovering new resources while empowering more of your people. Nurture and grow your own curiosity by practicing some of the following: • Routinely challenge your assumptions about people and practices. Try not to give sway to ideas that belong exclusively to your own experience – or that of other leaders. Seek out and welcome diverse opportunities to prove your ideas wrong, incomplete, or right. • Ask questions of others but be sure to do your homework too. Your questions shouldn’t be redundant, nor should they make others do your homework for you. For example, if you don’t know what neurodiversity is, look into it. • Welcome challenges by using language and cues that invite difference of opinion. Invite others to be curious and create the space where people feel safe to ask and answer questions about these differences.

Inclusive leaders routinely demonstrate concern and genuine care for the experiences, Compassion emotions, and challenges facing different team members by actively listening and by factoring what they learn back into their decision-making. Cultivating and showing compassion this way can help employees overcome challenges, feel more of a sense of belonging, increased agency, and greater personal resilience going forward.

Wonya Lucas, the CEO of Hallmark Media: her story exemplifies the five Cs of inclusive leadership

• In your interactions with others, try to be conscious of any (unintended) gaps between intention and impact. Focus on things like the language you use and try to avoid learned assumptions as much as possible.

CURIOSITY

Being an inclusive leader means being open to learning from as many different inputs as possible. Remember how Lucas scheduled dozens of Zoom calls with as many different people as possible? When you are purposeful about your

Again, imagine how Lucas’s teams must have felt when, as their incoming CEO, she took the time to speak to them personally about themselves, their experiences, and their aspirations. Think how empowering that must have been for each individual, particularly at a time of frightening uncertainty during a pandemic. Think too how this will have enhanced Lucas’s own decision-making when information was likely more restricted and the stakes for leaders incredibly high. Try to build greater compassion into your own leadership practice: • Identify and institute workable processes and practices to capture other people’s perspectives. Build bidirectional communications channels and systemic opportunities to solicit team members’ thoughts, concerns, and ideas. • Learn to listen with empathy and actively model an attitude and approach that makes it possible for everyone to speak up and actually » June-Aug 2023 • I by IMD 9

[ Inclusive leadership ]

be heard in a way that celebrates difference and diversity across the organization. • Ask yourself routinely: Do I want to make a difference? Do I care about positive change? For whom? And if so, what am I purposefully doing to make these things happen? Is there more I can do to sponsor, mentor, or build systems to support diverse individuals?

Being an inclusive leader takes work: it’s a skill set and a lifelong journey of learning and COMPETENCE practice. Yet, it isn’t just about working on your own personal skills and abilities. It’s also about inspiring organizational change. That means developing the competence to design and roll out new strategies, structures, and systems whenever and wherever necessary – strategies to increase representation, empower allies and advocates, ensure equitable procedures and processes, and foster inclusive behaviors throughout teams and the broader organization. For Lucas, a key priority was opening up conversations, both at the individual and the organizational level, to bridge difference and to ensure a more inclusive flow of information. At a systemic level, developing competence as an inclusive leader can hinge on taking action to: • Create and support diverse talent pipelines by opening access in your hiring strategies, and championing the sponsorship and mentorship of diverse individuals. • Give team leaders the autonomy and the encouragement to develop their own inclusive leadership abilities – and to do so within their teams. • Define and use the right metrics to effectively measure positive change within the organization.

Doing any of the things I’ve suggested above takes guts. As an inclusive leader, there will COURAGE be times when you’ll have to make tough, even unpopular, decisions. You may have to challenge entrenched practices and policies. And instituting any kind of change will be met with some resistance. For Lucas, stepping into a high-profile organization like Crown Media during the pandemic, the stakes were very high and people were looking for answers fast. Even so, she had the courage of her own convictions to seek out diverse perspectives and to feed what she heard back into her decision-making. She also had the courage to own her personal vulnerability as a leader and to say so when she didn’t have all the answers. This was a journey, she told her organization, and one that they all shared. Being a truly inclusive leader takes real courage. Here are some steps I recommend you take to build your own courage muscle:

10 I by IMD • June-Aug 2023

Consciousness ‘Inclusive leaders make it a priority to create consciousness in others and to create platforms for others who struggle to have voice and agency in the organization’ Curiosity ‘Curiosity challenges entrenched biases and surfaces new ideas, while signaling to people that you are interested in them and that you care about their experience’ Compassion ‘Inclusive leaders routinely demonstrate concern and genuine care for the experiences, emotions, and challenges facing different team members by actively listening and by factoring what they learn back into their decision-making’ Competence ‘Being an inclusive leader takes work: it’s a skill set and a lifelong journey of learning and practice. Yet, it isn’t just about working on your own personal skills and abilities. It’s also about inspiring organizational change’ Courage ‘As an inclusive leader, there will be times when you’ll have to make tough, even unpopular, decisions. You may have to challenge entrenched practices and policies. And instituting any kind of change will be met with some resistance’

[ Inclusive leadership ]

• Connect with your values and beliefs, and stand up for them. Standing for something will empower you to challenge norms and assumptions when necessary. • Understand that it’s ok to be vulnerable and not to have the answers right away. Transparency is key to trust and it signals to others that they can be transparent too. • Set, model, and uphold inclusivity as a norm; even when it’s new or different or not easy to do so. Inclusive leadership is not without its challenges. The rewards and outcomes for you and your organization, however, can be extraordinary. It’s now three years into Lucas’s tenure as CEO and Hallmark Media has smashed its objectives, staying true to its brand while tearing up its playbook to diversify casts and storylines across its cable TV network. With Lucas at the helm, the network has also reinvented its distribution strategy, even as competition has intensified from streaming services. Accolades continue to pour in from the press and media, as well as other CEOs and leaders around the world. But perhaps the most compelling praise for Lucas as a leader comes from within the organization itself. Interviewed by CNBC about what it was that inspired her most, Head of Programming Lisa Hamilton Daly had this to say: “I came here for Wonya, because she shared her vision of things with me, and I said, ‘Yes, I am signing on for that.’” ■

Would employees recommend your firm to a friend as an inclusive place to work? Asking this one simple question gives leaders an effective tool to get a clearer understanding of what needs to change, explains Alexander Fleischmann

ringing diversity, equity, and inclusion to the top of the agenda for executives and to every individual within an organization to create a truly inclusive organizational culture is more urgent than ever. Organizations must now translate demand for social justice from global social movements such as Black Lives Matter and #MeToo – as well as investors and talent – into heightened awareness and action to deliver fair, intersectional, and inclusive experiences for all employees, no matter their background. But how can leaders and organizations achieve this and know that they are moving in the right direction?

Alyson Meister is a Professor of Leadership and Organizational Behavior at IMD. Specializing in the development of globally oriented, adaptive, and inclusive organizations, she has worked with thousands of executives, teams, and organizations from professional services to industrial goods and technology. Her research has been widely published in management journals, and in 2021, she was recognized as a Thinkers50 Radar thought leader. Follow her on Twitter: @alymeister

“What gets measured gets done” is a familiar saying in the business world. Researchers, consultants, and DE&I executives have put significant effort into measuring diversity and inclusion and assigning targets to sustain improvements. For global corporations, measuring diversity often comes down to measuring the percentage of women at different levels of seniority, simply because gender (alongside nationality) is one of the few demographic » June-Aug 2023 • I by IMD 11

[ Inclusive leadership ]

Personal

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variables that can be captured and processed legally on a global scale. For race and ethnicity, there are not only legal constraints in many jurisdictions but also what defines “race” differs significantly around the world. Targets for employees identifying as LGBTQ+ are virtually impossible to set, given that many employees choose not to come out in the workplace and homosexuality is still illegal in some countries. Regardless of what can be measured, research has shown that, even when you are able to attract – and demonstrably retain – a diverse set of talents, it requires proactive inclusive organizational practices to unlock the potential of employees from all walks of life. A new way to measure inclusion

Instead of measuring the diversity of their workforce, many companies are now measuring the inclusivity of their culture. As part of IMD’s Inclusive Future research project, we conducted in-depth analyses on how leading companies, consultants, and academics define and measure the complex idea of inclusion. 12 I by IMD • June-Aug 2023

Based on this research, we created a model of seven core components for inclusion (see chart). These components included belongingness, authenticity, and uniqueness as personal aspects, and participation and fairness as organizational factors. Psychological safety takes up a key position in the middle providing an environment that allows individuals to speak up freely without fear of retribution. And, as all individuals should feel included, diversity is, of course, fundamental for inclusion. If defining inclusion is complex, so too is measuring it. A common approach is for companies to ask employees about their perception of the environment they work in: How included do they feel in specific aspects? Can they be authentic at work? Do they feel a sense of belonging in their team? Can they speak up without fear of retribution? Do managers display inclusive leadership skills? In most cases, 5-10 questions are compiled to form an inclusion index. This approach produces robust results and has been used for decades. However, as each company focuses on different levels of inclusion – individual, team, management, and organization – benchmarking the results is »

Infographic: Ole Häntzschel

Inclusion: the seven key components

[ Inclusive leadership ]

‘The iNPS is a good barometer of how inclusive our culture is’ Silke Muenster, Chief Diversity Officer at Philip Morris International, explains to Alexander Fleischmann how the tool developed by IMD has been effective in helping to build a more inclusive organization What were your first priorities as CDO at Philip Morris International (PMI)?

When I became CDO (in 2020), it was clear to me that this would be my final career step – which meant that I was not going to do "tick the box" exercises. I wanted to focus on things that have an impact on the experience of our employees. We started analyzing the status quo based on existing data, but I soon realized that there could be much more. I looked around for ways to measure diversity and inclusion. The Bloomberg Gender Equality Index, for example. What do we need to be part of this? And then looking at the benchmarks in light of our biggest challenges. What were those challenges?

Photo: pmi.com

We already had an aspirational target: 40% women at all levels by 2022. But we had to gain momentum to reach it. It was very clear that this was a top priority of the company: the former COO, and now CEO, Jacek Olczak, is a sponsor of the Women’s Inspiration Network. The message was clear: “You cannot escape this.” But there was one key problem with the target. We did not break it down to specific markets and businesses. Setting a 40% aspirational target for everyone is a bit like hoping that somehow things will be solved automatically just by announcing this global goal. So, based on our analyses, we also shared implementation strategies, such as ensuring we have diverse interview slates and diverse interview panels. This has had a huge impact on female representation and led us to reach the target in time. But you wanted to go beyond a simple headcount for women?

Yes, that was the second challenge – how to broaden our scope beyond gender. Developing KPIs for other underrepresented groups is a tricky task. I know that there won’t be aspirational targets for the representa-

tion of members of the LGBTQ+ community on a global level, for instance, in the near future. There are employees who are members, but do not come out, and there are countries where it is still illegal, so this makes it difficult for us to measure progress. What target can I attribute to this? So we said we need to create a target that covers everyone, not just women. And at the end of the day, this means measuring how inclusive our culture is. How did you start measuring inclusion?

This turned out to be more difficult than we expected. We had a test run with an external provider in selected units. Our impression was that the cultural nuances of inclusion were not really grasped with existing tools. So, eventually, we commissioned IMD to run the independent Inclusive Future project. We developed the Inclusion Net Promoter Score (iNPS) as part of the Inclusive Future project. How has it helped contribute to your inclusion and diversity goals?

To have one KPI makes it a lot easier to communicate and achieve targets. It’s easy to measure, easy to understand, and both cost and time effective. The iNPS measures a sentiment, which is good because I also want to see how it changes over time. When I have a figure that’s constantly at the average of 2.5, I can stop measuring it – it doesn't bring me any insights. The results of the iNPS range from -100 to +100. Our biggest learning is that, globally, we have an iNPS of 41 for members of underrepresented groups, but 65 for people with a majority background. Initially, my idea was to benchmark our inclusion score with other companies, but with the iNPS I can already quite easily benchmark internally. Currently, we look at the difference between underrepresented groups and the rest of the workforce for each unit, where we have the data and where this is possible. Our target at PMI is to reduce the gap between these two. It's a good barometer of how inclusive our culture is in specific areas and for specific demographics. The iNPS allows you to quickly get to the pain points, and if needed I can dig deeper using additional surveys, focus groups, etc. Breaking a butterfly on a wheel is not a useful approach, especially not in I&D. Specific actionable targets and tools are needed, not one-size-fits-all programs that everyone has. Just saying, “Now everybody completes a training in a, b, and c and then everything will be solved,” doesn’t work. How does iNPS fit into your executive compensation plans?

In 2022, we started to measure the iNPS and, in 2023, we made it part of executive compensation. From our experience with the consumer NPS and the employee NPS, we know that it is not a stable figure, which means that it’s tricky to use as part of targets in senior management compensation. Year-on-year comparisons might be misleading. Currently, we have the target of minimizing the gap between those who identify as members of underrepresented groups and those who don’t. The idea is to incentivize creating a culture where people from all walks of life feel included or, in iNPS terminology, where everyone would » June-Aug 2023 • I by IMD 13

[ Inclusive leadership ]

recommend PMI as an inclusive employer to friends and family from underrepresented groups. What would you say are the key success factors in your I&D strategy?

Core is to highlight at every step of the journey the specific business case of I&D: why is it important for us specifically? Otherwise, you always have the risk that people say, “Oh, I have so much to do, I cannot devote time to this topic as well.” By showcasing how I&D is “good for people – and good for business”, we interweave I&D with PMI’s overall strategy of becoming smoke-free. To reach our vision, we need to become more consumer centric and need endless innovations. Also crucial is the support of our CEO. You need a CEO who authentically emphasizes the importance of I&D, but it’s equally important to have a platform to discuss these issues within the company. We have now reached a point where it’s so accepted in our company that I feel it's permeated our culture. Was there also resistance?

With every change project there is resistance, but I would say that it has become less and less over time. There are still men – they were here in the beginning, and they are still here – who are not in favor of I&D, even though I think now they show their resistance more covertly. Because we have these aspirational targets and encourage reflecting decisions from an I&D perspective to promote an equal playing field for all, we created a situation where underrepresented employees get promoted. That’s the behavior and workplace that we want to stimulate and create. ■

Silke Muenster • Appointed Chief Diversity Officer, PMI in 2020.

Proactive on inclusion and diversity, she successfully expanded the company’s DEI strategy and established global Employee Resource Groups to foster a sense of belonging, visibility, and greater understanding of the different experiences and dimensions of diversity at PMI.

• Prior to joining PMI, Muenster had leading research roles at

the Coca-Cola Company, Apollinaris & Schweppes, and Marbert Kosmetik.

• She began her career at Research International after

graduating from Ruhr University in Bochum, Germany, with a degree in mathematics.

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impossible. In addition, these inclusion indices tend to focus on the individual perception of one employee. So, in homogenous groups, there is a risk of producing a misleadingly high inclusion index score – creating the impression of an inclusivity while missing the crucial point that inclusive cultures need diversity. For the Inclusive Future research project, we created a new way of measuring inclusion: the Inclusion Net Promoter Score (iNPS). Anchored in the widely used methodology of Net Promoter Score, this tool goes beyond asking employees for their individual perceptions of their own inclusion. Instead, employees are asked the following question: “How likely are you to recommend our organization to a friend or colleague from an underrepresented group as an inclusive place to work?” The iNPS asks employees to take a step back and think: Would I encourage my queer Asian aunt to work here? What about my Black brother-inlaw? Or my neighbor with an invisible disability? Crucially, this allows an organization to take the pulse with a single question. It is easy to implement and understand – and a cost and time effective way to measure how inclusive your organizational culture is. Moreover, it can be accompanied by an open follow-up question to give employees the opportunity to share insights on why they chose a specific rating or what could be done to improve the situation. Running an analysis of the open sub-question gives organizations an additional opportunity to identify ways to drive DE&I, including the chance to focus on aspects not routinely covered in standardized surveys. How does the iNPS perform?

An initial test of the iNPS in 2022 at Philip Morris International (PMI), which canvassed about 800 employees representative of the company’s global workforce in terms of gender and geographic location, was used for validity and reliability assessments using factor analyses and correlations. As the results were promising – indicating that the iNPS as a single item score could hit the sweet spot of both measuring how inclusive the organizational culture was while being sufficiently different from the standard Employee NPS – the iNPS was rolled out globally at PMI in the second half of 2022. As diversity must be part of any inclusion journey, in-depth intersectional analyses are key to drawing a comprehensive picture, gaining deeper insights to inform decision-making, and identifying areas for improvement. Looking only at the majority group within your organization and whether they feel that they belong will not bring you further in driving DE&I. Do executives who self-identify as part of a specific underrepresented group have a lower score than those who do not? Would Black women promote the organization as an inclusive one less enthusiastically than others? Do people who self-identify as having a disability have a different score? Such analyses can help you to see whether “in-group” employees (with presumably less exclusion experience) have a similar judgment of your culture as employees with “out-group” experience.

Indeed, the results showed a significant divergence between those who self-identified as being part of an underrepresented group and those who did not (see graph). By analyzing the results of the iNPS score by demographic groups, PMI could drill down to specific levels of intersectional detail. For instance, it revealed that people who self-identify as having a disability have a very low iNPS, while those mentioning religious beliefs have the highest. But progress also became visible: between 2022 and 2023, the iNPS rose for gender and ethnicity, the two focus areas of that time period. After the successful global roll-out, PMI started to incorporate the iNPS in its management compensation plans in 2023. Leaders now have aspirational targets to narrow the gap between those who self-identify as members of an underrepresented group and those who do not in order to initiate further change towards creating a truly inclusive culture.

We all know the saying that diversity is about being invited to the party and inclusion is about inviting everyone to dance. Today, we need to go one step further. We need to create pluralistic organizational cultures where everyone gets a say in choosing the music that is played by the DJ. Such an open and pluralistic culture increases an organization’s resilience and prepares it to proactively navigate the kind of disruptive periods we have experienced in recent years – and which we will most likely face again in the future. ■ Inclusive Future was an independent academic research project conducted with full editorial control by IMD and funded by Philip Morris International.

Who chooses the music at your party?

Of course, a single score can never deliver the full picture. But the iNPS allows you to easily identify areas that need attention as a starting point for further investigation. Additional tools can then be used to gather more information – quantitative surveys looking at specific aspects of inclusion or qualitative methods such as focus group discussions, theme-specific lunch and learn sessions (“brown bag”), as well as interactions with employee resource groups. What matters is that the information gathered is acted upon. The insights need to be translated to improve systems and processes in order to create inclusive, pluralistic cultures. Many organizations invest a lot of money in attracting talent from all walks of life but, once they are hired, they are incentivized to comply with the status quo of “how things are done here”.

Alexander Fleischmann is a Research Affiliate at IMD. His research focuses on inclusion and diversity in a wide array of settings – from alternative organizations to multinational corporations. His work has been widely published in leading journals, including Organization; Work, Employment and Society; Gender in Management, and Journal of Management and Organization.

Results of iNPS global employee survey

Infographic: Ole Häntzschel

Underrepresented

Non-underrepresented

iNPS all respondents: 56 (Q2 2022) vs. 61 (Q2 2023) Source: Philip Morris International

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[ Inclusive leadership ]

Racial equity is not the same as equality. Here’s how to get it right Leaders must acknowledge and act decisively to dismantle the apparatus of systemic racism that still plagues organizations to foster racial equity, writes Shereen Daniels

ystemic racism represents a distinct form of discrimination that goes beyond individual prejudices and isolated incidents of bias. It is deeply embedded in the structures, systems, and institutions that govern our society, leading to consistently favorable outcomes for some and consistently unfavorable outcomes for others. Most executive leaders recognize that their culture, the way they do things, seems to work for a particular ethnic group – and that ethnic group is very rarely Black employees. But, at the same time, it can feel like a personal attack to start from a place that assumes there is a problem – racism – and then to take the necessary steps to address it. This is not because leaders hire bad people or because they’ve deliberately set out to oppress certain groups, but because racism isn’t the result of explicit and conscious intent. It manifests in policies, practices, and exceptional decision-making – as part of a social system developed over centuries – that disproportionately advantages certain groups over others, even in the absence of overtly racist attitudes.

As such, addressing systemic racism requires intentional efforts to dismantle and reform these structures and a commitment to cultivating equitable environments that acknowledge and address the unique experiences and challenges of diverse racial groups. Understanding and addressing systemic racism is not only a moral imperative but also a key factor in building more inclusive, equitable, and successful organizations. 16 I by IMD • June-Aug 2023

Shereen Daniels: ‘HR and leaders will often get distracted by symbols of change because they feel uncomfortable addressing the issue head-on’

Racial equity means getting out of your comfort zone

At the heart of this journey for all organizations is to understand what is meant by racial equity, as this is often confused with the concept of equality. Racial equity means acknowledging that the playing field is not equal for everybody and therefore some people need different types and levels of intervention to enable them to progress and realize their full potential. Most individuals are not against equality – the idea that we treat everyone the same – yet practicing equity can feel somewhat unfair. Racism can cause an acute and unique type of discomfort in us that means organizations will often decide on what action to take based on the prioritization of the comfort levels of "majority” groups who feel like they have to “shoulder” any change: what’s convenient for them rather than what can they do to materially affect the experiences of employees most impacted by racism, bias, and discrimination.

As a starting point for reflection, executive leaders should consider who they deem to be the majority in their organization. Where does that group sit within their hierarchy? How much influence do they have? Are they the ones that influence decisions about not only what you do, but the depth, the commitment, and the speed of action? In short, how far is the discomfort of the majority central to decision-making? In its 2021 report The Economic State of Black America, consulting firm McKinsey and Company identified that it would take 95 years for Black workers to reach talent parity with their white counterparts. Prioritizing the comfort of leaders and employees who are least impacted by racism will only further contribute to such racial disparities found in the workplace: it’s a facet of systemic racism. It takes more than just greater representation

Many organizations think that just hiring more “diverse” people will fix the problem. You could have the most diverse organization in the world, yet it doesn’t automatically translate into you not having a problem with racism. A lack of representation is a symptom of institutional racism, it is not the cause. HR and leaders will often get distracted by symbols of change because they feel uncomfortable addressing the issue head-on. These symbolic gestures can include diversifying faces in marketing material, hosting annual inclusion weeks that lack any follow-through, hiring a Chief Diversity and Inclusion Officer but tying their hands with a small budget and policing their words and actions, over-indexing awareness raising because they feel their organization is “not quite ready” for any concrete action.

‘Understanding and addressing systemic racism is not only a moral imperative but also a key factor in building more inclusive, equitable, and successful organizations’

Photo: Caitlin Mogridge

Rather than focusing exclusively on hiring practices or these kinds of symbolic gestures, leaders must take the time to understand the strategic imperative for transforming their cultures to be genuinely inclusive for all. This active introspection considers where the pressure for change is coming from. Is it financially driven through growth into new markets? Or strengthening of sustainability reporting requirements, therefore requiring you to disclose in greater detail how your operations impact people and the communities you serve? Is it from investors? Are you struggling to diversify your leadership team? Or has your organization been quiet for too long and now there is a perception that you are against tackling racism and that you prefer things to stay the way they are? If your company is to have real conversations, and inspire meaningful action, then honesty is required. With yourself, in terms of your belief systems, your values, and what you and your peers may need to unlearn and relearn so you can actively contribute to being part of the solution.

THE MATURITY MODEL FOR ADVANCING RACIAL EQUITY Like all transformation journeys, you need to know where you stand before you can make progress. To support this process, we developed the following guide to help leaders understand how mature, or immature, their organizations are when it comes to racial equity. Level One: It’s a compliance issue

Your organization addresses racism and racial equity as a compliance issue only and there is no proactive approach in place. Purely concerned with reputational risk, it’s about what can be demonstrated, like a tick-box approach, e.g., employees have done unconscious bias training – tick, they do it every two years – tick, policy statements are in place – tick, policy statements are updated – tick. Level Two: Intent to be inclusive

There is intent to be inclusive, but it is driven mainly by HR with radio silence from the board except perhaps around annual statement time when reports need to be published and engagement surveys added. So racial equity is still driven by process – and with the HR team as custodians rather than the board, it’s likely that no overarching strategy exists. Level Three: Strategic focus and specific commitment

Your organization has a strategic focus on specific commitments to racial equity. The agenda is being driven at board level and, most likely, with a CEO who is vocal about anti-racism, even just internally. There’s a lot of “I” statements from the CEO rather than “we”. The language is specific. And although the company is getting into its rhythms and routines with a racial equity plan, it’s not 100% confident of its contents. The company is likely to struggle with external communication and what it should look like. But they are committed, very specific, and have made racial equity a strategic focus. Level Four: Public and private accountability

The push for advancing racial equity is a business-led strategy and a strategic imperative. There is specific language about race, racial equity, and racism. There is commitment to inclusion and the different aspects involved. The company applies positive pressure on its suppliers and partners to do the same. They get into specifics and make decisions based on advancing racial equity. There is frequent, authentic internal and external communication that acknowledges that there is distance to travel, hard work to be done but a strategic plan is being baked into the corporate culture – one that is measurable, decisive, and open to being publicly challenged. The Advancing Equity Model 4.0

Now that you have an idea of where you stand, it’s time to take action. Based on our work with organizations in addressing racial inequity, we have developed a four-step “Advancing Equity Model” framework – RACE – to support you on this journey. » June-Aug 2023 • I by IMD 17

[ Inclusive leadership ]

R: Recognize the problem

You and your organization have to move beyond the discomfort and recognize the problem. Do not just jump into action. Take some time. Think about racism from your company’s perspective – where’s the pressure coming from and what are the influencing factors? The deeper you can take this, pushing past the discomfort, the greater sustainable future change will be. If you don’t delve beyond the shallows for this first stage, nothing will change. Turn the mirror not just on the company but on yourself and consider your belief systems and the values that you need to question, because if you’re going to lead others to be introspective, then you’ve got to do the work yourself. What authentic reflections have you shared? Whose voices are you paying the most attention to? What stories do employers tell about the way their Black colleagues have been treated? A: Analyze the impact

Gather data on your ethnicity pay gap, promotions, and/or attrition rates. Then use the “five-times root cause” analysis to assess trends and patterns that might otherwise not be visible. Ask yourself five times why the data is pulling something up, and you’ll start to understand why the problem is manifesting itself in your workplace. This analysis brings your company into its own space of where it is starting from, not where companies or society in general stand. C: Commit to action

Once you have your “whys” from your qualitative data, you want to challenge yourself hard, and I mean really hard, about what equitable initiatives you have in your plan, i.e., what fundamentally is going to reduce the barriers that Black people face in your company? Or for those clients, who identify as Black, accessing and engaging with your products or services?

Then measure the impact that your action is having. This can then be communicated externally to your investors, your partners – to everyone. Measurement is what is going to change your plan, or your approach to racial equity, from being a charity cause to a strategic business imperative. E: Empower for change

Every time you create a version of your plan, challenge yourself: “Does this feel comfortable and palatable?” If it does, it’s probably not the right action or plan. If the conversations are had and plans are all agreed with, then you probably haven’t gone deep enough. You also need to consider how you let your employees become part of the solution. A degree of safety net support is required here as colleagues will not magically become “anti-racist” overnight. Make it easy for people to do the right thing rather than put in a load of interventions to catch them out. How can you move people from being bystanders who feel disempowered to active allies? It’s not just about sponsorship, mentorship, and all the good things that are focused on anti-racism. The solution is also about what the company is consciously doing to dismantle racism and challenge inherent belief systems. The hard work begins with your own relationship with racism. ■

Shereen Daniels is the bestselling author of The Anti-Racist Organization: Dismantling Systemic Racism in the Workplace. Twice honored as a LinkedIn Top Voice, she is a former HR Most Influential Thinker, Managing Director of award-winning anti-racism firm HR rewired, and Chair of the charitable foundation The African Diaspora Economic Inclusion Foundation.

A few words about the importance of language As language impacts our views, behaviors, a nd interactions, it is crucial that we take a critical view on the words we use and the words we don’t. Typically, language in this context is focused on the right words to use so as not to alienate the rest of the workforce. For example, many a boardroom will have discussed what words they can use instead of “racism”, “white supremacy” and even “Black people”, because it causes others to feel nervous and others feel that to call racism what it is, is to stoke the fires of division. Power is wielded through the use of words

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to label people, to whitewash racism into phrases and sentences that are seen as more palatable, softer, more professional or objective. Therefore, the way we use language distorts meaning and skews reality in favor of preserving the status quo. The ultimate result is to make life easier and more comfortable for those who wield power and to continue to oppress those who are impacted by racism. Leaders should take the time to understand key terminologies: why using the term “diverse” to describe anyone who isn’t white is

an “othering” word, an identity of difference constructed to produce cultural standards of normality and superiority (i.e., we are normal, they are diverse). Or how diversity, equity, and inclusion (DEI) doesn’t mean the same thing as systemic racism, and why “ethnic minority” should be replaced by “global majority”. Scrutinizing language choices can tactically disrupt racial inequity within organizations. Be intentional in how you communicate both internally and externally. Ensure you understand context, nuance, and why certain words should be used above others and what they mean.

[ Inclusive leadership ]

‘We need equity in the workplace ...this requires diversity within executive leadership’ – Black Lives Matter co-founder Ayo. Tometi Executives must do more to change the balance of power in the workplace, Ayo. Tometi tells Martina Fuchs

Photo: O’Shea Tometi

Ayọ Tometi says racism is enshrined in our society – ‘We have to work diligently day in and day out to uproot it’

eralded as a “feminist freedom-fighter” and “one of the most influential human rights leaders of our time”, Ayọ Tometi has helped to change the conversation about the fight for racial equality. But most organizations and business leaders have a long way to go to untangle the scourge of racism, she says. "Racism can't be fixed with a band-aid,” she said on the sidelines of the 52nd St Gallen Symposium in Switzerland, a student-led initiative aimed at fostering cross-generational dialogue. “Racism is deep ... it's ideology ... it's enshrined into our society and the fabrics of our world. For us to undo that, we have to work diligently day in and day out to uproot it.”

Black Lives Matter, formed 10 years ago by Tometi, Alicia Garza, and Patrisse Cullors, has blossomed into what some analysts call the biggest civil rights movement in US history, galvanized by international outrage over the murder of George Floyd by white police officer Derek Chauvin in Minneapolis in 2020. At that time, many business leaders and companies issued powerful statements about racial injustice and reaffirmed their allegiance to the » June-Aug 2023 • I by IMD 19

[ Inclusive leadership ]

fight for equality and equity. However, concerns were raised at the time that much of this support would fail to materialize into concrete action. Tometi warned that lasting change required more than “one time action, one protest, one Tweet, one square, one post.”

or are bound to come up in the workplace, we know that you must have strategies to respond when racism, sexism, ableism, homophobia, ageism, etc. come up. The most successful organizations are those that make a plan to respond when these challenges arise.”

“We need substantive actions, not mere symbolic gestures,” said Tometi. “We need our leaders to walk the talk, to ensure that their organizations live up to the values they espouse in the world. Insight without action is vanity.”

Going global after Black Lives Matter

Towards equity

Indeed, corporate America has a long way to go to achieve fairer representation in its leadership ranks. According to the Ethnicity Tracker from executive data firm Equilar, only 14.7% of Russell 3000 board members in the US were ethnically diverse at the end of 2021. “We need equity in the workplace,” said Tometi. “This requires diversity within executive leadership and not just in employees in non-C-suite positions. This has been an important realization for me as I’ve traveled around the globe and is the chief complaint I’ve heard far and wide. The power dynamics are not shifting, and thus real change is not happening. To achieve equity in the workplace, there needs to be a recalibration of power.”

‘We need our leaders to walk the talk, to ensure that their organizations live up to the values they espouse in the world. Insight without action is vanity’ “That kind of [diverse] leadership advances the companies, advances the businesses,” Tometi, the daughter of Nigerian immigrants, said. “We've seen the data, we've seen the stories, time and time again. It's high time that we just normalize that. This is the future.” While working harder to change the face and composition of senior leadership in business, she said executives must also redouble their efforts to make deeper, holistic changes across their organizations, including “deep listening, intentionality, training, repositioning, and resourcing to achieve desired equity outcomes”. “If your leadership structure and practices are not committed and equipped for equity, then it won’t happen. The status quo will persist,” she warned. “They [leaders] have to be honest about the world we're living in and the challenges we face, and that they design their products, their practices, their policies, and their impact in the world to reflect a positive vision, a progressive vision – something that is visionary.” Tometi also urged more companies to put processes and policies in place to respond more effectively when incidents of racism or other types of discrimination occur. “They often don’t have the protocols for when things go wrong,” she said. “To address inequalities that already exist 20 I by IMD • June-Aug 2023

Together with Garza and Cullors, Tometi was named as one of Time magazine’s 100 most influential people in 2020 and featured on the most influential people lists of Forbes, Marie Claire, and Cosmopolitan magazines. In 2021, the Black Lives Matter movement was nominated for the Nobel Peace Prize. The movement has come a long way, but Tometi says the struggle is far from over. As she sets her sights on changing attitudes in business, she is also focused on building a global coalition to unify, strengthen, and lobby for the international Black community. “We've been working with everybody from the local level to the regional, state, the federal, and global leaders,” Tometi said. “At the United Nations level, we now have the Permanent Forum of People of African Descent, which is something that I helped to work on with a number of other people and community organizations. We've been working for years to get that off the ground and finally we have it.” In August 2021, the UN General Assembly adopted its resolution 75/314, in which it formally operationalized the permanent forum as "a consultative mechanism for people of African descent and other relevant stakeholders”. It serves as a platform for improving the safety and quality of life and livelihoods of people of African descent, as well as an advisory body to the Human Rights Council. The first session of the Permanent Forum on People of African Descent was held last December in Geneva. "We saw a lot of commitment, a lot of symbolic gestures, a lot of great words and statements and some resources,” said Tometi. “But there needs to be accountability to ensure that that follows through. It's not just a one- or two-year commitment. This is about the quality of our lives and the quality of our society – building something that future generations will inherit.” ■

Martina Fuchs is an international TV anchor, business journalist, event moderator, and expert on China and the Middle East. She is a European business correspondent for China's news agency Xinhua, international media ambassador and board member for the Montreux Jazz Festival China, and an adviser for the St Gallen Symposium and the Lang Lang International Music Foundation. She was formerly a CNNMoney Switzerland TV anchor and CGTN senior business reporter in Beijing. Fuchs has also worked as a Reuters economy correspondent for the Gulf Arab region in Dubai and Reuters Financial TV producer in London.

[ Inclusive leadership ]

Why older and younger generations have much to offer each other By George Kohlrieser

hat does diversity mean to you? You may think about gender, race, ethnicity, perhaps sexual orientation. Would you consider age? Most organizations don’t – to their detriment. Only eight per cent of Fortune 1000 companies have added age as a metric to consider when thinking about whether they're a diverse workplace, according to Chip Conley, the American hospitality entrepreneur and author of Wisdom @ Work. Yet age diversity is just like any other type of diversity – employees from different generations bring different skills, experiences, and viewpoints to the table, helping to increase innovation and creative problem-solving.

Illustration: Jörn Kaspuhl

Research from Germany on age-diverse workplaces has found that if you have only young people on a team, they make decisions quickly and make more mistakes, while older people take a longer time but make fewer mistakes. If you combine the two, you'll get much better results. This is because younger and older brains work quite differently. While the younger brain is focused, fast, and good at linear conclusions, the older brain has more crystallized intelligence, thinks holistically and intuitively, and is able to connect the dots. Having those two types of brains working together is the best of both worlds. In his book, Conley describes how he was hired by Airbnb in 2013 to turn their fast-growing tech startup into a global hospitality brand. Twice the age of the digitally savvy engineers for whom he was working, Conley at first felt out of his depth, but quickly learned that he had much to offer. By collaborating with a young smart partner, Conley describes how they provided each other with “mutual mentorship” – her digital intelligence (DQ) for his emotional intelligence (EQ), honed over decades of experience working with thousands of different people across organizations.

Overcoming ageism

Thanks to increasing life expectancy and a host of social and economic changes, we are now in the five-generation workplace: the Silent Generation, Baby Boomers, Gen X, Millennials, and Gen Z.

Yet without a clear understanding of how age operates in an organization, we are at risk of missing out on the experience and wisdom of older workers and the energy and fresh perspective of younger employees. While many companies have policies to prevent discrimination against people for their race and gender, negative stereotypes around older workers abound. There is the assumption that they are less capable than younger workers, or that they may be insufficient for a task because they can’t learn to use technology. At the other end of the spectrum, older workers sometimes dismiss Gen Z as “snowflakes” who don’t want to work hard and who lack both wisdom and loyalty. Cross-generational teams can be highly effective, but only if team members understand and appreciate the unique perspectives and abilities that each generation brings to the table. So how can we make sure that knowledge, wisdom, and skills flow across the ages? Foster a caring and inclusive environment

Secure base leadership, which involves making people feel safe so they can take risks and unleash their full potential, can be particularly important for addressing potential issues such as ageism, generational differences, and unconscious bias. To create a secure base for all team members, leaders must be attuned to the needs and perspectives of workers of all ages. Different generations have been through different experiences, and as such act with different » June-Aug 2023 • I by IMD 21

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mindsets, behaviors, and emotions – especially in the area of empathy. That is why the question “What happened to you in your life?” is so critical to understanding differences in generational leadership. At the same time, don’t assume that every person from a generation acts or believes a certain way. Instead, focus on the stage of life somebody is in rather than resorting to stereotypes. With many younger workers having come of age during the pandemic lockdowns and onboarded into their careers via a Zoom call, it’s important that employers carve out time for older workers and new arrivals to share insights informally. BlackRock cited “teachable moments between team members” as one of the reasons for calling employees back to the office four days a week. Regardless of whether these moments happen in-person or not, it’s important for leaders to create a workplace where everyone is learning from each other and where curiosity is the driver. Some examples of how to achieve this are by creating opportunities for cross-generational mentoring and collaboration, promoting open communication and mutual respect, and challenging unconscious biases and stereotypes. Mutual mentorship across the generations

As Conley noted, the older generations can become a secure base to the younger ones by sharing their wisdom and advice, while the reverse should also happen. The younger generations can become a secure base to the older ones because they have the technical skills needed in the modern business world.

‘Just as an aged cheese is delicious when paired with fresh bread, combining the wisdom and experience of older workers with the skills and agility of younger people is a winning combination in today’s rapidly changing workplace’ Leaders who prioritize secure base leadership in the context of age diversity can help to build a culture that values and respects all team members, regardless of their age or generational background. This can lead to increased engagement, innovation, and success, as workers of all ages are able to contribute their unique perspectives and experiences to the team. Just as an aged cheese is delicious when paired with fresh bread, combining the wisdom and experience of older workers with the skills and agility of younger people is a winning combination in today’s rapidly changing workplace. ■ George A Kohlrieser is Distinguished Professor of Leadership and Organizational Behavior at IMD and Director of the High Performance Leadership Program.

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LVMH takes pride in fashioning an inclusive culture Vanessa Moungar, Chief Diversity and Inclusion Officer at LVMH, tells Heather Cairns-Lee how luxury brands can ‘walk the talk’ when it comes to supporting the LGBTQ+ community

rom prominent LGBTQ+ fashion designers to events and advertising campaigns that champion diversity and inclusion in beauty and cosmetics, the rich array of companies – such as LVMH – that make up the luxury sector are recognized for their positive portrayal of diversity.

“We are diverse by essence with over 200,000 employees, representing 190 nationalities and four generations, working in over 80 countries and across a variety of sectors,” said Vanessa Moungar, Chief Diversity and Inclusion Officer at LVMH. “However, diversity alone is not enough to create an inclusive corporate culture. Inclusion is a choice we all make and that must be felt through our behaviors and actions every day. As a group, we are committed to providing an inclusive experience to all our stakeholders – our employees as well as our partners and clients.” In today’s environment, regardless of sectors or industries, inclusivity is becoming a business priority in part due to its strong link to performance. Indeed, studies show that more inclusive companies achieve higher profitability. For LGBTQ+ individuals, working in a non-inclusive environment reduces psychological safety and can make them feel less valued, leading to decreased creativi-

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Vanessa Moungar, left, says: ‘At LVMH, we seize the occasion to take stock of our progress but also acknowledge the challenges that remain.’ Chantal Gaemperle, Executive Vice President for Human Resources, right, presents the group’s global campaign theme ‘Walk the Talk’

ty and productivity, and a strikingly higher likelihood of leaving their company. Research shows that 41% of LGBTQ+ respondents/employees routinely encounter discrimination at work; it’s clear that there is still a lot of work to be done to make the inclusive workplace culture the norm. As much as any other industry, luxury – from fashion and beauty to wines and spirits – is focused on making a positive impact. LVMH has been committed to this agenda for over 15 years under the leadership of Chantal Gaemperle, Executive Vice President for Human Resources, and with the support of the executive committee.

Photos: LVMH

“We are strongly committed to providing a safe and stimulating work environment where people can feel free to express themselves and simply be themselves,” said Moungar. “Our commitment translates into concrete actions.” Initiatives by the group and its “maisons” (brands) are recognized each year by an inclusion index, LVMH’s tool to promote and stimulate D&I initiatives. “Since 2019, our maisons have implemented more than 150 initiatives towards LGBTQ+ inclusion,” said Moungar. A holistic approach to inclusion

Deploying a model common to the luxury sector, LVMH acts as a parent company with a large ecosystem of 75 maisons, including distin-

guished names such as Louis Vuitton, Christian Dior, and Moët & Chandon. Fellow luxury conglomerates Kering, Richemont, and Luxottica use a similar structure. Managing an inclusion strategy across this kind of extensive network requires ongoing vigilance and effort. Organizations can experience locational challenges, such as non-inclusive legislation or less progressive social standards in the country of operations. The imperative to balance the implementation of a global inclusion strategy while maintaining the distinctive character of each brand adds a further layer of complexity. According to Moungar, a flexible approach that focuses on the overall direction of travel can help ensure progress on inclusion. “You must establish a common language, a global roadmap with high-level goals and direction,” she said. “Each maison and region can take ownership of that roadmap, adapting it to their DNA, their industry, and their own challenges – but we must all push in the same direction.” In practice, this requires the establishment of group-wide policies, including equality of pay and representation across all levels of seniority, alongside robust D&I governance at brand, regional, and group levels. In Moungar’s case, regular meetings with representatives across the » June-Aug 2023 • I by IMD 23

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maisons and regions enable her to stay on top of global inclusion progress while allowing each arm of the business to work independently on its own inclusion roadmap and initiatives. Another key to enabling progress on inclusion across a large organization with numerous subsidiaries is to empower all employees to contribute to corporate inclusivity. For LVMH, one key aspect is to support its Employee Resource Groups (ERGs), such as All LVMH Pride, an employee-led group that acts as a platform for members of the LGBTQ+ community and allies across all the organization’s maisons to connect around shared values. The ERG engages the community through social events and volunteering opportunities as well as raising awareness through education and training. “Supporting our ERGs is incredibly important to us, as they are fantastic partners to foster inclusion throughout the business,” said Moungar. “By circulating information top-down and bottom-up, they also help us to identify areas of our D&I strategy that require particular focus as well as providing ideas for innovative initiatives. Today, All LVMH Pride chapters exist in the US, the UK, France, Japan, and Asia Pacific.” Giving meaning to the message

Pride month is an opportunity for businesses to show public support for the LGBTQ+ community, launching campaigns and sharing messaging that are reflective of the diversity of their markets, clients, and employees. However, organizations that only show such support during one month of the year make themselves vulnerable to accusations of “pinkwashing.” This perception of tokenism is a particular risk for companies with a role in influencing beauty and social standards around the world. To make a positive difference in the LGBTQ+ community and embed inclusion awareness internally, campaigns must have a clear purpose, involve tangible action, and be launched with meaningful goals in mind. “Pride month is an occasion to honor the fight for LGBTQ+ rights, but also to continue to advocate for more equality and respect,” Moungar said. “At LVMH, we seize the occasion to take stock of our progress but also acknowledge the challenges that remain. This year, our global campaign theme is “Walk the Talk”, and we produced an activity report, recapping our commitments as well as the concrete actions taken at group and maison levels.” For LVMH, Pride initiatives must have a distinct focus and be easily translatable into internal progress on inclusion. Allyship and visibility have been central themes of its external support for the LGBTQ+ community, notably through its 2022 Pride Conversations campaign. This video series highlighted positive examples of allyship in the workplace while increasing the visibility of its LGBTQ+ employees. “Everyone has a role to play for this inclusivity to be a reality in all our markets, and in all our environments – from offices to stores, workshops, and distribution centers,” she said. “We make our values and beliefs 24 I by IMD • June-Aug 2023

known and expect our leaders and managers to lead by example and foster mutual respect within their teams.” This message of allyship has become a focus for the LVMH Pride ERG group, which is now recognized as an invaluable resource for employees. For this year’s Walk the Talk campaign, the All LVMH Pride ERGs will be leading employees from across the Group’s ecosystem in Pride walks around the world, under the organization’s banner, exhibiting visible support for their LGBTQ+ colleagues. To convert this external messaging into positive outcomes for the LGBTQ+ community, LVMH runs year-round initiatives such as its Métiers d’Excellence scheme. The program offers training and apprenticeships for more than 280 jobs in its ecosystem to young people, with a particular focus on attracting members of groups that are underrepresented in the workforce. Partnerships with LGBTQ+ associations, such as Le Refuge – a French foundation that provides temporary shelter to young people who have been victims of discrimination – allow LVMH to offer further tangible support to the LGBTQ+ community. Keeping a diverse outlook

An inclusive culture that attracts and develops talents from all backgrounds and allows them to bring their full selves to work to contribute and thrive is both a human and a business imperative for LVMH: just last year, the group recruited 60,000 people around the world. “We believe in our people’s uniqueness and singularities as a strength that drives our creativity, our innovation, and our performance,” said Moungar. Establishing an inclusive culture should be high on the D&I agenda for all businesses, given the benefits to the organization and its individual members. Achieving true inclusion requires group-wide commitment and action driven by all employees. “An inclusive culture cannot be dictated,” said Moungar. “It's something that is muddled, fashioned, created, and built by all of us on a daily basis. And, once in place, you must continuously nurture and maintain it. Inclusion is everyone's business.” ■

Heather Cairns-Lee is Affiliate Professor of Leadership and Communication at IMD. Her award-winning research and teaching focus on sensemaking in leaders and organizations, collaboration, authentic and effective communication, and the creation of diverse, caring, and inclusive cultures.

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Five ways to create an ‘infusion of inclusion’ in the workplace In her new regular column, Shelley Zalis, founder and CEO of The Female Quotient, offers advice on how leaders can show that they are serious about building more inclusive work environments

n 2023, inclusion shouldn’t just be a buzzword or a fleeting trend. It must be a necessity. Here’s the reality: the rules of the workplace were written by men, for men, over 100 years ago. Rather than continue to conform to an outdated status quo, we must urgently rewrite the rules. Companies need to evolve to make sure that we attract and retain our best talent. Consider these stats. When employees believe that inclusion is a priority, the number of all employees who are happy increases by 31% and the number of both women and men who feel motivated increases by nearly 25%. When we infuse inclusion into our workplaces, everyone wins. Employees don’t just want to hear about inclusion. They want to experience it. Here are five steps that leaders can take to boost inclusion.

Illustration: Jörn Kaspuhl

1. Create a culture of belonging

When I hire, I never look at a resume. It’s not about experience, education, or connections. Truly inclusive leaders break down barriers and level the playing field for all candidates to shine. I always say hire for passion and train for skill (unless you want to be a doctor, lawyer, or an accountant). I look for people who love what they do, see what’s possible, and have the tenacity to learn and keep growing. This is how you build collaborative teams and create a culture of belonging where everyone feels welcome to bring their whole selves to work. Verna Myers, the diversity consultant, put it well when she said: “Diversity is being asked to the party; inclusion is being asked to dance.”

2. ‘Soft’ skills are the new essential skills

The role of leadership is evolving. What was once about objective strategic planning and organizational operations has transformed into a more subjective role – one that requires greater humanity and emotional intelligence. Traditionally feminine leadership qualities – empathy, vulnerability, gratitude – are more important now than ever. Leaders need to be able to connect with their team members on a human level in order to build trust and create a supportive environment where everyone can thrive. Let’s shift the paradigm. These aren’t “soft” skills – they’re essential skills. If we want to create warm, welcoming workplaces, we should be prioritizing these skills by making them requirements and including them as part of profiles, job descriptions, and evaluations. 3. Embrace proximity-ship

It’s time we moved beyond the sponsorship model, which is filled with affinity bias barriers, as managers tend to advocate for and support individuals who look like them, sound like them, etc. Instead, we should evolve to what I like to call “proximity-ship”, where an organization focuses on “inreach” versus outreach. One thing we can all do as leaders is designate open blocks on our calendars for all team members to sign up for valuable one-on-one time. Or, better yet, let’s flip the funnel and empower our employees to decide who they want to see them – instead of the other way around. When it comes to success in the workplace, visibility is key. Let’s take the bias out of the equation and pull inclusion into employees’ hands. » June-Aug 2023 • I by IMD 25

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4. Invest in people

Leadership is not about being in charge. It's about taking care of those in your charge. Investing in people is the foundation for great transformation. People are our most valuable assets, yet we often don’t value them until they’re gone. Instead of holding exit interviews, which are purely reactionary, we should conduct “stay interviews” or “purpose interviews” as a proactive way to understand what our employees need. It’s important that employees feel as though someone inside the organization cares about them, routinely engages with them, and has their back. Direct managers are uniquely positioned to fulfill this role – but we must equip them with the proper training, strategies, and tools to keep their best talent engaged. People can and will leave when they feel excluded.

‘Rather than focusing on our return on investment, let’s focus on a return on inclusion’

5. Measure what matters

Starting with the board of directors through to the C-suite and senior leadership, inclusion must be a key strategic pillar with specific investment and accountability attached. What this means is that leaders need to publicly share inclusion aspirations and associate robust metrics to track progress and organization-wide accountability for continuous improvement. We need to put inclusion expectations in our RFPs. And we need to develop equality KPIs for business performance. The board should also hold leadership accountable by tying compensation to inclusion outcomes. Rather than focusing on our return on investment, let’s focus on a return on inclusion. As leaders, inclusion starts with each of us. It’s time to move from good intentions to intentional actions. That means boldly rewriting the rules of the workplace to create an infusion of inclusion. ■

Shelley Zalis is a trailblazer for women in the workplace. She is an internationally renowned entrepreneur, a pioneer for online research, a sought-after speaker, a well-known thought leader, and a devoted mentor. As founder and CEO of The Female Quotient, Zalis is in the business of equality®. Together with a growing global community of more than a million conscious leaders, she is on a mission to change the equation and close the gender gap.

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The allinclusive reading guide IMD professors recommend titles to help you better navigate the complexities of Diversity, Equity, and Inclusion So You Want to Talk About Race

Ijeoma Oluo The book has a complete lack of jargon and is a refreshingly frank conversation. There is no walking around any taboos – it just dives right in to help you develop the kind of empathy that is essential in the business world and beyond. It is tempting to just see inclusion and diversity in a very structural way – with KPIs and governance – and while that is important, you also need to develop a deep human empathy: “I see your pain and I am willing to change.” Howard Yu, LEGO Professor of Management and Innovation

The Inclusive Language Handbook: A Guide to Better Communication and Transformational Leadership

Jackie Ferguson and Roxanne Bellamy Word choice matters, particularly nowadays when language is becoming more nuanced. This book is a valuable resource that helps us to choose words thoughtfully in our pursuit of inclusive language. It’s a very practical guide which discusses seven identity categories: 1. Gender identity, sex, and sexuality; 2. Disability and invisible illness; 3. Mental, emotional, and cognitive diversity; 4. Physicality; 5. Cultural diversity – race, ethnicity, and nationality; 6. Religion; 7. Acquired diversity. Each section contains best-practice inclusive language guidelines. There is also a reference table of specific suggestions for inclusive terminology as well as a list of colloquial expressions to avoid

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because of their discriminatory histories. Some of the suggestions may raise eyebrows and might not be accepted by everyone, but the book increases our sensitivity about language use. It makes you question some of our linguistic habits. Ginka Toegel, Professor of Organizational Behavior and Leadership

Leading Global Diversity, Equity, and Inclusion

Rohini Anand Written by practitioner and recognized thought leader in Diversity, Equity, and Inclusion, Rohini Anand, this book provides a practical guide to five key principles to advance DE&I culture change. These principles include guiding leaders to become transformative allies, articulating a compelling rationale for change, anchoring practice in local contexts, and developing effective metrics, governance, and systems. Combining Rohini’s personal background with her professional experience, the book provides compelling stories and data as well as leading and lagging measures of DE&I. This is complemented by recommendations from other experts in DE&I and useful references. I particularly like the discussion guide that supports leaders to embed DE&I in their organizations through practical, thoughtful questions about the five principles. These questions prompt reflection, conversation, and action. Heather Cairns-Lee, Affiliate Professor of Leadership and Communication

Invisible Women

Caroline Criado Perez When it snows in a city overnight, should the authorities prioritize clearing the streets for the drivers or the pedestrian? The answer seems obvious to us from years of being accustomed to the norm, but, as Caroline Criado Perez observes in this book, taken-for-granted solutions like this one are part of the problem. By digging into the world of data, the author shows that much of what we design as humans often assumes the use case for a man. Clearing snow from the pavements – typically used by women – leads to a culture of greater health and safety than clearing roads – typically used by men. A host of other examples, ranging from the size of mobile phones to health screenings, show how designing with women in mind can make our everyday lives feel more inclusive. Anand Narasimhan, Shell Professor of Global Leadership and Dean of Research

IQuote

REFLECTIONS ON EQUALITY AND DIVERSITY

Every person, every race, every nation, has its own particular keynote which it brings to the general chord of life and of humanity. Life is not a monotone but a many-stringed harmony, and to this harmony is contributed a distinctive note by each individual.

Annie Besant, British socialist and women’s rights activist (The Birth of India: A Collection of Writings and Speeches on Indian Affairs, 1917)

No one is born hating another person because of the color of his skin, or his background, or his religion. People must learn to hate, and if they can learn to hate, they can be taught to love, for love comes more naturally to the human heart than its opposite. Nelson Mandela, first President of South Africa (A Long Walk to Freedom, 1994)

From the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently. Friedrich von Hayek, economist and philosopher

The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both. Milton Friedman, American economist (Free to Choose, 1980 television series)

Wherever there is great property, there is great inequality.

Adam Smith, Scottish economist (The Wealth of Nations, 1776)

Peace is not unity in similarity but unity in diversity, in the comparison and conciliation of differences. Mikhail Gorbachev, Russian statesman (Nobel Peace Prize Lecture in Oslo, 1991)

Understanding and accepting diversity enables us to see that each of us is needed. Max De Pree, former CEO of Herman Miller (Leadership is an Art, 1987)

We need to (re)balance experience vs curiosity and understanding today and tomorrow and not just yesterday. Diversity should not just only be about gender, but also generations, thoughts, cultures, and experiences. Jouko Karvinen, Finnish business executive (Presentation at IMD, 2015)

All men are born equal, but quite a few eventually get over it.

Stormont Mancroft, 2nd Baron Mancroft, British Conservative politician (The Observer newspaper, 1967)

The quotations are taken from The Essential Book of Business & Life Quotations compiled by Dominique Turpin, Professor Emeritus of Marketing Strategy at IMD.

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Inclusive by design How to make it part of your DNA and not just a quick makeover Aside from the moral imperative, there are clear benefits for companies that embrace the principles of inclusive design. Vanessa Patrick and Candice Hollenbeck offer a step-by-step framework to ensure your products and services meet the needs of all consumers

he global cosmetics industry is a $500 billion market that dates back to the early 20th century. In 2017, international pop star Rihanna launched Fenty Beauty – a range of cosmetics with over 40 shades, designed to suit any skin tone. The brand scored $100 million in sales in the first 40 days. Time magazine named Fenty Beauty one of the best inventions of 2017 stating: “Fenty’s unabashed celebration of inclusivity in their makeup campaigns put an unprecedented spotlight on the need for diverse beauty products.” By simply widening the lens and recognizing the diversity of skin tones in the marketplace, Fenty Beauty hit the jackpot. Today, all businesses have the opportunity – and the responsibility – to embrace inclusivity at scale through the design of products and services that enable accessibility in new and meaningful ways to benefit a diverse customer base. Not doing so could come at a cost. According to Harvard Business Review Analytics, consumers are becoming more vocal and active when it comes to inclusion: 64% of consumers surveyed are taking action to support brands that recognize their uniqueness. At the same time, in a highly politicized and scrutinized marketplace, inclusive design can help firms mitigate against reputational risk, such as accusations of “diversity washing” or being faced with lawsuits for discriminating against underserved groups due to inaccessible products or services. To make design processes more inclusive, companies must integrate the expectations and needs of all consumers, not just their traditional customer base or the largest demographic cohort in any given market. Many organizations struggle to make meaningful progress here, in part because there is little concrete guidance available to advise managers on how to implement the necessary granular, systemic changes. Three steps towards inclusive design

Our research paper, Designing for All: Consumer Response to Inclusive Design, showed that inclusive design requires companies to recognize and understand the needs of "edge consumers” who are often overlooked or even invisible in the marketplace. They can then build design approaches that deliver more inclusive products, services, technology, and experiences. Based on our research, we offer a set of frameworks that help managers develop and promote an inclusive design mindset. 1. Who am I unintentionally excluding?

Rihanna launched Fenty Beauty in 2017 and racked up $100 million in sales in the first 40 days 28 I by IMD • June-Aug 2023

We looked at a broad array of literature from disciplines as diverse as psychology and mental health to architecture and education to learn how other professions addressed this challenge and to establish a best practice approach for design purposes.

Photo: Fenty Beauty

First, a designer should understand which groups might have been excluded from the design process and have a structured way to consider their needs. Although segmentation and target audiences are common marketing practices, this has tended towards prompting the description of an “average” consumer or a “representative customer persona”. It can be easy or tempting for companies to simplify things and categorize consumers as one-dimensional by relying on their most visible characteristics, but this inclination can result in products excluding some consumer groups, which may incur reputational risks and lost opportunities.

The ADDRESSING framework

We settled upon the ADDRESSING framework developed by clinical psychologist Pamela Hays that calls attention to previously neglected groups in a clear and simple way. This acronym-based framework offers a range of identity markers to be mindful of when designing for inclusion. Importantly, it allows designers to consider more than one aspect of identity. After all, identity is intersectional and can include any combination of age, developmental and acquired disabilities, religion, ethnicity, socioeconomic status, sexual orientation, indigenous heritage, national origin, and gender. By applying the ADDRESSING framework, designers have a clear guide to envision the needs and expectations of diverse consumers – it serves as a continual reminder that there is no “average” consumer. When managers recognize the complexities of human experience and identity, they are more likely to deliver products that serve all possible users. 2. How do consumers respond to exclusion?

Whether a company’s products and services are inclusive or not makes a significant difference to the way its brand is perceived in the marketplace. In the words of management theory pioneer Peter Drucker: “The purpose of business is to create and keep a customer.” Positive consumer emotional responses are critical for the enduring success of brands. Our research shows that, unsurprisingly, exclusion elicits negative emotional responses towards brands from consumers.

Graphic: Theresa Schwietzer, Source: Designing for all, Journal of Consumer Psychology 2021.

To understand how consumer responses to inclusion or exclusion manifest, our research offers a DARE framework (Design, Appraisal, Response, Experience) that draws on appraisal theory (a psychological theory that suggests that thoughts drive emotions – people evaluate or appraise a stimulus (objects and experiences) which then shapes their emotional responses to that stimulus) to underscore that exclusion is a personal and emotional experience. We propose that, in the first instance, the design of products, services, platforms, and experiences can signal different levels of social inclusion or exclusion. Secondly, consumers pick up on these inclusion and exclusion cues and appraise and evaluate designs based on their perceived level of inclusion. This appraisal process might involve questions like: Can I use this product? Was this product designed keeping my unique identity in mind? Third, these kinds of appraisals indicate the degree » of mismatch between the individual and the design, which activates an emotional response from the consumer. These responses can range from “brand positive” happiness and admiration, resulting from inclusion, to “brand negative” anger and frustration as a result of exclusion. Finally, these emotions, in turn, shape consumers’ experience with the brand. Seeing the consumer journey through the DARE lens, managers look beyond just solving design problems to creating optimal, inclusive experiences for all consumers. 3. Where does my product stand in terms of inclusivity?

The next step in the journey is for companies to assess where they stand in terms of the inclusivity of their products and services (current position) and where they want to go (desired position). To help audit their » marketJune-Aug 2023 • I by IMD 29

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(2) How do consumers respond to exclusion?

DARE framework

(1) Who am I unintentionally excluding?

place offerings, we have devised a range of inclusive design levels from mere accessibility (Level 1) to creating equitable experiences (Level 2) to full engagement and empowerment (Level 3). Level 1 design is focused on meeting minimum legal requirements or standards in order to remove barriers that prevent accessibility. Numerous examples exist of such efforts to be inclusive that merely address accessibility but nevertheless allow firms to check the inclusivity box. Let’s take the move by Scandinavian Airlines System (SAS) to create a separate assistive website for people with disabilities rather than design-

‘It can be easy or tempting for companies to simplify things and categorize consumers as one-dimensional by relying on their most visible characteristics, but this inclination can result in products excluding some consumer groups, which may incur reputational risks and lost opportunities’ ing an inclusive website. For many wheelchair users, the experience of traveling by plane is stressful, painful, and often embarrassing. It is likely that being directed to a separate website evoked similar negative feelings. In recognition of this, the US Department of Transportation fined SAS $200,000 in accordance with the Air Carrier Accessibility Act. When businesses take shortcuts to inclusivity, even the simplest plans can go awry. Ogilvy, the British advertising company, launched a campaign for Cadbury’s new chocolate bar blending milk and white chocolate that purportedly promoted racial unity. Unsurprisingly, Cadbury’s efforts were viewed as trivializing an important issue. 30 I by IMD • June-Aug 2023

Levels of design framework (3) Where does my product stand in terms of inclusivity?

OXO gets a grip on inclusive kitchen design An example of addressing design exclusion from industry is kitchen, houseware and office supplies manufacturer OXO; the first company to understand that most kitchen tools exacerbated aches and pains for arthritic users. Older adults with arthritis felt they were unable to cook without suffering the immediate consequences of pain. Consumers with arthritis also experienced the residual effects of non-inclusive design: the negative emotional consequences of using tools that impacted their ability to cook, such as not being able to prepare meals or provide for their families as they had done in past. In response, and inspired by founder Sam Farber’s desire to help his wife handle ordinary kitchen tools, OXO used thermoplastic rubber, an innovative material at the time, to create products with better grip that were easier for arthritic consumers to use. The problem Farber faced was how “to appeal to the broadest possible market, not just a very specific market of arthritis and the infirm”. Extensive user research allowed the company to create an innovative “Good Grips” design, which evoked positive emotional responses, not only for arthritic users but all users. Today, the company is known for its non-slip “Good Grips” range and has experienced a compounded annual growth rate of over 30% since 1991. In addition, the company’s innovative designs have been featured in museum exhibitions, and despite having higher prices than competing brands, OXO is known to deliver higher sales even during a recession. OXO has since expanded into other design areas such as office supplies, medical devices, and baby products.

Graphics: Theresa Schwietzer (2)

ADDRESSING framework

Levels of inclusive design

Level 1

Level 2

Level 3

Mere accessibility

Creating equitable experiences

Full engagement and empowered success

Level 2 design takes additional steps to include previously overlooked consumers to reflect the diversity we see in everyday life. Level 2 design aims for equality by offering a range of products and services. Most video games, for instance, feature white, male characters – a move largely driven by the demographics of the target market. However, such narrow targeting excludes potential users and, for this reason, video gaming companies, such as BioWare, are increasingly adding more options, such as new female and LGBTQ+ protagonists. By “seeing” consumers who were unseen, Level 2 design offers these consumers the opportunity to equitably participate in the marketplace, such as IKEA’s “ThisAbles” line of free 3D-printed attachments that increase the usability of products for people with disabilities.

Source: Designing for all, Journal of Consumer Psychology 2021.

‘Since the advent of the internet, consumers have a growing sense of power and a collective voice in terms of their satisfaction or dissatisfaction with the products and services they use, and the associated brands’ Level 3 design is the gold standard for inclusivity and allows fully equitable engagement and optimal consumer experience. With Level 3 designs, consumers enjoy what we refer to as “flow” because the “match” between the user and the environment fosters deep enjoyment and involvement with the related task; users can operate in and engage with their environment in a fluid and creative manner. While mismatches create disruptions, inconveniences, and embarrassments, matches create engagement, autonomy, and fulfillment. Level 3 design does not just offer rewarding benefits for consumers, but for companies as well. For instance, the FlyEase sneaker by Nike was designed in response to a letter from Matthew Walzer, a college-bound teenager with cerebral

palsy. Walzer explained that he had “trouble tying laces and slipping into shoes without help” and wanted “sneakers that didn’t look like medical equipment”. Nike’s existing range of shoes was a mismatch for Walzer and the experience of wearing sneakers created feelings of embarrassment and frustration. In response, the company introduced its FlyEase range: fashionable, slip-on sneakers with a zipper that seals the back and easy-to-use Velcro-ties for the top – a design that offers flow for users by seamlessly integrating into their everyday experiences. A growing trend

Numerous inventions that we all use today are the direct or indirect result of inclusive design: touchscreens, flexible straws, closed captioning, automatic doors, curb cuts, audiobooks, and speechto-text software, to name a few. There is much evidence in industry and academic research that suggests inclusive design is good business practice and a stimulus for growth, while non-inclusive design represents a clear risk. Since the advent of the internet, consumers have a growing sense of power and a collective voice in terms of their satisfaction or dissatisfaction with the products and services they use, and the associated brands. For businesses, the internet has provided a global reach, but with that comes a further imperative to understand and cater for consumer differences. Underrepresented consumers also offer an underutilized research tool. For instance, Microsoft included blind and visually impaired consumers to assist in creating the first toolkit with accessible data displays. Technology firms (Microsoft, Google, Adobe, Salesforce.com) may be at the forefront of promoting inclusive designs, but other industries are also making inclusive design a priority. From fashion (Burberry) to toys (LEGO), gaming (Xbox Adaptive controller), consumer products (Herbal Essences shampoo) and furniture (IKEA), brands are responding to a societal push for change. Based on the success stories of a growing number of companies, inclusive design should now be an important consideration for all businesses striving to remain relevant, authentic, and competitive. ■

Vanessa M Patrick is the Associate Dean for Research, the Bauer Professor of Marketing, and lead faculty of the Executive Women in Leadership Program at the Bauer School of Business at the University of Houston. She has a PhD in business from the University of Southern California, Los Angeles. She is the author of The Power of Saying No: The New Science of How to Say No that Puts you in Charge of your Life. Candice R Hollenbeck is a Senior Lecturer of Marketing at the Terry College of Business at the University of Georgia and her research explores the social and cultural dimensions of brand meaning and identity. She has published her work in the Journal of Consumer Psychology, Journal of Business Research, International Journal of Research in Marketing, Journal of Retailing, Consumption, Markets, & Culture, among others.

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[ Inclusive leadership ]

Closing the gender pay gap: be open, honest … and radical

Seeing the light: Iceland is ranked in many studies as first for female empowerment

Global Gender Gap Index 2022 Global Top 10 Global Rank

Country

ICELAND

FINLAND

NORWAY

NEW ZEALAND

SWEDEN

RWANDA

NICARAGUA

NAMIBIA

IRELAND

GERMANY

Gender Gap Closed %

Europe East Asia and the Pacific Sub Saharan Africa Latin America and the Caribbean 0

32 I by IMD • June-Aug 2023

100

Research suggests that banning salary histories may not help level the playing field between men and women. It’s time for organizations to take bolder action on pay, argues Raina Brands

hings are looking up for women in leadership in countries such as the UK. Statistics released by the British government in 2020 showed that just under 40% of board positions in FTSE 100 companies were held by women – an increase of almost 30% in just 10 years. And it’s not just the UK. There are signs that women’s global share of leadership is trending upwards, with the World Economic Forum reporting a three per cent rise between 2020 and 2022. The share of women hired for senior jobs around the world last year came in at 36.9%, according to its findings. But while stats like these are cause for some cheer, the overall picture remains gloomy.

Photo: Pat Whelenvia Pexels, Source: World Economic Forum

Women continue to earn less than men in virtually every sector, organization, and country in the world. In the European Union, the gender pay gap is 12.7% in gross hourly earnings. That rises to 17% in the US, with women’s median weekly earnings just 83.1% of men’s wages in 2021, according to the US Bureau of Labor. Perhaps more depressing still is the finding made by Pew Research that not much has changed in the US in the last two decades: in 2002, women were making around 80% as much as men. The conversation about pay and gender equity has hogged headlines, certainly in the business media, for some time. There is plenty of scrutiny around differences between men and women’s earnings, and no deficit of theories as to what continues to drive the disparities: from unconscious biases to discriminatory practices to a lack of workplace flexibility that can accommodate women’s (uneven) share of family responsibilities. The odds stacked against female employees are documented. And in response, some companies have embraced workplace interventions designed to challenge the notion that women’s work is worth less. These interventions include quotas and banning salary history – both of which I have researched. But are they effective?

Quotas mandate that a certain percentage of any workforce should be made up of women, particularly in senior or prominent roles. And there’s some evidence, from the Nordic countries in particular, that stacks up in favor of this approach. In 2005, Norway was the first country to pass laws on quotas in the boardroom, igniting international efforts to break the glass ceiling. Iceland followed suit in 2008, introducing laws mandating

women’s representation at 40% in politics and business five years later. Today, the WEF ranks Iceland in pole position for female empowerment, and fifth out of 144 countries for “wage equality for similar work”. Certainly, quotas can challenge the hegemony of old boys’ networks in organizations – and as a direct measure, they do redress women’s under-representation in leadership positions. They also have the benefit of normalizing the presence of women on boards, in the C-suite, and in decision-making at an organizational level. But the evidence on pay parity remains muddy. Norway might have taken a pioneering position on women in business 18 years ago, but in 2022 men were still earning significantly more, according to the consumer data company Statista. Detractors say that quotas harm meritocracy, that they can lead to resentment from men, and that they even marginalize women as recipients of an (unfair) benefit based on gender and not talent. So far, so complicated. What about salary history bans?

When employers ask about previous salaries, the idea is that they will carry forward historical discrimination or bias about candidates. Proponents of salary history bans (SHBs) argue that eliminating this practice paves the way for less biased pay negotiations and decisions. But in my research, I’ve found no real evidence to back this. I ran a field experiment with my colleagues – Eliot Sherman, of Georgetown University and Gillian Ku of London Business School – to see if instituting SHBs helped or hindered male and female new hires at a UK business and we found nothing to suggest that they worked as intended. Our findings suggested that salaries ended up being lower for both men and women, without there being any significant difference between the sexes. When we analyzed a further 3,600 or so placements made by a UK recruitment firm using SHBs for comparison, we found the same thing. This may be down to a lack of legislation around disclosing pay scales and minimum salaries that make it easier for employers to pay less across the board. However, the fact is that, for us, the jury remains out on salary history bans.

‘Our findings suggested that salaries ended up being lower for both men and women, without there being any significant difference between the sexes’ One of the most compelling interventions was made by the University of Essex. In June 2016, the Vice Chancellor Anthony Forster announced that the university was to make a one-off pay rise to female faculty; a move that he described as motivated by “impatience with failing to close the pay gap quickly enough”. Female professors were to move up three pay levels, instantly making their salaries the same as those of their male colleagues. I’m struck by this radical response to an intractable problem. I’m struck by the bravura and the simplicity of it. Going forward, University of Essex faculty would be starting from the same baseline; female » June-Aug 2023 • I by IMD 33

[ Inclusive Leadership ]

Women in leadership In 2022, the global share of women in senior leadership across public and private sectors was:

33%

In the private sector alone, women represent 31% of leaders globally. The industries with the highest percentage of female leadership are:

Non-governmental and membership organizations: 47 % Education: 46% Personal services and well-being: 45% Healthcare and care services: 42%

The industries with the lowest percentage of female leadership are: Supply chain and transportation: 21% Energy: 20%

31%

Manufacturing: 19% Infrastructure: 16%

academics would no longer be one step behind their male counterparts. In making a move like this, Forster and his administration demonstrated that they were ready to effectively re-evaluate an entire class of workers. And that takes guts. I’m convinced that the only way to close the gender pay gap is to demand systemic change from organizations themselves. First, let’s dispense with blaming the victim. We need to shift the conversation away from women’s perceived lack of vigor or influence in negotiating salaries and promotions and instead refocus the conversation where it belongs: on the workplace systems and structures that surround them – systems into which bias has been hard baked over time. Organizations and their leaders should consider a range of ideas aimed at closing the gender pay gap: 1. Resist the temptation to explain the gender pay gap away by pointing to factors such as women choosing lower paid jobs, and men be34 I by IMD • June-Aug 2023

ing numerically dominant in senior positions. These factors also reflect gender bias. Instead, start from the assumption that the gender pay gap has arisen because there is gender bias in your organization. This may feel like an uncomfortable admission, but it will direct organizational attention to solutions that attack the root cause of gender bias. 2. Many firms inadvertently exacerbate the gender pay gap by encouraging – if not contractually obliging – pay secrecy. Women rarely know that they are being underpaid relative to their male peers because they don’t know who’s earning what. Without this knowledge they are unable to renegotiate their salary. Many organizations are obliged to publish salary scales (e.g., universities and government departments). But pay transparency can also be achieved informally by encouraging employees to share salary information with each other. 3. Organizations that have top-level accountability for diversity, equity, and inclusion (DEI) tend to be fairer in all areas, including the gender pay gap. This means allocating human, financial, and attentional capital to DEI and tackling issues such as the gender pay gap in a holistic manner. Organizations that rely on piecemeal training and initiatives, and delegate DEI down to managers, rarely gain traction on equality and equity efforts. 4. Follow the lead of the University of Essex and be prepared to make bold decisions and take radical measures. Firms should be under no illusion: if you nickel and dime a talented woman who brings value to your organization, the chances are high that she will leave and take that value elsewhere. In my research, I’ve found that once you lose female talent, you have likely lost it for good. Women, more than men, have a tendency to remember poor experiences with employers and to lean out of future interactions with them. They are also typically more successful in moving jobs. Organizations looking to leverage the promise of diversity, and attract and retain top female professionals, need to put their money where their mouth is when it comes to gender pay equity. And they should also be prepared to stand up for what’s fair because it’s the right thing to do for your company – and the right thing to do. ■

Raina Brands is an award-winning professor and consultant at University College London School of Management. A core focus of her research is to understand how the informal organization shapes individuals’ careers and how organizations can directly intervene in these processes to create more meritocratic and inclusive organizations. Her work has been published in the top journals in the field of management and has also garnered international press coverage.

Source: Global Gender Gap Report 2022, World Economic Forum

Global Gender Gap Report 2022

[ Inclusive Leadership ]

Busting the myths on gender equality Maybe you think the problem of women’s advancement has been solved? If you find yourself thinking any of the following, then it’s time to think again, say Corinne Post and Jordan Borisuk Myth 1: Women are being fast-tracked for top jobs, leaving men in the dust

WHY IT’S WRONG: The speeding up of women’s advancement stops when

there are enough women for the firm to look good – but nothing has changed structurally, so numbers will start slipping rather than growing. If you dig into the career progression of women in the highest executive roles of your average Fortune 100 company, you will indeed see that they have been catapulted into those roles earlier in their careers (relative to similarly qualified men). But, far from creating a pattern of reverse discrimination, the speeding up of women’s promotion to senior roles stops once companies have more than one high-ranking female executive. This is what researchers from IE Business School (Madrid) and the Wharton School (Philadelphia) revealed in their analysis of 10 years of data on the advancement of women into executive roles in Fortune 100 companies. Of greater concern is that this quick-fix approach to solving a corporate image problem fails to address the deep structural reasons obstructing a more natural progression of women into management and executive roles. Absent structural changes, companies that resort to such shortcuts to elevate women into top executive roles are continuously at risk of seeing their numbers slip.

HOW TO FIX IT: Look for talented and qualified women in lower positions

frequently, not just in times of executive promotions. Candidate pools for all positions should include talented women from inside and outside the organization. Myth 2: Our top female executive has stopped advocating for other women – we must have smashed the glass ceiling

WHY IT’S WRONG: If your top female executive does not highlight gender disparities, it could be because she feels like a token in the C-suite and avoids calling attention to gender. Powerful but isolated, women sometimes believe that advocating for other women may cause them to lose legitimacy. Consequently, they can distance themselves from promoting other women to draw less attention to their gender. Alternatively, given their success in achieving a top executive role, they may be less aware of other women’s struggles climbing up the corporate ladder.

This is the pattern that emerged from an analysis of 2,345 CEOs and 12,965 top executives of S&P 1500 firms. In the years the study covered (2011 to 2017), women chief executive officers were less likely than men to have women on their top management team. They also found that the reluctance of isolated women CEOs to advocate for bringing more women onto their executive team shrunk when circumstances rendered their legitimacy less likely to be questioned (e.g., when the firm was doing well financially). HOW TO FIX IT: Organizations can be highly effective in addressing gender

biases when women occupy top roles. If you want to enlist your female executives in gender equity initiatives, avoid making gender a salient feature of your executive team, for example, by tokenizing women. Squash unnecessary questioning and delegitimizing of top female executives and review your organization for systemic biases and gender disparities. Women executives and senior managers are more likely to advocate and participate in inclusive organizations that have less gender biases to begin with.

Myth 3: Women are in so much demand for CEO roles – they are now untouchable

WHY IT’S WRONG: Female CEOs are dismissed at higher rates than male

CEOs, especially when the firm is performing well. Female CEOs have a larger presence in industry than ever before but are 45% more likely than male CEOs to be dismissed, according to a study jointly published by researchers at University of Alabama, University of Memphis, Clemson University, and University of Missouri. By analyzing the dismissal patterns at 2,390 companies over a 15-year period, the researchers found that high performance helped men CEOs avert dismissal but failed to protect women from being disproportionately fired. It could be, the authors suggest, that boards make different attributions of a firm’s high performance, depending on whether it is led by a man or a woman: for example, directors may be less likely to believe that a firm’s high performance is due to women CEOs’ leadership experience and capabilities.

HOW TO FIX IT: Given these disparities, it is important to ensure that board assessments of CEOs are bias-free. Gender-sensitivity training for new and current board members could help create awareness of implicit and explicit biases in CEO hiring decisions and evaluation. ■

Corinne Post is the Fred J Springer Endowed Chair in Business Leadership and Professor of Management at Villanova University. Her research addresses diversity as an enabler or impediment to group and organizational performance. Jordan Borisuk is a student at Villanova University’s School of Business where she contributes to the Davis Honors Research program, which focuses on diversity management and sustainability accounting. June-Aug 2023 • I by IMD 35

[ Inclusive leadership ]

Making the elephant dance The rise and rise of the ‘Desi CEOs’

36 I by IMD • June-Aug 2023

Business leaders of Indian origin are starting to make a real mark globally. Anand Narasimhan examines the reasons behind the change

hen former Mastercard chief executive Ajay Banga was selected as the next head of the World Bank in May, his appointment made news for more than one reason. For one thing, picking the 63-year-old Indian-born executive broke with a long-standing tradition that each World Bank chief comes from the US.

Some doubted the suitability of someone who’d had a mostly corporate and Wall Street career for a job running the world’s most powerful development finance institution. Banga launched fast-food franchises in India for Pizza Hut and KFC before going on to have a 13-year career at Citigroup. Yet Banga has long been clear that his Indian origins and the experience he has gained from his background influences make him uniquely qualified for his various leadership roles. In a 2020 interview with CNBC, he described himself as a “Made in India Guy”. Banga was born in Delhi, and obtained his degrees from St Stephen’s College and the Indian Institute of Management, Ahmedabad. He cited his Indian background as highly relevant to working in emerging markets – where much of the World Bank’s work is done. “I grew up in India. I lived there. I worked there for the first 14 years of my [corporate] life,” the Financial Times quoted him as saying. Banga’s descriptions of himself and his background and experience illustrate a phenomenon that has been building quietly but steadily for the past decade or so: the rise of the Indian-origin CEO. Our research has identified 26 chief executives of Indian origin globally, running businesses in a wide range of sectors from finance to IT and consumer goods (see sidebar). We have divided this into two lists, one of them a pipeline of CEOs focused on tech, and another on business in general.

Illustration: Jörn Kaspuhl

Together, the lists include some of the arguably best-known names – Sundar Pichai of Alphabet (parent of Google), Leena Nair of Chanel, Satya Nadella of Microsoft – and some perhaps less well-known figures including Badri Kothandaraman of Enphase Energy and Vivak Sankaran of the US retailer Albertsons. We are calling them “Desi CEOs”, after the word that Indians use self-referentially. The reasons for the emergence of this new breed of global CEO may not be immediately obvious. To be sure, many of these Desi CEOs came of age in the 1990s – a time of great transformation in India as the country left behind decades of socialism-inspired central planning to embrace

market reform that created new social and economic conditions. In this new India, graduates could contemplate the possibilities of a career in a global corporation rather than the traditional safe havens of the Indian civil service or public sector companies. Yet why would one country, albeit one as populous as India, account for such a significant presence in the global C-suite? And why now? To gain answers and insights, I spoke with two Desi CEOs who are currently in post: Piyush Gupta, who runs DBS, Southeast Asia’s largest bank; and Sandeep Kataria, CEO of Bata, the footwear manufacturer headquartered in Lausanne, Switzerland. Gupta spent 27 years at Citibank, before taking on the top job at DBS in Singapore in 2009, while Kataria had a 17-year career at Unilever before working in senior roles at Yum! Brands, Pizza Hut and Vodafone, the UK telecoms group. Kataria ran Bata’s India business for three years before becoming global CEO in 2020. Interestingly, both leaders cited some of the same factors, when asked what was behind the phenomenon which, collectively, can be considered the “push factors” behind the rise of the Desi CEO. English education and a narrow pool

The first is India’s education system, specifically its use of English – the dominant language in business globally. “This community is not just English speaking but English thinking, many of them,” Gupta said. “And so, facility with the English language makes them globally transportable.” Kataria explained: “My parents had migrated from Pakistan pretty much with the stuff that was on their backs. What I heard from them always was: ‘You’d better study, or you’ll have to be a taxi driver.’ “With our education [system] we’ve been lucky. We may beat up the rote learning system, but there is a discipline that it teaches you. If you have to get through to the top education establishments and on to big companies like Unilever, you need to have a work ethic and a need to assimilate and learn. It stands you in good stead.” Gupta pointed out a feature of India’s education system that has the result of making students highly motivated to get ahead – what he called its narrowness: “In any big city, there are 10 high schools that are really high quality. Multiply that by 10 cities and you are talking about 100 schools, and then multiply that by 200 people in a class, that’s 20,000 people coming through the system. It’s not a large footprint. The system is also brutally competitive. “There are two subtexts to this: one, the people who make it are probably the best of the best. The other thing is that the system’s narrowness hones the competitive instinct.” Growing up with diversity

A second characteristic relates to diversity, specifically a natural ability to manage a diverse workplace thanks to an Indian upbringing. Banga » June-Aug 2023 • I by IMD 37

[ Inclusive leadership ]

Desi CEO tech list #

CEO

Company

Revenues $B Undergraduate Education

Sundar Pichai

Alphabet

Satya Nadella

Microsoft

207.6 Manipal Institute of Technology

Arvind Krishan

IBM

60.5 IIT Kanpur

Shantanu Narayan

Adobe

17.6 Osmania U

Rangarajan Raghuram

VMware

12.9 IIT Bombay

Ganesh Moorthy

Microchip Technology

6.8 U Mumbai (Phy), U Washington National University (MBA)

Nikesh Arora

Palo Alto Systems

5.5 IIT BHU

Northeastern (MBA), Boston College (MS)

Aman Bhutani

GoDaddy

4.1 Delhi U (Econ)

Lancaster (MBA)

Anirudh Devgan

Cadence Design Systems

3.6 IIT Delhi

Carnegie Mellon (MS, PhD)

10 Ajei Gopal

Ansys

2.2 IIT Bombay

Cornell (PhD)

11 Yamini Rangan

HubSpot

1.7 Bharatiyar U

Clemson (MS), U California Hass (MBA)

12 Rajeev Suri

Inmarsat

1.5 Manipal Institute of Technology

13 Jay Chaudhry

ZScaler

1.1 IIT BHU

279.8 IIT Kharagpur

Graduate Education Stanford (MS), Wharton (MBA) U Wisconsin-Miwaukee (MS), Chicago Booth (MBA) U Illinois Champaign Urbana (PhD) Bowling Green (MA), U California Haas (MBA) U Penn Wharton (MBA)

U Cincinnati (MS, MBA)

India’s two distinct pipelines to the top there are people smarter than them in the room. Of the 26, 22 Desi CEOs have an undergraduate engineering degree, while 19 of them followed up with a post-graduate business degree – 16 from the US or UK, and five from an Indian institution.

To qualify, an India-born CEO must have completed their undergraduate degree at an Indian institution. The bachelor’s degree is a pivotal rite of passage – there’s the anxiety of leaving home and exhilaration of being free of parental shackles. As Piyush Gupta and Sandeep Kataria have noted, students who gain admittance to an elite program feel the pride of making it against large odds, and face the realization that

Desi Tech CEO pipeline

38 I by IMD • June-Aug 2023

The Desi Tech pipeline comprises those who made a mark early in their careers with their deep technical expertise. Many have a master’s degree, and three have a PhD. As they graduated and joined the workforce, they found support and mentoring in the critical mass of Desi technology professionals already well-established in the US, and Silicon Valley in particular. In addition to their

formidable technical chops, the soft skills acquired growing up in India allowed them to break the glass ceiling and become credible candidates in the CEO succession process. Yamini Rangan of HubSpot stands out as the sole woman in this list.

Desi Business CEO pipeline

This pipeline includes many CEOs who cut their teeth working in businesses in India, such as Leena Nair at Chanel and Sandeep Kataria at Bata, both of whom had long spells in India’s “CEO factory” of Hindustan Unilever – honing their functional skills in human resource management and marketing respectively as they climbed the

Photos: Wikipedia

I by IMD has identified 26 CEOs of Indian origin that we are calling “Desi CEOs” – the Hindi word “desi” refers to all things Indian. They are divided into two lists, or pipelines: Desi Tech and Desi Business.

Desi CEO business list #

CEO

Company

Raj Subramaniam

FedEx

Vivek Sankaran

Albertsons

77.7 IIT Madras

Laxman Narasimhan

Starbucks

32.3 COEP Pune

Revathy Advaithi

Flex

26.0 BITS Pilani

ASU Thunderbird (MBA)

Ivan Menezes

Diageo

20.6 St Stephen’s (Econ)

IIM Ahmedabad (MBA), Northwestern Kellogg (MBA)

Leena Nair

Chanel

15.6 Walchand U

XLRI Jamshedpur (MBA)

Piyush Gupta

DBS

12.4 St Stephen’s (Econ)

IIM Ahmedabad (MBA)

Milind Pant

Amway

8.1 BITS Pilani

Indian Institute of Foreign Trade (MBA)

Shankh Mitra

Welltower

6.0 Jadhavpur U

Columbia (MBA)

10 Sundaram Nagarajan

Nordson Corporation

2.6 South Gujarat U

Wright State (MBA), Auburn (MS, PhD)

11 Badri Kothandaraman

Enphase Energy

2.3 IIT Madras

UC Berkeley (MS)

12 Niren Chaudhary

Panera Bread

N.A. St Stephen’s (Econ)

U Delhi FMS (MBA)

13 Sandeep Kataria

Bata

N.A. IIT Delhi

XLRI Jamshedpur (MBA)

Infographics: Theresa Schwietzer

ranks. Yum! Brands, a company that Ajay Banga worked for, is another CEO incubator, counting Kataria, Niren Chaudhury and Milind Pant among its alumni. As with DBS’s Piyush Gupta, wider experience in Asia was part of the pathway to the CEO’s office for Raj Subramaniam, who served Fedex in Hong Kong for seven years in a marketing role, and for Rajeev Suri, who covered AsiaPacific for Nokia. Laxman Narasimhan and Vivek Sankaran had a more conventional route upwards, both starting their careers as consultants with McKinsey and serving in senior roles at PepsiCo.

Revenues $B Undergraduate Education 1

93.5 IIT Bombay

Notes: 1. As many as 22 of the 26 have a bachelor's degree in engineering. Of the remaining four, three graduated in economics from St Stephen’s College, Delhi: Ivan Menezes, Piyush Gupta, and Niren Chaudhary, while Aman Bhutani is an economics graduate from the University of Delhi. Ganesh Moorthy (Microchip Technology) obtained a bachelor’s degree in physics from the University of Mumbai but went on to obtain a bachelor’s degree in engineering from the University of Washington. Eleven studied engineering at the country’s government-run Indian Institutes of Technology (IITs). Rajeev Suri is the only one with just an

undergraduate degree. Of the 26, 20 have an MBA degree or its Indian equivalent (“post-graduate diploma in management”). Of these, 15 were awarded by institutions in the US, five in India (Sandeep Kataria and Leena Nair by the Xavier School of Management at Jamshedpur, commonly known as XLRI; Piyush Gupta by the Indian Institute of Management Ahmedabad, or IIM; Niren Chaudhary by the University of Delhi’s Faculty of Management Studies; Milind Pant by the Indian Institute of Foreign Trade); and one in the UK (Aman Bhutani, Lancaster University). Ivan Menezes was awarded an MBA from Northwestern University’s

Graduate Education Syracuse (MS), U Texas Austin (MBA) Georgia Tech (MS), Michigan Ross (MBA) U Penn (MA), U Penn Wharton (MBA)

Kellogg School of Management in addition to the one from IIM

Ahmedabad. 2. The undergraduate degree criterion above rules out CEOs found in other lists. Those not born in India, such as Vas Narasimhan (Novartis) and Jayshree Ullal (Arista Networks) are not on our list. So are others such as Udit Batra (Waters), Sandeep Mathrani (WeWork), and C S Venkatakrishnan (Barclays) who obtained their bachelor’s degree outside India. Also excluded are those who started an undergraduate degree in India but transferred abroad before completing, e.g., George Kurian (NetApp) and Sanjay Mehrotra (Micron Technology).

June-Aug 2023 • I by IMD 39

[ Inclusive leadership ]

put it simply in a 2010 interview with the FT: “When you come to the US and hear people talking about diversity, well, I grew up with it.” Gupta broke it down for me from his own experience, recalling that he went to a convent school, which involved attending prayers at the local cathedral in the morning. “People tend to think of Indians as being more or less the same, but India is very diverse – by religion, by background and culture, by socio-economic status,” Gupta continued. “When playing football, the driver’s kid would be playing, the rich tycoon’s kid would be playing, too. So having to get used to the diversity is a tremendous source of strength; it builds adaptability as well as helps with people management skills.” Kataria had a similar view. “The ethnicities, skin color and language, but also backgrounds that we grow up with, do prepare you to be a bit more open to diversity.” He believed that this inculcated a sense of openness to travel and adjusting to different living conditions, “which not all nationalities are open to”. For Gupta, this willingness to be adaptable has helped him in his current role as CEO of what was a quintessentially Singaporean bank — it was founded as Singapore’s development bank in 1968. Under his leadership, DBS transformed from a “sleepy bank” to one that spans 19 markets and is well known to be at the forefront of leveraging digital technology to shape the future of banking. “The fact that I came from a diverse kind of background and dealt with different kinds of people allows me to be able to manage very different cultural nuances across the region,” Gupta said. “I found this when I went to Indonesia. It’s a very different culture; you cannot be direct. They tend not to say ‘no’ directly. For example, if you ask a 90-year-old guy if he’s married, he won’t say ‘no’, he will say ‘not yet’.” Analytic mindset and soft skills

A third characteristic is an analytical mindset combined with soft people skills. It is typical for the global Desi CEOs to have their thinking shaped by an undergraduate degree in engineering or another quantitative field such as economics. “It is a very analytical way of approaching things,” Kataria observed. “If you lay out the facts and the processes, you will be able to reach the right answer. You were able to approach almost everything by saying, “OK, let's just get to the real brass tacks and we will find a way out. There is a solution.” It's very scientific and you will be able to get there. “The other thing that it did teach you was that even though you managed to get admitted to a great engineering school, there were really smart people around you. You were never allowed to have a chip on your shoulder. So it kept you humble and always open to learning." Kataria acknowledged picking up interpersonal skills at business school. “You realize that actually it was not the smartest kid in class who was doing the best but actually the person who could work with other people,” he said. 40 I by IMD • June-Aug 2023

‘When playing football, the driver’s kid would be playing, the rich tycoon’s kid would be playing, too. So having to get used to the diversity is a tremendous source of strength; it builds adaptability as well as helps with people management skills’ Piyush Gupta

Gupta believes that Indian culture’s roots in family and community tend to instill the value of working together. “Even though I learned western human resource practices, having formal KPI systems, goal setting, and coaching and so forth, my instinct is to put my arm around somebody and to manage through personal connection and community,” Gupta said of his own style of leadership. “I think it creates a gentler kind of leadership.” It's not surprising therefore to see “alpha male” corporate leaders being replaced by the gentler presence of Desi CEOs such as Satya Nadella and Sundar Pichai. Managing complexity

The fourth characteristic is what Gupta calls “learning to make the elephant dance”: how an Indian background helps when it comes to dealing with business complexity. Kataria credits Hindustan Unilever for pushing its graduate management trainees to take responsibility for managing complex businesses very early in their careers: “If you were an area sales manager, you were expected to be the person who knew that area the best in the company. And early on take big decisions which impacted the revenue significantly. But also, very large teams in the field. I counted once – there were 1,800 people who kind of depended for their livelihood on the decisions I made.”

Deutsche Bank appointed Anshu Jain in 2012, signposting the elevation of Desi CEOs on the global financial stage. “Until relatively recently, it would have been unimaginable to think of [a Desi CEO] in the [banking] industry,” Gupta said, citing the influence of diversity, equality and inclusion policies and thinking as playing a key role. “So, I think it was a conscious shift in global companies to really focus and not make this [DE&I] a ‘check-the-box’ exercise. I think people started to get a lot more open to looking for diverse ethnicities in their management ranks.” Pipelines to the future

‘The ethnicities, skin color and language, but also backgrounds that we grow up with, do prepare you to be a bit more open to diversity’ Sandeep Kataria

“Most emerging markets – and India is a good example – are very complex,” said Gupta. “The system doesn’t work as smoothly. And so you’re trained in India from a very early age to try and make the system work for you. You’ve got to learn how to make an elephant dance, and that ability to do so is actually very useful in any situation. “So, from a personal development standpoint, having an Indian background actually teaches you how to make these cumbersome systems work.” A changing corporate environment

Photo: Darin Vanselow

While these characteristics of Desi CEOs help to explain their rise, it’s also important to understand the environment into which such leaders are being propelled: the pull factor, if you will. Gupta’s take on this was that, as late as the 1980s, there were only two or three global organizations where you would expect to see Indians break the “glass ceiling”, as he called it, citing Unilever and Citibank as among the first companies to start hiring Indians from Indian business schools as future corporate leaders. Then India started liberalizing and, in the 1990s, investment banks and consulting firms as well as multinationals started sourcing talent out of India. Finally, as Gupta pointed out, the world’s big banks have been shifting their approach. Citibank named Vikram Pandit CEO in 2007 and

So, what does the future hold for the Desi CEO? I believe the number of tech-focused CEOs in what we are calling the “Desi Tech CEO pipeline” (see p.38) will continue to climb at a steady rate due to sheer momentum. There is an installed base of talented Indian-origin professionals working in tech companies in the US who will continue to find their way to the top. As India’s startup ecosystem becomes more sophisticated, the tech talent that would have migrated to the US will stay put. Over the next decade, a handful of the unicorns with a homegrown startup CEO will break out to create a world-dominating business model relying on an international workforce. This breed of Indian leaders will join the bracket of Desi CEOs atop India’s largest tech companies: Rajesh Gopinathan (Tata Consulting Services), Salil Parekh (Infosys), C Vijayakumar (HCL Tech), Ravi Kumar S (Cognizant), and C P Gurnani (Tech Mahindra). There is even more potential in the pipeline of “Desi Business CEOs”, which could explode. For many multinationals, India is quite simply their biggest market by value and volume in Asia. Regional heads, such as Deepak Iyer at confectionary company Mondelez and Vismay Sharma at L'Oréal, already handle businesses bigger in revenue terms than some of the businesses run by Desi CEOs on the list. It’s worth noting that the market capitalization of Hindustan Unilever amounts to at least twothirds that of Unilever worldwide on any given day. Finally, let us return to elephants, and especially to an elephant in the room: the numerical dominance of Desi male CEOs. Will we see a third Desi CEO pipeline, that of female Indian origin CEOs, following in the wake of Indra Nooyi (PepsiCo), Leena Nair (Chanel), Yamini Rangan (HubSpot), and Revathy Advaithi (Flex)? Only then can we truly talk of the importance of diversity in the story of the Desi CEO. ■

Anand Narasimhan is Shell Professor of Global Leadership and Dean of Research at IMD. He focuses on top team and board dynamics and their impact on organizational transformation. He works with board directors and senior executives on how to enhance their leadership presence to create a positive impact on their followers and stakeholders.

June-Aug 2023 • I by IMD 41

[ Inclusive leadership ]

Agree to disagree if you want to create synergy from diversity Reaping the performance benefits of diversity requires leaders to shift the focus from helping individuals feel ‘included’ to empowering teams to put their diversity to work, argues Daan van Knippenberg

he approach by companies to diversity, equity, and inclusion has evolved. There is increasing awareness that simply trying to manage “the numbers” (the diversity of the workforce) and ensure equal employment opportunity (prevent biases in selection and promotion) is not sufficient to build a flourishing diverse workforce that adds value to the company and that makes the experience of work enjoyable. To do so effectively requires that employees, regardless of their background, experience a sense of inclusion – a sense that they can bring their whole self to work and belong. A focus on such psychological safety and belonging is important. But when this is the core focus, it risks leaving the value of diversity only partly realized if companies do not also approach inclusion and inclusive leadership from the perspective of creating synergy from diversity. The reason for this is that creating synergy from diversity requires deliberate effort to integrate diverse insights and perspectives. This effort does not automatically follow from a sense of psychological safety and belonging at work. The typical approach to inclusion emphasizes the individual experience of being part of the organization and interacting with other members of the organization. This is understandable because work experiences can be more challenging for individuals from historically marginalized groups that may face implicit and explicit biases in how others treat them. Addressing this challenge is integral to inclusion. However, a focus on inclusion as individual experience is only one step towards the teamwork that is required to reap the benefits of a diverse workforce; it is a necessary condition to create synergy from diversity, but it is not enough on its own. 42 I by IMD • June-Aug 2023

To reap the performance benefits of diversity, companies need to approach inclusion as an aspect of teamwork. The performance benefits of diversity lie at the core of the so-called “business case for diversity” and revolve around the potential of diversity as an informational resource. Through different work and life experiences, people develop their unique knowledge and perspectives. The more people differ from each other – the more diversity there is – the more they differ in their knowledge and perspectives. Such diversity is an asset. It allows more diverse teams to make higher-quality decisions, engage in deeper learning, and produce greater creativity and innovation. Realizing these benefits, however, requires teamwork. It is only through the effective integration of diverse knowledge and perspectives that synergetic outcomes from diversity can be achieved. Such integration can only be realized through teamwork that enables people to share their perspectives, invest in understanding other perspectives, and constructively integrate diverging perspectives. Synergetic teamwork does not automatically materialize as a result of composing diverse teams. Research shows that people working in teams often prioritize harmony and agreement over engaging with diverging perspectives. Crucially, this holds especially true in diverse teams where members can feel apprehensive about the disruptive potential of diversity and may actively avoid engaging with a diversity of perspectives as a result. Teams that tick the box on diverse composition may thus forego the synergetic benefits of their diversity and, in effect, underperform visà-vis their potential – an unfortunate and unintended outcome that can undermine the business case for diversity. Specifically, leadership that can stimulate the team to engage with, rather than shy away from, its diversity of knowledge and perspectives. This is why inclusive leadership is key. This differs from the more common understanding of inclusive leadership, which puts more emphasis on the individual experience of inclusion than on teamwork. Inclusive leadership, understood as focused on creating synergy from diversity, fosters the kind of teamwork that actively seeks out and engages with diverse perspectives. Such leadership has three interrelated elements: engaging the team in a dialogue about how to realize the synergetic benefits of diversity; coaching the team in the process of sharing and integrating perspectives on the job at hand; and guiding the team in collective reflection about its efforts to create synergetic benefits. Engage your team in dialogue

The first element is important because teams are often insufficiently aware of the effortful process required to create synergy from diversity. Moreover, team members may not feel the psychological safety required to discuss divergent perspectives – to share what may seem unusual insights or to disagree with other members. An explicit dialogue about how such diverging perspectives, discussions, and disagreements are integral to achieving the performance benefits of diversity is important in building psychological safety. If we understand the need to discuss how we think differently about the tasks at hand, it becomes safer to do so. For leaders to start such a dialogue is straightforward: explain why they view knowledge integration as key to creating value from diversity and ask people for their thoughts on how to make this work.

COACH

ENGAGE

the team in the process of sharing and integrating perspectives on the job at hand.

the team in a dialogue about how to realize the synergetic benefits of diversity.

GUIDE

the team in collective reflection on its efforts to create synergetic benefits.

Coach your team

The second element is necessary because people learn by doing. A dialogue about the value of the integration of diverse knowledge and perspectives sets the stage for inclusive teamwork, but it only gets the team so far. People develop their understanding of how to engage with diversity by experiencing it in action. Coaching the team in this respect benefits from questions more than from directions. For example, leaders could ask for perspectives that are different from the ones already shared; for reasons to not do what the team already seems to agree on; for people to make an explicit effort to reconcile diverging viewpoints; or for members that have not been heard yet to explain where they see things differently. A key thing to realize here is that “we don’t know what we don’t know”. It is inherent to the diversity of knowledge and perspectives that we can rely on people to proactively share their unique insights. We cannot know all the potentially useful insights people may be able to share and direct them to share. We need to create a situation in which people are actively focused on identifying what they may contribute during teamwork and that they will not assume that we will know what to ask for. The inclusive leadership process thus is also focused on building a shared understanding that each team member may have unique insights that only they would be aware of – and that the only way these insights will be shared is if they proactively make the effort to do so. Reflect collectively as a team

The third element – guiding the team into collective reflection – is required because the notion of learning from experience does not mean that teams optimally learn just from having the experience. Collective team reflection is a deliberate attempt to learn from experience. Because many individuals and teams are not naturally reflective, teams are more likely to engage in collective reflection when leadership guides them in doing so. This entails explicitly asking the team to discuss their experiences in trying to create value from diversity to determine what went well and what could be done better, and how, and to agree on how to do things differently at the next opportunity.

These three elements reinforce each other in recurring cycles: a dialogue about how to realize synergy from diversity makes it easier to coach the team to implement this. The experience of sharing and integrating diverse perspectives is the basis for team reflection. Team reflection guides and enhances learning and, in effect, feeds back into forward-looking dialogues about teamwork. It is important to recognize that this approach to inclusive leadership is not a one-off action, but a recurring effort. As the team develops its ability to enact inclusion as teamwork and create value from diversity, inclusive leadership will eventually become less important. However, inclusive leadership is key to getting the team on this developmental trajectory and should be seen as an essential investment in diversity, equity, and inclusion. An issue to emphasize here is that a focus on inclusion and inclusive leadership as an element of teamwork does not give short shrift to psychological safety and belonging. Inclusive leadership focused on inclusion as teamwork focuses on the team (or company) as a whole rather than on some individuals more than others (i.e., those individuals for whom inclusion may be more precarious). It emphasizes the value that each member brings to the team in creating and mobilizing the diversity of thought that fuels high-quality team performance. In doing so, it inherently focuses on the relational quality of diversity and inclusion as something that derives its meaning from teamwork (i.e., individuals by themselves cannot be diverse or create value from diversity). Encouraging the team to share and engage with diverse perspectives also stimulates psychological safety in the authentic expression of one’s perspective on the tasks and challenges at hand. In effect, such leadership builds enacted inclusion that may more naturally go hand in hand with feelings of inclusion and belonging than more common approaches to inclusion. More common approaches, that emphasize individual experience and, by implication, the individual experience of members of historically marginalized groups, risk getting in the way of their intended effect by psychologically singling out some groups as the intended target of inclusion. The suggestion that inclusion is an issue for some but not for others in effect negates the very notion of inclusion. Encouraging the team to share and engage with diverse perspectives also stimulates psychological safety in the authentic expression of one’s perspective on the tasks and challenges at hand. Creating an inclusive company climate is not easy. None of what I say here is intended to suggest that it is. Inclusive leadership as understood here will take a deliberate and persistent effort to master and implement. The case I aim to make here is not that it is easy, however; the case I aim to make is that approaching inclusion as teamwork and inclusive leadership as team leadership for synergetic performance is the more effective way forward in managing and leading diversity, equity, and inclusion. ■ Daan van Knippenberg is Houston Endowment Chair of Management at Rice University’s Jones Graduate School of Business. His core expertise is in leadership, teamwork, and diversity and inclusion. His research is concentrated in these areas, as is his teaching in MBA, PhD, and executive education programs.

June-Aug 2023 • I by IMD 43

[ Leadership challenge ]

‘Ignore human rights and you will pay more in the long run’ Ukrainian human rights lawyer Oleksandra Matviichuk, in an interview with I by IMD at the St Gallen Symposium, implored business leaders to stop taking their democratic freedoms for granted and to look beyond the blind pursuit of profit. Matviichuk is head of the Center for Civil Liberties (CCL) in Kyiv – an organization set up just over 15 years ago to work for the protection of human rights in Ukraine – and the Organization for Security and Co-operation in Europe (OSCE) region. The CCL, which won the Nobel Prize for Peace in 2022, strives to achieve “the restoration of justice for all victims of war crimes” and has documented alleged war crimes since Russia annexed the Crimean Peninsula in 2014, including Russia’s invasion of Ukraine in February of last year. Donors include the US Department of State, the European Commission, UNDP, the Open Society Foundation, and the Sigrid Rausing Trust. In April, Time magazine featured Matviichuk among its 100 Most Influential People of 2023, with former US Secretary of State Hillary Clinton commenting: “By documenting Russia’s atrocities so perpetrators can face prosecution, she is proof that women are not just victims of war; they can be agents of peace and justice.”

I BY IMD: The world’s attention has been on Ukraine since President Vladimir Putin ordered the Russian invasion over a year ago. But you and the CCL have been active in human rights work for much longer. OLEKSANDRA MATVIICHUK: Yes, we started in 2007. It was the period

after the Orange Revolution [in 2004, when Ukrainians protested against a rigged election won by the pro-Moscow candidate Viktor Yanukovych]. It was decided that it would be good to have an organization to promote human rights and dignity, not only on a national level but to be able to work on an international level as well. And Kyiv was seen as a good place for it. Yanukovych used power for his own benefit, and that’s why he served Russian interests. It was then that the CCL changed its focus from the region to domestic affairs 44 I by IMD • June-Aug 2023

in Ukraine. It was also a huge change in my life because it was when I decided that I had to stop my commercial career – I was working at the Association of Ukrainian Banks – and focus on defending human rights. Was there a specific moment that made you realize that?

At the association, we produced an analysis of the financial policy of the Yanukovych regime. We organized a press conference, with the central message that this policy would have a very negative impact on the Ukrainian economy. And two days later, the tax police came to the association and issued a large fine – for nothing, just as revenge for this criticism. This must have been in 2011. It was the last straw for me. I understood that I had to decide what to do because we were now seeing a real battle in society – a battle for a pro-democratic future for Ukraine or for returning Ukraine to the so-called Russian world, given Yukanovych’s links with Moscow. So, I stopped my work at the Association of Ukrainian Banks and concentrated on the mission of the CCL. Does it frustrate you that there is sometimes insufficient understanding of the Ukrainian struggle previously, which would provide the proper context for the current crisis?

I understand, and the reason is that the West for too long looked at our part of the world through what I would call the Russian prism. If you want to understand the reason behind the current state of affairs, you have to look into history. But not history as artificially recreated by the Soviet Union, and then the version inherited by Russia. You have to make intellectual efforts to understand what's happened. I’ll give you one example of what I'm talking about when I mentioned a Russian prism. A couple of months ago, the Metropolitan Museum in New York renamed an 1899 painting it had by [the French artist Edgar] Degas that showed folk dancers in the Russian empire of the time. They renamed it “Dancers in Ukrainian Dress”, after years when it was called “Russian Dancers”. That’s because the dancers weren’t Russian at all. They were wearing traditional Ukrainian clothes, including a wreath worn on the head called a vinok. It's typical for young women to wear this in Ukraine. So, it took the Russian invasion of Ukraine to produce a process of intellectual effort to rethink the past, and it reached this museum, which had to change the title they’d given the picture. Can you summarize what vision of the future you are fighting for?

In this war, we are fighting for freedom in all senses. We are fighting for the freedom to be an independent country and not a Russian

the European Commission is, how it functions, what power the European Parliament has; they're not aware of this. But they saw EU integration as a choice about values. That we want to build a society in our country where everybody’s rights are protected, the government is accountable, our judiciary is independent, and the police do not beat students who are peacefully demonstrating. This was the intent, the core of the Revolution of Dignity, which motivated millions of people very bravely to raise their voices. How do you and how do your fellow Ukrainians feel about the support that you're getting now?

When the invasion started, the civilized world said: “Let's help Ukraine not to fail” – because it's too dangerous to live in a world in which a nuclear power begins to dictate rules to the international community, and even forcibly changes internationally recognized borders. This is not just Ukraine’s problem, and it’s why the US and other countries who declare a devotion to democracy all need the success of Ukraine in this battle between authoritarianism and democracy. But it's time to switch to another narrative for the civilized world. And this narrative has to be: “Let's help Ukraine to win fast.” This is my message to developed democracies: they have to express bravery and historical responsibility. And to switch to this narrative. What would you say to the world’s business leaders?

I would say they are consumers of the existing system of democracy, rule of law, and human rights. And they made a success because they have this system, and they take it for granted.

Oleksandra Matviichuk at the podium after collecting the Nobel Prize for Peace on behalf of the CCL

Photo: Sergei Gapon/AFP via Getty Images

colony. And Russia is still an empire. And most Russian people haven't learned the historical lessons from the Soviet Union. They see that it's normal to restore the Russian empire, even by force. We are also fighting for the freedom to have our democratic choice. This war was started not in February 2022, but in 2014 when the authoritarian regime in Ukraine collapsed after the “Revolution of Dignity”, or “Maidan” revolution, which ousted Yanukovych. And what was this revolution about? Millions of people around the country peacefully protested against an authoritarian and corrupt government, which stopped the country’s EU integration process. For us, it meant that we were likely to return to the Russian world as this was done under pressure from Moscow. For ordinary people, the EU integration process was not just about joining some international organization called the “European Union”. If you speak with ordinary people on the streets, they don't know what

I’m not painting an idealized picture here – there are still a lot of problems. But having worked in the Association of Ukrainian Banks and experienced how we were fined millions of hryvnia [Ukrainian currency] just for criticism, I know what it means to live in a society where business can be quickly ruined or removed, and what it means when you have no legal tools to protect yourself and your property. Some business leaders have taken freedom and security for granted for too long and made very bad decisions, closing their eyes to human rights violations in China, in Russia, and to continue business as usual, to benefit in the short term from the situation when autocracies provide them with more “preferable” conditions. But what they don’t know is that if you base your decisions only on economic benefits and don’t take into account human rights issues, you will pay more in the long run. ■

Oleksandra Matviichuk is a human rights lawyer and civil leader based in Kyiv. She heads the non-profit organization Center for Civil Liberties and is a campaigner for democratic reforms in her country and the OSCE region. She was included in Time magazine’s list of the 100 Most Influential People of 2023.

June-Aug 2023 • I by IMD 45

[ AI report ]

Generative AI: go ahead, but proceed with caution Now that the dust is starting to settle on the hype surrounding ChatGPT, how can executives leverage generative AI tools without overshooting or falling foul of the pitfalls? Amit Joshi offers expert guidance

AI is nothing new, but the latest wave of generative models marks an inflection point that business leaders cannot ignore. For the past decade, AI has become progressively more powerful and pervasive in business, primarily through its uncanny ability to generate predictions, such as the creditworthiness of prospective borrowers or through automating and optimizing existing processes. This has assisted organizations in streamlining day-to-day business decisions. ChatGPT and its successors, such as GPT-4, have taken that a step further by not only predicting outcomes but prescribing solutions to problems and generating recommendations based on our inputs. And it does so in a way that is astonishingly intuitive, responding to prompts in a conversational format. This means that even the most technophobic executive can use it, with no prior training or skills required. The user interface is an engineering marvel that has democratized AI, putting it into the hands of millions of ordinary users. 46 I by IMD • June-Aug 2023

It's early days, but related business applications (see box for details) are already beginning to emerge, including for low-value and low-creativity tasks such as compiling emails, social media, and sales content as well as creating images from specific prompts. AI is also useful for modifying such content to better suit a specific outcome, such as adapting a CV to a job posting. And it’s highly adept at more high-value tasks such as writing, documenting, and reviewing code. If I worked as a programmer at a software company, I would be worried about my future. It’s also good at benchmarking products and summarizing the findings in a readable format – much like management consultants do. This is another area where I see the most potential for job displacement. Content generation and modification are likely to save us all time and effort in the long run, freeing up hours to spend on more productive tasks that deliver more value. That has implications for business in terms of how to harness this new space for human potential. The tasks that humans can spend more time on are those for which less data is openly available, as well as those which need highly specialized skills, or require empathy. But AI’s real promise lies in its ability to carry out higher value tasks rich in creativity. Those include strategy formulation, which involves not only pulling information from multiple sources but also understanding an organization’s strengths and weaknesses relative to the competitive landscape and coming up with context-specific recommendations. AI is already proficient at this but will get better over the coming years. AI still needs humans

While there is untold potential for this technology to revive flagging productivity growth in developed economies, business risks abound. Caution is therefore warranted for any executive looking to deploy AI in their organization. Its rapid development has alarmed some technology executives, including Geoffrey Hinton, widely considered the “Godfather of AI”, who quit Google to speak freely about the dangers posed by AI. Those fears may indeed be warranted, and it’s hard to deny the coming shock – and related economic and social disruption – to the labor

For now, it is clear that business leaders have to get on board. The question is how to do this in a structured and strategic way. Executives looking to harness the potential of generative AI should consider the following as fundamental steps:

HIGH VALUE

Summarize, plan, benchmark e.g. writing code or competitor research

Strategize, synthesize e.g. analyze market to develop new strategy, or reduce huge texts to key points

LOW VALUE

Extrapolate e.g. reply to emails or customer service chatbot

Update/modify e.g. create new pictures/ prompts or adjust resumé

LOW CREATIVITY

HIGH CREATIVITY

Impact for your organization HIGH VALUE

However, I believe the positives will outweigh the negatives. And for now and the foreseeable future, these tools work best when used in concert with people, augmenting rather than replacing human capabilities. For example, writing the prompts necessary to get the best responses from ChatGPT is now seen as a skill in itself, leading to the new role of “prompt engineer”. You might ask, in the future, will it be possible for AI to prompt itself? It’s not hard to imagine that it could soon start preempting our questions, much like Google already knows what we might want to search for based on our browsing history. That would be an important step in AI’s development, because otherwise we’re just shifting the bottleneck from humans coming up with the right answers to asking the right questions.

What can you use GEN AI for?

Most potential for job replacement?

Use to provoke current thinking, but still need humans in the loop

LOW VALUE

market. Researchers are coming out with dire predictions for the impact of AI on jobs, with Goldman Sachs warning in March that it could lead to the automation of a quarter of the work done in the US and Eurozone. That means the equivalent of 300 million full-time workers would be exposed, according to the leading investment bank, with lawyers and administrative staff among those at the greatest risk of redundancy.

Replace employee tasks

Use to complement existing work of employees?

LOW CREATIVITY

HIGH CREATIVITY

1. Ensure your organization understands AI

Leaders must ensure their entire organization has a deeper understanding of how these new systems work – and not just a few tech-savvy individuals. Since no programming is necessary to use this type of AI, everyone can use it to improve their day-to-day productivity. Furthermore, as employees get more comfortable with AI, organizations should encourage new ways of applying and modifying its core technology, so that its impact can be felt at scale, and not just in isolated pockets.

4. Don’t get carried away too soon

2. Get your house in order

Such outcomes could be embarrassing at best or lead to serious legal, ethical, financial, and reputational damage at worst. Ultimately, the potential is significant, but executives should proceed with caution at this nascent point in AI’s development. ■

Generative AI has tremendous potential in the B2B space. However, for this to work successfully, organizations need to have their houses in order from an infrastructure and data management standpoint. The danger is that companies fall in love with the shiny new toy and forget the basics, such as adequate data collection and storage, data cleaning, and compliance with regulation. That must come before any fascinating use cases can be explored, as this technology will reward those that are best prepared to implement it.

Don’t jump headfirst into developing new products based on what is still an untested technology. We know already that chatbots produce hallucinations – when they respond with fabricated information. When one user asked Baidu’s chatbot Ernie how to stir-fry reinforced concrete to make a tasty meal, it recommended mixing garlic, onions, and peppers with concrete – “a very special ingredient with a unique texture”.

3. Focus on internal applications first

Until the kinks are ironed out and firms understand its strengths and weaknesses, generative AI may be better suited for internal rather than client-facing applications. Eventually, I believe the technology’s biggest value will come in an enterprise, rather than consumer, setting. Its capacity to analyze and distill vast reams of information would be invaluable in tasks such as monitoring and computing advertising spend, for example.

Amit Joshi is Professor of AI, Analytics and Marketing Strategy at IMD. He specializes in helping organizations use artificial intelligence and develop their big data, analytics, and AI capabilities. An award-winning professor and researcher, he has extensive experience of AI and analytics-driven transformations in industries such as banking, fintech, retail, automotive, telecoms, and pharma.

June-Aug 2023 • I by IMD 47

[ AI report ]

Four ways to ensure your AI products and tools are ethical While legislation so far has failed to keep pace with technological development, businesses can get ahead of the game by ensuring ethical considerations are built into their products by design, writes Öykü Işık

arlier this year, a Belgian man committed suicide after chatting with an AI chatbot created by Chai Research. The man’s widow says the chatbot – classified as low risk by the European Union’s draft AI regulation – encouraged the user to end his life. The incident raises questions about whether our regulatory guardrails can keep pace with the rapid development and proliferation of new generative AI tools. Some research scientists have long been vocal about the ethical impact of AI on society. Meredith Whittaker was part of the movement that called for Google to rethink its AI ethics council. Timnit Gebru was famously fired by Google in 2020 after co-authoring a paper highlighting the risks of large language models. And Joy Buolamwini, founder of the Algorithmic Justice League, uncovered large racial and gender bias in AI services from companies such as Microsoft, IBM, and Amazon.

While organizations largely ignored these warning calls, the ethics surrounding AI is making mainstream news now that AI luminaries and industry leaders are speaking openly about the dangers of weak regulation, misinformation, and mass job losses. Despite growing awareness of how disruptive and destabilizing generative AI could be, we are still a long way off a common framework to help us avoid mishaps. 48 I by IMD • June-Aug 2023

At a World Economic Forum panel in Geneva in May, Microsoft’s Chief Economist Michael Schwarz pointed out that all new technologies, even cars, carried a degree of risk when they first came to market. “We need to see some harm first before we rush to regulate this technology,” he said, while noting that AI could be dangerous in the hands of “bad actors”. Schwarz’s comments epitomize how many technology developers pursue profit at the expense of responsible and ethical AI policies. Rather than waiting for the technology to cause harm, and for regulators to step in after the fact, companies should consider the negative repercussions from the get-go and build ethical and safety features into their products by design. Incidents of harm are already piling up. According to the AI Algorithmic and Automation Incidents and Controversies repository, reported issues were already 26 times greater in 2021 than in 2012. Regulators are also waking up to the challenges. In the past year, legislative bodies in 127 countries passed 37 laws that included the words “artificial intelligence”, according to Stanford University’s 2023 AI index. Misuse, ownership, and governance

There is a lot for them to get their teeth into. Firstly, regulators must tackle the malicious use of technology, such as by actors who are using AI tools to launch cyberattacks or create deepfakes. There are questions around the legal ownership of AI-generated content. For example, what happens when AI generates art, particularly if it has been trained on the work of other artists without their consent? There’s also the risk of people starting to anthropomorphize the technology. A German magazine editor was fired, for example, after promoting an interview with retired Formula 1 driver Michael Schumacher when he had used AI to generate the responses. Finally, there is the question of governance over how organizations use these tools. In the Netherlands, a discriminatory algorithm wrongly accused thousands of Dutch families of social benefit fraud, while Levi’s has faced pushback for using AI models to add diversity to its advertising campaigns. The challenge for regulators is that what is considered moral and ethical varies across the world. Yet public opinion is leaning towards tougher guardrails. The number of people in the US who agreed with the statement that AI is a technology that requires careful management increased to 72% in 2023 from 53% in 2018. Almost two years ago, the EU proposed draft legislation for an AI Act that classifies AI tools according to their perceived level of risk. Yet, AI tools that were deemed a limited or minimal risk, such as chatbots, have become much more dangerous in the intervening time due to advances in generative AI, highlighting the mammoth task regulation – which is bureaucratic by nature – has in keeping pace with technological developments.

vendor comes from, and check whether it has been de-biased. To protect against misinterpretation and a potential legal challenge down the line, you should also check the ownership of the data. 2. Train the algorithm developers to recognize bias

With growing awareness around the potential of AI to discriminate, ethical coding practices should become a core part of the curricula of computer science degrees to ensure that the technology can serve us all, not just a privileged few. Organizations should also hold internal training that talks about morals and bias and highlight the potential for AI systems to amplify racism, sexism, and other forms of discrimination.

‘Despite growing awareness of how disruptive and destabilizing generative AI could be, we are still a long way off a common framework to help us avoid mishaps’ 3. Supplement the technology with human interventions

Joy Buolamwini, founder of the Algorithmic Justice League, uncovered large racial and gender bias in the AI services of leading companies

For high-risk uses of AI technology that are in danger of producing the wrong outcome, such as creditworthiness checks, it’s important that the algorithm isn’t left to its own devices. To de-risk the technology, businesses should involve humans to supervise the training and testing stages of building the algorithm known as “human-in-the-loop". This way, humans can correct any inaccurate results, ensuring that the algorithm becomes more accurate and reducing the risk of major errors that could massively damage the reputation of the company. Organizations should also consider setting up an AI ethics board comprising ethicists, lawyers, technologists, and business strategists that can review how your company uses AI technology and mitigate against risks. 4. Make ethics part of your product lifecycle development

Nevertheless, regulation – however late – is on its way. The EU’s AI act is expected to come into force in the next two years. Job advertisements for “algorithmic auditors” are appearing on its website, suggesting a hiring spree is already underway to enforce the new law.

As we have seen with the example of the chatbots that provided information on how to cause harm to yourself and others, there is huge potential for these AI tools to be misused. Rather than going back to retroactively “fix” products, such as censoring or adding safety information, ethics should be a core part of a product’s development from the ideation stage. Companies need to consider what is the intent of use, and how potential data bias could impact the results. ■

So, what can companies do to get ahead of the curve?

Photo: Wikipedia

1. Audit your data for bias and copyright

Many companies will use AI in their products that has been trained on data. The problem is that much of this data will contain in-built bias. If you don’t curate your data, you may find that your product discriminates against age, race, and gender. For example, an AI image generator from Stable Diffusion has been shown to depict stereotypes such as all-male engineers. Even if your company is not developing its AI in-house, you should always question where the data and algorithms supplied by a

Öykü IŞik is Professor of Digital Strategy and Cybersecurity at IMD. She is an expert on digital resilience and the ways in which disruptive technologies challenge our society and organizations. Named on the Thinkers50 Radar 2022 list of up-and-coming global thought leaders, she helps businesses to tackle cybersecurity, data privacy, and digital ethics challenges, and enables CEOs and other executives to understand these issues, which she believes are too important to be left to technical specialists alone.

June-Aug 2023 • I by IMD 49

[ AI report ]

Balancing the yin and yang of AI for the benefit of all

Technology is not neutral but shaped by the value systems and beliefs of those who build it. As the use of AI becomes more widespread, so does the need to ensure that the positives benefit us all, and the risks do not undermine our rights and freedoms, writes Jérôme Duberry

omputer scientists Stuart Russell and Peter Norvig described artificial intelligence in their seminal 1995 textbook on the topic as “the study of how to make computers do things that, at the moment, people do better”. With the launch of large language models such as Microsoft-backed OpenAI’s ChatGPT-4, AI has taken center stage in the debate about the resilience of our society and economy. First coined in 1956, AI has evolved over the past seven decades and been integrated into ever more parts of our daily lives. As new developments accelerate, we must address the question of how to balance the harm these systems pose against the benefits they can bring. One particular area for concern is the impact on our democratic processes. Decades of peace and reasonably well-functioning democratic institutions in Europe may have made us forget that it takes constant care and effort to nourish, defend, and protect democracy. The war in Ukraine and the rise of anti-democratic practices in some east-central European countries are stark reminders that democracy is not a given. If left unchecked I believe AI could call into question the social contract between governments and their citizens – an unwritten agreement, posited by the 18th-century philosopher Jean-Jacques Rousseau, where citizens surrender some of their individual freedoms in exchange for protection and security provided by the state. Understanding the risks to democracy

Facing the double demand to digitalize and optimize public action, governments are increasingly turning to AI to improve knowledge management capacity, map and predict risks, automate data collection and analysis, assist decision-making and public services offerings, and enhance civic technology platforms. But governments need to assess what level of risk they are prepared to take relative to the benefits that can be accrued from developments in AI. By introducing an emerging technology in citizen-government relations, some key questions must be raised: How was 50 I by IMD • June-Aug 2023

the technology developed? Who processes the data? Can the technology be audited and by whom? AI can present degrees of autonomy, and in coming years, we can expect a growing degree of agency. In this context, its design and governance are central to ensure citizen trust in public institutions. AI is not only present in governmental services. It is also present in other areas that are central to the resilience of the democratic model, including political communication, (dis/mis)information distribution, and surveillance. Democracy is based on the principle that citizens can make well-informed decisions by having access to a plurality of information and being able to express their voice free from any form of coercion. AI plays a key role in the distribution of information with algorithms selecting the information we see online amid an avalanche of content, often with the dual purpose of curating the most relevant content for us while keeping us online to commodify our attention. This has led to social media platforms becoming echo chambers for extremist or sensationalist views rather than spaces for deliberation. At the same time, the monitoring and analysis of our behavior has made it possible to target citizens with personalized political ads, which can be automated with AI. The rise of “deepfakes”, where content is manipulated to, for example, misrepresent politicians during elections, has rightly raised concerns about the power of AI to negatively influence voter intentions. AI is also at the heart of government surveillance systems. After 9/11, we saw the emergence of a new surveillance paradigm: instead of identifying a threat first and then collecting intelligence data about this threat, governments started to collect and then identify potential threats out of the vast bulk of all available data. It meant the original premise that the internet was a free space was not true anymore. Today, everything we do online is collected, stored, and sometimes processed (in reality, only a fraction of our digital trail is actually processed by an organization, whether it is a private company for marketing purposes or a public intelligence entity).

Some important questions worth asking against this backdrop are: 1. How can we ensure the decisions delegated to AI (such as allocating resources or processing citizen consultation data) contribute to strengthening trust between citizens and governments? 2. How can we ensure those decisions are transparent and auditable? 3. How do we explain to citizens how the AI took the decision? Beyond this lies a bigger question: What can we do to ensure AI is deployed for the public good and doesn’t further distort the inequities and disinformation already present in our society? Four ways to protect democracy in the age of AI

1. Focus on transparency and accountability It is crucial to prioritize transparency and accountability in AI systems. This can be achieved through mechanisms such as algorithmic auditing and explainability. Governments and organizations should conduct regular risk assessments, as proposed in the AI Act from the European Union, to assess levels of transparency, fairness, accuracy, and bias within AI algorithms. The development and deployment of AI should be accompanied by clear guidelines and regulations that ensure accountability for any discriminatory or harmful outcomes. Additionally, promoting transparency by making AI systems and their decision-making processes understandable to the public can help build trust and allow for independent scrutiny. 2. Promote diversity and inclusion in AI Promoting diversity and inclusivity in AI development is essential. This involves ensuring that AI systems are trained on diverse and representative data that accurately reflects the population. Collaboration with a broad range of stakeholders, including diverse communities, civil society organizations, and experts, can help identify and mitigate biases in AI algorithms. Furthermore, fostering a diverse workforce within the AI industry can lead to more comprehensive perspectives and reduce the likelihood of biased decision-making. A first step would be to encourage more women and other underrepresented youth communities into science, technology, engineering, and math (STEM) careers. We also need to retrain AI to recognize and counter the biases inherent in the data. However, this in itself is fraught with controversy. Even the fact that we

want to unbias a dataset, or a technology, involves the reflection of world views, principles and values which are not universal. 3. Introduce new regulation and policy While I don’t believe the moratorium on the training of powerful AI systems proposed by Twitter chief Elon Musk among others is feasible, the current pace of development is a gnarly challenge for policymakers, and regulation is not keeping pace. It took Netflix 3.5 years to reach one million users. ChatGPT reportedly achieved this feat in just five days. This rapid adoption of innovations leaves no time for “policy sandboxing”, where tech developers and regulators test a new tech in a safe space, which allows regulators to adapt the regulatory framework when needed prior to the launch of a new technology. This pre-launch experimentation phase enables to reduce the potential harm of a tech on populations and institutions, which is a key mandate of the state – to ensure the security of its citizens.

‘Efforts should be made to improve AI literacy programs in schools and provide accessible resources for lifelong learning’ Today, we are not in the same situation as in early 2000 with the emergence of social media platforms. Most governments are aware that they need to establish clear guidelines and standards for the development, deployment, and use of AI systems. But how to balance the precautionary principle with the need to take risk and innovate? This is particularly difficult for a technology “under development”, where future levels of AI (such as artificial general intelligence) make it difficult to foresee future applications and risks, particularly in a context where innovation takes place behind closed doors in companies. As a result, we may need to develop new forms of tech regulation and governance that are much more adaptive and agile. Although this is »

Fake philosophy: Jean-Jacques Rousseau, the father of the Social Contract, as re-imagined in the style of the artists Andy Warhol, Rembrandt, Monet and Van Gogh. The AI-generated images were created using Bing’s Image Creator, developed by Microsoft in association with OpenAI. June-Aug 2023 • I by IMD 51

[ AI report ]

particularly difficult today given the polarization of the multilateral system, particularly around questions related to democracy and human rights, international cooperation and coordination are vital to address the global challenges posed by AI and democracy. Collaboration between governments, organizations, and researchers can help establish ethical standards, share best practices, and develop harmonized regulations. The European Union is leading the charge here with its proposed AI Act that categorizes technology according to four risk levels. For example, the law bans applications that create “unacceptable risk” such as the government-run social scoring technology used in China. “High risk” applications, such as CV-scanning technology, face specific legal requirements, while applications that are deemed to be lower risk are largely left unregulated. 4. Raise AI and digital literacy Finally, promoting digital literacy and media literacy is essential to empower citizens in the AI era. As mentioned previously, we need to ensure that technology does not contribute to distrust against institutions and the information ecosystems. Citizens and especially youth, who are among the first users, need to be included in the design and governance of tech. This is the best way to increase their literacy and mitigate the risk of harm. Educating the public about AI technologies, their limitations, and potential biases can help individuals critically evaluate information and resist manipulation. Making AI more visible to citizens is also key in this context. Efforts should be made to improve AI literacy programs in schools and provide accessible resources for lifelong learning. Furthermore, fostering digital media literacy skills can enable citizens to identify and counter disinformation, enhancing the overall resilience of democratic processes.

AI offers numerous benefits to democracy including: enhancing the efficiency ways and accuracy of public governments services and policy-making are deploying AI through data analysis and machine learning; streamlining administrative tasks by automating processes to improve public service delivery; promoting transparency, accountability and engagement by, for example, sifting through online data to identify patterns, misinformation and public sentiment; strengthening electoral processes by ensuring the integrity of voting systems and reducing the risk of fraud or manipulation. Here are some examples of how AI is being used by governments:

52 I by IMD • June-Aug 2023

According to the OECD, only a little over half of 15-year-olds in the EU reported being taught how to detect whether information is subjective or biased. At the Geneva Graduate Institute, we have launched a project to allow young people to participate in shaping the role of AI in the future of democracy. The aim is to raise awareness, especially among young people, about the use of AI in democratic processes and citizen-government interactions, and to encourage youth participation by engaging them in thinking about the future of democracy. If the revolutionary AI that is set to shape our futures is to be humancentered and beneficial for all, it’s important to improve the transparency, regulation, and understanding around the extent to which these powerful tools are already shaping our interactions with political organizations. At the same time, more people from different backgrounds and parts of the world need to be given a say in how the applications are designed, adopted, and governed. This is particularly crucial given the convergence of several tech and scientific breakthroughs, such as AI and synthetic biology, that will increase the complexity of the decisions our societies will have to make in the coming years. ■

Jérôme Duberry is Managing Director of the Geneva Graduate Institute’s TechHub, Academic Advisor of the Executive Program in Diplomacy, Negotiation and Policymaking, and Senior Research Fellow at the Albert Hirschman Center on Democracy and at the Centre for International Environmental Studies. His latest book is entitled Artificial Intelligence and Democracy: Risks and Promises of AI-Mediated Citizen–Government Relations.

• To improve knowledge management

capacity: in Slovakia, AI helps users navigate

through government websites more efficiently to find relevant data.

• To map and predict risks: in Zurich,

Switzerland, AI is used to try to predict burglaries from past data.

• To automate data collection and analysis: in

Estonia, AI processes satellite imagery to check whether farmers are mowing grasslands, a condition of claiming government subsidies.

• To communicate with citizens: in Latvia, a chatbot answers frequently asked questions on how to register a company.

• To automate public services offerings:

in Norway, self-driving snowplows clear runways at airports.

• To automate decision-making: in Warsaw,

an algorithm analyzes the data provided by parents to automatically assign children to nurseries.

• To enhance civic technology platforms:

AI can also be used to process data from large citizen consultations. For example, the European Union uses machine learning algorithms to classify and analyze large volumes of comments and text in multiple languages published by its citizens on platforms.

[ Conversation piece ]

Steering through uncharted territory: lessons from a ride of purpose and endurance

Olympian Rebecca Wardell tells Heather Cairns-Lee how a 20,000km bike ride from Lausanne to New Zealand taught her the importance of managing her mindset, resilience, teamwork, and the kindness of strangers

n 2018, Rebecca Wardell, a heptathlete who competed in the Beijing 2008 Olympic Games, set herself the challenge of cycling from Lausanne to her home country of New Zealand. The epic journey – including elevations the equivalent of climbing Everest 11 times – took her through 19 countries in almost a year.

Photo: Adam Pretty/Getty Images

She experienced countless highs and lows, both physically and mentally – battling severe headwinds, snow, ice, and torrential rain as well as suffering the discomfort of sleeping in highway drains and on restaurant floors. In Iran, she crashed and split open her knee. She also saw stunning natural beauty in remote parts of the world and was overwhelmed by the kindness of strangers.

What started as a personal adventure for the three women transformed into a bigger social cause. Harnessing the network of the IOC, they decided they would visit schools in every country they cycled through, bringing with them a local Olympic athlete to inspire a new generation. This goal to inspire young people to strive to achieve their dreams is epitomized in the IOC’s global campaign of “Stronger Together” – based on the belief that people move forward when they do so together. The women also set a goal of raising $1 for every kilometer cycled to raise money for the Forward Foundation, a New Zealand-based charity established to empower girls to be leaders in their communities through sport. Wardell raised more than NZD 27,000 (around US$17,000).

This bigger purpose proved critical in helping her through some of the toughest moments of the In this interview, Wardell explains why she decid- Wardell at the Olympic Games in Beijing journey. Even on the first day, Wardell began to ed to undertake the journey, what it taught her about resilience and perseverance, and how she uses these lessons in have her doubts about the challenge ahead – 20,000km across 19 countries. Savoring the support of friends and a favorable tailwind, the trio her work with the International Olympic Committee (IOC). left Lausanne full of optimism, but not long into the 160km first leg to Brigg in southern Switzerland, the tailwind turned into a strong headFocus on the purpose Growing up on a sheep farm in the South Island of New Zealand, War- wind. dell decided to become an athlete after watching the Los Angeles 1984 Olympics on television. She was inspired by the idea of the challenge to “We were riding bikes that weighed 42kg that none of us were used to and, very quickly, I asked myself: What am I doing? It’s day one and it’s achieve excellence. going to be much tougher than this when we get into unknown terrain,” The same desire for a big challenge prompted Wardell and two fellow Ki- recalled Wardell. wis – four-time Olympic rower and gold medalist in Tokyo in 2021, Emma Twigg, and Sarah Van Ballekom – to quit their jobs at the IOC and cycle “What kept me going was to focus on those moments where we could the width of the Eurasian landmass, all the way to Singapore, and then inspire others. To be able to connect with people along the way and tell down the length of New Zealand. Wardell was accompanied by Twigg our story about setting an impossibly high goal and working towards it – together.” Wardell visited 50 schools in the 19 countries, each visit » until Istanbul and Van Ballekom until China. June-Aug 2023 • I by IMD 53

[ Conversation piece ]

The peaks and troughs of an epic journey: never far from calamity, Wardell and her companions slogged through deserts and high mountains. They slept in

providing a good energy boost, particularly on tough days, and a reminder of the bigger purpose of the journey. As an athlete, Wardell was no stranger to setbacks. After competing in the Beijing 2008 Olympic Games, she set her sights on London 2012, yet her training was disrupted due to multiple injuries and the 2011 Christchurch earthquake which damaged her training facilities. Just six weeks before the opening ceremony of London 2012, she injured her hamstring and was forced to pull out. Those setbacks taught her that failure can be a springboard for growth – a message she was keen to impart to young girls. “It’s about the journey. Naturally, athletes strive to win an Olympic gold medal. However, even if someone doesn’t quite achieve their goal and has to deal with disappointments and setbacks, they can still have an incredible experience and ultimately grow and become stronger as a person.” Make the journey manageable

Faced with a mammoth distance to cover, Wardell and her companions learned to look at the journey as thousands of small, manageable, and flexible chunks – a lesson for anyone managing a lengthy, seemingly insurmountable project. “It was tough to think: ‘I’ve chosen to cycle 20,000km.’ Your brain just doesn’t compute it, especially with the sheer enormity of the unknown variables – the political and cultural climate of 19 different countries, the terrain, the routes, the weather, and not knowing how we would manage our most basic needs of finding food and shelter. But if we thought, five more kilometers and then we get to have a coffee or one more week of this and we have a rest day somewhere in a new country, it makes even a 54 I by IMD • June-Aug 2023

mammoth task like this manageable. Especially when things were really tough, when conditions were awful, the way we talked to ourselves made all the difference and helped us inch towards our goal.” Conditioned to a disciplined regime from her athletics days, Wardell knew she also had to be flexible and adapt her plans depending on the weather and road conditions. “Life was much more structured in athletics training,” she said. “So I had to let go of that level of planning in order to cope on a journey like this, which was a ride into the unknown.” Connection through kindness and curiosity

A major insight for Wardell was the kindness of strangers, with many people stopping to give the riders food and water and inviting them to stay in their homes. A standout moment occurred in Tajikistan after they had climbed 4,600 meters through the Ak-Baital pass, the highest point of the trip. “We were super tired, freezing cold, and exhausted from climbing,” Wardell said. “And we thought, we're going to have to camp, because we couldn't see any towns or sign of habitation on the map.” As night fell amid the rugged mountain peaks, a woman appeared from her one-room hut and insisted they came inside. She cooked the cyclists dinner and clearly took joy in hosting them. The evening was spent communicating through sign language and sharing pictures of families. “For me, that was a really strong takeaway that total strangers were so generous and hospitable and some of the poorest people – those who seemed to have very little to give – were among the most generous. It made me rethink how often we make assumptions about people and situations, perhaps especially when we are in familiar environments.” she said.

drains under the highway in China (center) and helped inspire young people wherever they went (right)

Throughout her journey, Wardell was struck by the commonalities – family, food, and shelter – that unite people across cultures. This is something she has taken with her into her work at the IOC, where she tries to focus on the values people share rather than what sets them apart. “There are many different cultures within the organization itself,” she said. “Yet we can quickly form bonds with people from completely different cultures when we focus on the commonalities that unite us as people. It is all too easy to notice visible differences – gender, ethnicity, language, expertise – but connection happens when people are curious.”

that little change in mindset can make such a massive difference.”

The power of a positive mindset

“This was not three women cycling across the world – it was a massive group of people whom we could not have done without. The community that you build around you is key to the success of any project.”

Photos: Rebecca Wardell

Most of us would not even think about undertaking such a journey, and it was an idea that was made possible through the ways the women managed their mindsets and took small steps to realize their ambition. An example of this came during the toughest stretch of the journey; traversing western China. There was a single highway that ran through the huge desert, and the women spent many nights sleeping under the highway because they wanted to remain out of sight of the traffic. That was six months into the journey, and Wardell asked herself: “What am I doing here? Sleeping in a drain in China? Is this worth it?” While many other cycle tourists had taken a train through this part of China, Wardell was determined not to take the easy road out. Instead, she focused on shifting her mindset. She described one day when the road turned into mud. “It was knee deep and we were trying to push a 42kg bike through mud that was impossible to ride. Despite the conditions and the physical hardship, we kept saying it could be worse, or imagine if it was snowing, or imagine if our bike was 100kg. Whenever we had these rough moments, we shifted the way we looked at things saying, ‘at least it's not that’. It’s funny how

Wardell took the "long way home” and is quick to acknowledge the pivotal role of her support crew of family, friends, colleagues, and a network of cyclists – in particular Emma and Sarah – without whom the adventure would never have happened. These people helped with many practical aspects such as assistance with local contacts and route planning. But perhaps most important was their moral support, their belief, and encouragement throughout the journey.

Wardell’s adventure was a test of resilience and her ability to manage the ride in the mind as well as the ride on the road. Yet beyond the personal challenge, lies a story of purpose and inspiration: to encourage young people to dare to dream the implausible and make it happen, stronger together. ■

Scan the QR code to watch the full video interview

June-Aug 2023 • I by IMD 55

[ Business ethics ]

How to avoid an own goal when it comes to defining the limits of free speech The lines between our public, professional, and private lives – and opinions – have blurred in the age of social media. Michael Skapinker explores how organizations can manage the tension between freedom of expression and corporate interests and values

iewers who tuned in to Match of the Day, BBC Television’s long-running Saturday night football show, on March 11 were in for a shock. Clips from that day’s Premier League matches were broadcast without commentary and there were no pundits in the studio. Everyone usually involved in presenting the program had walked out. Behind the disruption was the BBC’s decision to suspend the show’s star presenter Gary Lineker, a former England and Barcelona footballer, over his Twitter criticism of the British government’s refugee policy. Lineker compared the government’s rhetoric about refugees to that used in 1930s Germany. BBC bosses regarded this as an infringement of the organization’s impartiality and told Lineker he could not present that week’s program. What they didn’t count on was that all the other presenters and commentators would also refuse to appear, in solidarity with Lineker. The BBC had to climb down. By the following weekend, Lineker and his fellow pundits were back on air. There were complexities to the Lineker case. He was a highly paid contractor rather than a BBC employee. The details of his contract with the

56 I by IMD • June-Aug 2023

BBC have not been publicly disclosed, but the affair highlights what organizations and their staff around the world are discovering: the growth of social media in all its forms is raising tricky questions about what employees can and cannot say. Before social media, the rules were reasonably clear. If you went out with friends for drinks after work, you could badmouth your boss, or sound off about the government, and, so long as no one else heard, you could get away with it. If you did the same in a public forum – in a speech at a trade conference, for example – you would expect your company to object, saying they didn’t want to be associated with your views. And if you insulted your boss from a public platform, the company might have fired you. Nowhere to hide

Social media is a public platform. And as Cynthia Stohl, Distinguished Professor in Communications at the University of Southern California, Santa Barbara, pointed out to me, social media posts don’t disappear. After-work drinks conversation is lost in the hubbub; social media posts are permanent. Even if you delete them, some trace, a screenshot perhaps, can remain. Added to this is the dissolving boundary between work and private life. The “bring your whole self to work” movement – that you should not have to hide your authentic personality from your colleagues – is, as Paul Thompson, Emeritus Professor at the University of Stirling, told me, an idea that many companies have promoted in an effort to make workplaces more inclusive. But by then setting rules for what they can say on social media, “employees are being given a mixed message. Companies are saying ‘bring yourself to work’ but don’t express yourself in a way that may embarrass the company.” That blurring of private and work selves was underway before COVID-19. With the pandemic and lockdowns, it blurred some more. Not only had people’s private spaces become their workplaces; it was no longer clear when working life stopped and private life began. Inevitably, the confusion between work and social media has found its way to the courts. In a 2020 article for Thomson Reuters Practical Law, British lawyer Deborah Hely wrote about a European Court of Human Rights case in which Csaba Herbai, a human resources manager at a Hungarian bank, co-founded and wrote for an HR website. Describing himself as an HR manager in a large bank, but without mentioning his employer’s name, he wrote about how difficult it was for HR managers to develop a business-focused HR strategy and also criticized new tax legislation. The bank said he had acquired the expertise to write about these subjects at work, that he had breached its code of ethics by talking about what were, effectively, the bank’s activities, and fired him. The court held that this violated Herbai’s right to freedom of expression under Article 10 of the European Convention on Human Rights. The court said that he was simply sharing his knowledge on a matter of public interest, that he wasn’t acting out of personal grievance and that the bank had failed to demonstrate that he had damaged its interests.

Freedom of expression, with caveats

The grey area lies in cases like Lineker’s, where people express opinions that are not necessarily aligned with the company’s position. To what extent should employers accept that people have a right to freedom of speech provided they do not insult colleagues, name customers, or reveal proprietary information? Stohl says that deciding where the line lies shouldn’t be a top-down decision. Social media policies should be the result of a discussion with employees and trade unions. Provided employees do not say anything that is clearly unacceptable, such as expressing racist views, they should not be deprived of their right to speak.

‘Employees are being given a mixed message. Companies are saying ‘bring yourself to work’ but don’t express yourself in a way that may embarrass the company’ Paul Thompson, Emeritus Professor at the University of Stirling

She adds that there are other decisions the organization needs to make: In an era of increasing gig working, who are your employees? Are they those who are fully part of your organization, or contractors like Lineker? And should each group be subject to different rules?

Photo: Laurence Griffiths - The FA/The FA via Getty Images

Gary Lineker was shown a red card for criticizing the British government’s refugee policy

By contrast, a UK employment tribunal case in 2011 found that a shift manager at Wetherspoons, a pub chain, who had shared her frustration about some deeply unpleasant customers on Facebook had been fairly dismissed. The shift manager had told the customers, a couple, to leave after they had subjected her to a torrent of verbal abuse and physical threats. She had then received a series of foul-mouthed phone calls from the couple’s daughter. The company agreed that she had kept her calm and behaved professionally throughout. But while still at work, she had vented her frustration to friends – she thought privately – on Facebook, swearing about the couple and mentioning their first names. When their daughter complained to the company that she had seen the Facebook messages, the shift manager was sacked. The tribunal accepted that the company had a right to act as it did. Looking at these two cases, the court decisions seem reasonable. In the Hungarian bank case, the HR manager was expressing a calm opinion not directly related to his employer. In the pub case, the shift manager had clearly gone too far in naming the couple in a forum that was not as private as she had thought; although one can sympathize with her view that, given the abuse and threats she had faced, a lesser sanction might have been considered.

To this, we can add: organizations should be honest and employees need to understand what working for an organization entails. When people enter employment, whether as staff or contractors, they inevitably give up some freedoms. They may be given latitude to express personal opinions, but damaging the organization is never going to be acceptable, regardless of the medium. We always need to make some adaptation to the places we work in. A good employer will give us the freedom to speak, but the needs of the company – to maintain its reputation and protect its interests – will always impose some constraints. We can never truly bring our whole selves to work. We need to carve out some space away from work to do that. And face-to-face chatting in private, or where there is so much noise you can’t be overheard, is the safest place to say what you want. ■

Michael Skapinker is a Financial Times contributing editor, a member of the I by IMD editorial advisory board, and the author of Inside the Leaders’ Club: How Top Companies Deal with Pressing Business Issues.

June-Aug 2023 • I by IMD 57

[ CEO dialogue ]

Nourishing and flourishing: ‘Trust me, people are our most valuable resource' Mostafa Terrab, CEO and Chairman of the Board of the Moroccan fertilizer group OCP, explains to IMD President Jean-François Manzoni how sincerity of intent helped him gain the trust of his people as he orchestrated radical reform

hen Mostafa Terrab became head of Morocco’s OCP group in 2006, he had a frank discussion with a miner who told him the organization’s biggest asset was not – as his management team was trying to tell him – its sole access to 70% of the world’s phosphate reserves, but rather its people. “He said, Mr CEO, you have a choice here, a basic choice’,” recalled Terrab. “Either you believe them and we're going to go to bankruptcy, or you understand that our real wealth is human capital.” Formerly responsible for the reform of Morocco's telecoms industry, Terrab credits this conversation with guiding him over the past 17 years as he has transformed OCP from a loss-making governmental agency producing and selling phosphate rock into a leading producer of customized fertilizers with 23,000 employees and revenues last year of $11 billion. Central to this success has been connecting those valuable phosphate reserves to a broader purpose – to maintain soil health so that the planet can continue to feed its growing population – and empowering OCP’s people to innovate so that they can achieve this goal. Founded in 1920 with a single mine, OCP’s operations now span the value chain from mining and manufacturing to customized services for farmers, education, and community development. 58 I by IMD • June-Aug 2023

When Terrab took over, OCP was hemorrhaging money and had negative equity on its balance sheet. Under his leadership, OCP was transformed into a joint stock company, with the state owning 95% of the shares. The change in structure allowed OCP to access international debt markets with a bond issue to fund an $8 billion capital spending plan to invest in higher-margin fertilizer production. “In terms of managing a difficult transition, I consider we were lucky to have a burning platform, because that allowed us not just to convince, but actually to bring enthusiasm within the company in terms of that change process,” said Terrab. Empowering employees with an innovation mindset

Describing challenges as “luck” is something Terrab does throughout the CEO Dialogue, underscoring his belief in maintaining an optimistic and positive attitude as a leader. His first step as CEO was to excite people around a greater purpose. “Phosphate has this special role in terms of soil health – it’s really the vitamin for the root of the plant,” he said. “We bring life to the soil so that the soil can feed us in return.” The purpose acts like a “North Star” which guides how employees think and act, he added. Once this was in place, Terrab was able to strip away layers of bureaucracy to free people up to take risks. In 2016, OCP launched a bold initiative called “The Movement” which was aimed at decentralizing the organization and encouraging employees to innovate by working on a topic of their choice, as long as it would bring value to the group. This was a radical move in Morocco’s traditionally hierarchical business culture, and there was some resistance from skeptical managers who thought it would spark chaos. But that didn’t happen. The departure from a command-and-control style of management also reflected the change in OCP’s workforce. During the first five years of Terrab’s tenure, 10,000 employees reached retirement age and the average age at OCP dropped from 47 to 35. Thinking that this empowered way of working would mainly appeal to the group’s younger white-collar »

Photo: Wikipedia

‘If people think you are sincere, if you've managed to convince them that you are sincere – in Arabic we call it niyyah, which means sincerity of intent – then the trust is an outgrowth of that’

Mostafa Terrab: ‘We bring life to the soil so that the soil can feed us in return’

June-Aug 2023 • I by IMD 59

[ CEO dialogue ]

workers at its headquarters, Terrab was surprised when the movement spread to its production sites, with many blue-collar workers submitting excellent ideas to improve productivity and safety. Another key pillar has been education, with staff encouraged to be lifelong learners and to develop their knowledge throughout their careers. OCP even founded the Mohammed VI Polytechnic University to support R&D. “We like to think we are incubating a university that will in turn incubate the new OCP,” he said.

‘When you are in this constant discovery phase, that’s what keeps me going. For me, it’s not the same job. What I’m doing today is very different from what I was doing four years ago’ Gaining trust through sincerity of intent

Reflecting during the CEO Dialogue on how he managed to bring his employees with him during the transformation, Terrab stresses the importance of one of OCP’s core values: sincerity of intent. “If people think you are sincere, if you've managed to convince them that you are sincere – in Arabic we call it niya, which means sincerity of intent – then the trust is an outgrowth of that.” Terrab put this sincerity of intent into action during his second visit to a mine when the workers came to him at 10pm one evening and asked him to go down the mining shaft with them. “This was an old underground mine that was no longer operating, but that they had kept open for one specific purpose, and that was to take the new CEO down the mine,” he recalled. Terrab agreed, and when they later came back to the surface, he was told: “Now we know we can trust you.” When he asked why, they laughed and told him some of his predecessors had refused to go. “And this was a key moment I think in terms of trust,” he said. “So these colleagues have a way to test sincerity and trust, and this was also another key moment for building that alchemy.” Later, during the 2008 financial crisis, Terrab was confronted with a tangible sign of this trust. The market for phosphate had collapsed, and lacking space to store stock, OCP decided it would have to shut down some of its production. When he spoke to the managers of the mines, he was told that workers would go on strike if this happened. He then spoke to one of the workers who said they would trust him if Terrab believed it was strategically the right thing to do. “Can you imagine the strength that people like this can give you in terms of the trust they are putting in you and that you can put into them?” he said. 60 I by IMD • June-Aug 2023

Taking on the next challenge

With the first stage of OCP’s transformation complete, Terrab has now turned his attention to accelerating the lowering of the company’s environmental footprint. OCP has announced plans to invest $13bn in renewable energy and green hydrogen with the aim to be carbon neutral by 2040. Terrab also sees OCP playing a role in global food security. “Without fertilizer, we could only feed half of the world's population,” he said. As arable land per capita decreases globally because of population growth, Terrab notes that 60% of the world’s unused arable land lies in Africa. “We have to find ways to make Africa contribute positively to global food security. In the meantime, we have to also contribute to Africa’s food security.” OCP is deploying machine-learning algorithms to help it produce fertilizers that are customizable to crop conditions and farmers’ individual needs. This means they are cheaper to produce and without damaging the environment because the nutrients are fully absorbed by the soil and plants and don’t get into the water table. Terrab describes soil as the planet’s “most underestimated asset”, which could be a new weapon in the fight against climate change if agricultural practices become more regenerative. “We have estimates that soil, if treated correctly, can sequester twice the amount [of CO2] that we emit, every year on the planet!” After 17 years at the helm, it’s clear that Terrab still remains just as excited about OCP’s future. “Being in this constant discovery phase, that’s what keeps me going,” he said. “For me, it’s not the same job. What I’m doing today is very different from what I was doing four years ago. And the fulfillment comes from seeing colleagues grow and have that spark in their eyes that you can see here and there. That's an amazing fuel for life.” ■

Watch the full discussion to hear more from Mostafa Terrab, including how OCP has transformed from a mining company by extending its activities both upstream and downstream, how OCP and its employees partner with local communities, and why 50% of his time is focused on maintaining the company’s values and culture.

Jean-François Manzoni is President of IMD, where he also serves as Nestlé Chaired Professor of Leadership and Organizational Development. His research, teaching, and consulting activities are focused on leadership, the development of high-performance organizations and corporate governance.

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June-Aug 2023 • I by IMD 61

[ World view ]

Japan’s economy needs another miracle cure. Can it find one? Yes, but only if policy changes are implemented to boost mobility, attract fresh talent, and tackle the problems of an aging population, argues Arturo Bris

Japan is in need of a similar miracle today, with Marcel Thieliant, senior Japan economist at Capital Economics, stating in December: “We think the Japanese economy will enter a recession sometime next year.” It's holding off for now thanks to a post-COVID spurt in household spending and tourism. But Japanese exports dropped by four per cent in the first quarter of 2023, according to Refinitiv, marking a new trend, and manufacturing and industrial production have been almost flat since the end of the pandemic.

The devil lies in the detail

In the 2022 IMD World Competitiveness Ranking (WCR), Japan was placed 34 out of 63 economies. In 2006, it was 16th – the highest it has been since it entered our rankings in 1997.

Japanese infrastructure is good (it came 22nd in this pillar). But its public sector is ineffective and its private sector paralyzed, both of which have knock-on effects on economic performance (39th in 2022 and 11th in 2020) and business efficiency (51st in 2022, and in freefall since 2014 – see graph for details). Japan has never fostered the productivity of small and medium enterprises and it has weak muscle power in innovation and digital prowess as a result. Against a fairly rigid business environment, the widening productivity gap between large enterprises and SMEs has dragged down productivity and performance.

Substantial risks lie ahead, and they will be all the greater if the global economy slows further. Given that this is as likely as not (given that economic projections are entirely unreliable), business leaders – including Japan’s – should be looking for ways to guard against unforeseen disruptions.

At the WCC, we advise economies to draw on their strengths. Japan has long been a front-runner in technological developments, but it has taken its eye off the ball. In the auto industry, Toyota and Mitsubishi are struggling to stay relevant in the face of competition from the Chinese. It has also lost its dominance in semiconductors and consumer electronics.

Japan was a victim of stagflation – persistent high inflation combined with high unemployment and stagnant demand in a country's economy. It is the same danger we are confronted with in the world economy. Japan’s struggles prove that economic competitiveness is a movable feast made of many parts, involving the private and public sectors alike.

An unequal, top-heavy society

When I was in Tokyo in April, I had never felt the country to be more trapped. But I prefer to look at causes for optimism – after all, in a post-COVID world, anything is possible. 62 I by IMD • June-Aug 2023

Competitiveness is synonymous with quality of life, and Japan’s living standards have steadily eroded. The pandemic exposed systemic inequalities from the past. While all developed countries experience demographic decline, the situation is untenable in Japan. Last year, nearly twice as many people died as were born, and many people who are childless would be thrown into poverty if they started a family. With a disproportionately elderly population, a lot of money goes into pensions – and upskilling just isn’t a thing. The 55-year-old who has

Illustration: Jörn Kaspuhl

any economists have at various points in Japan’s downhill tumble over the last quarter century hollered a view on how to send the economy back to the summit. It was there, after all, in its glory days of rapid and sustained economic growth from 1945 to 1991 – the era of the famed Japanese economic miracle that followed the loss of its mainland conquests.

IMD World Competitiveness Ranking: Japan‘s evolution over time

been in the same company his or her entire working life is either not interested in further training or not offered the opportunity. The government is trying to invest in reskilling, but it has a massive amount of debt. Japan has come late to the game of attracting foreign talent with the introduction of new visa pathways. An important next step is to eliminate differential treatment between men and women and level opportunities for non-regular workers.

These are low-hanging fruits – a good national strategy and a commitment on all sides of the political spectrum could easily help address them, with the exception of the aging population. A clear policy on talent attraction and employee mobility across industries and borders would, in the long run, reduce the average age of the population.

Remarkable trade potential

Last year, I wrote about Japan’s national strategy in my book The Right Place. While “Abenomics” (the pro-growth economic strategy introduced by Japan’s late prime minister Shinzo Abe) was well formulated, the Japanese have failed to enact it. Political instability, the pandemic, and a lack of national consensus has brought the Abenomics dream to an end.

Japan performs best (fourth) in the environmental factor, resulting largely from its high environmental standards in trade. It is the top-performing country in the rankings when it comes to carbon pricing and offsetting by exporting companies. It also ranks 19th out of 162 countries for progress on achieving the SDGs, according to the Sustainable Development Report 2022. Japan’s logistics is rated as excellent and efficient – for a country with a strong manufacturing sector, this is encouraging.

Does Japan need a new national strategy, or should it focus on strengthening the sustainability of its current growth model? The data is there for the taking and Japan’s business leaders need to get their hands dirty with it. ■

In 2022, Japan ranked fourth out of the 30 economies studied in the Hinrich-IMD Sustainable Trade Index – a new addition to our WCC indices, and one which measures how countries balance out the ESG impacts of their global trade actions.

Infographic: Ole Häntzschel

issue of the rapidly aging population, and revitalize rural areas through a vision for a “digital garden city nation”.

Every year, we ask our global network of partner institutes to list the major competitiveness challenges that their economy faces. In 2022, Japan’s came from the Mitsubishi Research Institute in Tokyo which listed the following: achieve a new form of capitalism based on sustainability and human capital, realize a virtuous cycle of growth and distribution, promote efforts to realize a science and technology nation, resolve the

The 2023 IMD World Competitiveness Ranking will be published on 30 June. The full 2022 report and the 2022 STI report is available online at www.imd.org/wcc

Arturo Bris is Professor of Finance and Director of the IMD World Competitiveness Center. His research and consulting focus on the international aspects of financial regulation, banking and financial services, national competitiveness, the future of jobs, and fintech.

June-Aug 2023 • I by IMD 63

[ Human resources ]

Photo: Eduard Labar via Unsplash, SAP

Jumping over the hurdles to reimagine the future of work

64 I by IMD • June-Aug 2023

Christian Schmeichel, Chief Future of Work Officer at the business software group SAP, tells Anand Narasimhan about the importance of his role and what others can learn from his company’s experience

“It’s all about making SAP more agile, more resilient, more competitive, and more future ready,” he said. “If we get this right, we can share the benefits with our customers through our software solutions.”

“We are looking beyond our organizational boundaries, so we are connecting with other companies and organizations and working with academia and distilling all of this into meaningful content,” said Schmeichel. “Everything we do on the future of work should be regarded as a showcase. One of our goals is to support the development of the HR community in this area.”

he business software group SAP launched its Future of Work strategy in 2021 based on a belief that there was not only a strategic imperative to ensure that the company remained an attractive employer, but a conviction that it would help to drive transformation and create business opportunities. "At the start of the COVID-19 pandemic, there was suddenly a huge focus of attention on how we would like to work, not only during the pandemic but afterwards too,” said the company’s Chief Future of Work Officer Christian Schmeichel in a discussion with Anand Narasimhan. “And as part of that discussion, the executive board decided that there was not just a strategic imperative that SAP needed to get this right for business purposes, but also a strategic opportunity to take things to the next level at SAP and to differentiate ourselves in the labor market."

SAP is keen to share insights from its Future of Work strategy with other organizations and to play a thought leadership role by commissioning and publishing reports on the topic.

SAP’s Future of Work agenda covers a wide range of dimensions that feed into the core strategy of the business. Key elements include future workforce planning, innovative workplace practices to ensure employee engagement, flexible and hybrid work, and holistic health management.

‘Everything we do on the future of work should be regarded as a showcase. One of our goals is to support the development of the HR community in this area’

His appointment to this newly created position made SAP one of just a handful of companies with someone managing the future of work topic holistically at the C-suite level. A dedicated, cross-functional global team of around 120 people was set up with a mission to design and orchestrate the company's agenda in this area for its 110,000 employees. The team is organized into eight agile capability-based clusters that cover all aspects of SAP’s Future of Work value chain (see box for details). Schmeichel was born in Cologne, Germany, and started his career in corporate finance and strategy consulting, joining SAP in 2005 after completing a PhD in Human Capital Management at Saarland University in Saarbrücken. He has since held a string of roles with the company including Chief Operating Officer (COO) for Global HR, HR Director for Japan, and Head of HR Strategy. In his student days, he competed in German national track and field events, notably as a 110m hurdler, from which he learnt some important lessons that still inform his outlook today, not least in addressing the challenges presented by the future of work. "One thing I learned during that time was that there will always be hurdles in life. You just need to jump over them," he said. Leading the conversation

When SAP launched its Future of Work agenda, Schmeichel said the strategic argument for this was clear – the company knew that the sustainable success of SAP and its customers depended on its attractiveness as an employer. But the move also represented an opportunity to fundamentally transform the company.

Christian Schmeichel, SAP

“We are looking at the whole topic of the future of work holistically,” said Schmeichel. “This means we’re looking at the future workforce composition that we need and, based on that target picture, we can define what kind of people and workplace practices we will need to make this new workforce happy, motivated, and engaged. And, last but by no means least, the HR function also needs to evolve." The future of work is not just an HR issue for SAP. "It's more of a mix of business elements and strategic HR topics that need to be managed holistically end to end," he explained. Predicting future talent needs

Strategic workforce planning plays a central role. This starts with a multidimensional business planning process, that involves the strategy and » June-Aug 2023 • I by IMD 65

[ Human resources ]

finance departments, to develop an idea of future workforce needs based on possible future scenarios.

gives SAP an advantage over competitors who are now mandating their employees to come into the office several days a week.

With the world of work changing at breakneck speed, there is inevitably an element of uncertainty in such projections. "Of course, you can't predict the future 100%, but you can prepare for different scenarios, and this considerably increases the likelihood and probability of being more or less in the right target corridor,” said Schmeichel.

A sense of purpose and belonging

The emergence of new tools and techniques for the leveraging of data and the use of artificial intelligence are also making scenario planning more sophisticated. "If you close your eyes and look five or 10 years down the road, it comes down to a few fundamental questions: How many permanent employees do we have? How many gig workers, how much AI, and how many robots will we have on the team? This machine element will probably become more significant," said Schmeichel. It is already clear that generative AI technologies are going to have a major impact on the roles and tasks currently carried out by white-collar knowledge workers, he added. This target picture helps SAP to understand what skills it will need in the future and where it could recruit people with those skills. "The whole topic of location strategy then comes into play, which helps you to optimize your cost mix, because we need to see where particular talent is available, what is the price point, and how you can manage this in a way that is affordable for the organization,” he said. "In the past, it was more about headcount planning. These days, it's becoming more important to think about the skills that you need and where these skills are, so you can come up with a much more fluid organizational set-up that enables you to match the skills that you have available with the tasks that need to be done." Another significant element is the firm's commitment to flexible working, encapsulated in its flagship Pledge to Flex hybrid work model. SAP had made extensive use of remote working before COVID-19 struck, but the pandemic was a game changer that shifted employee expectations. "Simply offering a modern workforce good compensation, financial security, good benefits, career opportunities, and career growth are not enough anymore,” said Schmeichel. “These are just seen as table stakes. Moving forward, what is important is offering a truly flexible working model. People expect a working environment that is close to their private environment, including in terms of technology. It's essential that stateof-the-art employers, particularly of knowledge workers, offer this kind of flexibility." The Pledge to Flex model allows all employees to find the best balance between working in the office and remotely. While flexible working must be built around customer and business requirements, this approach means individual needs, roles, and work styles are also factored in. This flexibility over location, work time, and workspace 66 I by IMD • June-Aug 2023

The pandemic also led to a much greater focus on a company's culture, values, and shared purpose as a factor in recruiting and retaining talent, particularly among younger workers. "It has become front and center for people, and they pick and choose an employer, and decide whether to leave or to stay, based on this question of values and culture, which is becoming more important than ever," said Schmeichel.

Workforce planning Sets the path for a future-ready workforce and translates SAP’s business priorities into future focus points for workforce needs by providing insight on SAP’s Future workforce composition, market trends, and of Work team desired future state across dimensions such as skills, roles, career-level-mix, age-mix, location, and employment models.

Pledge to flex Transforms SAP into a true hybrid company through flexible working. New work practices Guides and enables organizations, teams, and leaders to apply innovative work practices to thrive in the future of work. Health, safety, and well-being Fosters a caring culture, healthy habits, and resilience through tailored physical health and mental well-being offerings, dedicated support for leaders, and crisis support. Strategy and innovation Scouting and infusing new trends into the organization while showcasing SAP’s Future of Work agenda. Digital lab Boosts digital experiences and productivity with new hybrid work technology, digital workplace innovations, and the SAP SuccessFactors’ Human Experience Management (HXM) solution. Insights Provides data-driven intelligence that drives SAP’s programs and initiatives. Continuously listens to employees to create actions that lead to positive change and shape the Future of Work agenda. Alumni relations Unfolds the strategic potential of retaining and referring alumni talent in the SAP ecosystem. Leverages the expertise, diversity, and outside-in perspective of the SAP alumni community.

People want to find a meaningful purpose in their work, which they see as offering an anchor in their lives at a time of huge disruption, he explained. Shared purpose also plays an important role in connecting and engaging staff when they are scattered across many locations due to flexible working. With hierarchies getting flatter and many sectors operating hybrid working models, the role of leaders in motivating employees and fostering cultural belonging is becoming increasingly more important, he said. "Although people are now working more flexibly and often remotely, leadership is still a contact sport, and we need to make sure that we have a close relationship between employees and leaders, supported by the right organizational set-up." Health, safety, and well-being are other crucial areas of the Future of Work strategy at SAP, not least because it regards this as essential for sustainable business performance. But this now covers a much broader scope, with a particular commitment to supporting employees' mental health in the wake of the pandemic.

‘Although people are working more flexibly and often remotely, leadership is still a contact sport, and we need to make sure that we have a close relationship between employees and leaders, supported by the right organizational set-up’

At the heart of this, the company continuously measures the mood through employee pulse surveys, its Stress-Satisfaction Index and its Business Health Culture Index, a KPI that is included in its Integrated Report and studied by investors.

“I see data-driven HR as being very important,” he said. “This is what gives you credibility with the business. This is what helps you drive strategic talent and organizational decisions, and this is what can really make the difference between good HR work and great HR work." All of SAP's core HR processes have been moved into the cloud so that employees, managers, and job candidates can access services anytime and anywhere, while its SuccessFactors software provides an end-to-end human experience management (HXM) solution throughout the career development journey, starting with onboarding. Digitalization has also helped to deliver efficiency gains in more routine back-end HR services. SAP's AI-powered 24/7 chatbot recently managed 42,000 HR requests in a 12-month period, for example. This frees up time for value-added services such as talent management or personal conversations. "We use digital tools to drive standardization at the back end so that we can personalize at the front end," said Schmeichel. He expects generative AI to offer significant opportunities for enhancements in HR, such as ensuring that job descriptions are truly neutral, improving the matching of job candidates with open positions, and streamlining call center operations. However, he warned that this, and other developments, will need to be carefully managed and understood. "Since the business is changing so fast, one needs to be much more agile as an HR function to help support the business by being knowledgeable about methodologies and skills and tools," he said. "I feel that HR is at an inflection point. In the past it was always our role to come up with a talent strategy for the business. Right now, I feel we rather need a talent strategy for HR itself. However, if we get this right, it is a once-in-a-generation opportunity to truly shape how we all work and live in the future." ■

This drive to maintain a healthy and attractive working environment translates into a range of physical health and mental well-being initiatives, such as the “Are You OK?” destigmatization campaign, SAP Mental Health Day (an additional fully paid day off for all employees), a 24/7 hotline to help with any challenges that people are facing, and a mindfulness practice. SAP believes that mindfulness training helps people to reflect on and manage their lives. There has been strong demand for the sessions offered by a dedicated mindfulness team, so it is now looking to offer this training at scale across the organization. Follow the numbers

Schmeichel is a big believer in leveraging data and digital tools to support the Future of Work strategy and HR processes. SAP makes extensive use of data-driven HR analytics to solve business problems and inform decision-making.

June-Aug 2023 • I by IMD 67

[ Sustainability ]

Why strategy is not enough: leading sustainable business transformation Organizations need to take actions on both strategic and leadership dimensions of sustainability transformations to achieve impact, as James Henderson, Julia Binder and Knut Haanaes explain

hy do most business transformation initiatives fail? Often, organizations focus only on the strategic reasons for change and ignore the leadership and change elements of how the transformation is to be delivered. While business leaders are usually clear on the logic of sustainable transformation, they often fail to create the engagement needed to drive the change they want to achieve. All these elements are essential for any kind of transformation to succeed. You need a combination of the head, or the logic of transformation, and the heart and hands, or the leadership of transformation, to get your organization to mobilize around the change. And this is particularly true when it comes to sustainability, which requires fundamental transformation for most companies.

expectation that change will happen automatically once the initiative is announced, but research shows that this rarely happens in reality. Such an approach misses out a whole range of actions needed to ensure that people are inspired to get behind the initiative. Yet, focusing only on the leadership aspects of transformation will not work if the strategic imperative for change is not present. Take the example of the aviation sector, where some organizations are making a push to adopt sustainable aviation fuels, even though these are still up to five times the price of regular aviation fuels. Even if you deploy all of the leadership tools at your disposal, any change is going to be limited and very slow until the underlying production technologies improve so that sustainable aviation fuels become more cost competitive. Recent academic research showed the importance of the two – clarity in direction (the head) and corporate purpose (the heart and hands) – for financial performance. Using data from the Great Place to Work Institute's surveys, the authors found that those companies that were rated “high” by their middle management and salaried employees on both corporate purpose and clarity in direction achieve a significant improvement in financial performance over time. However, the authors were unclear about the causal mechanisms behind this process. We decided to shed some light on the forces at play and explain how they operate in the area of sustainability. Our ‘infinity loop’ model

Our model for leading sustainable business transformation takes the form of an infinity loop showing how the strategic and leadership aspects of driving change intertwine and interact. Sustainability is a constantly changing area and so there is a continuous cycle in which developments on one side of the model flow through to adjustments on the other. We developed this infinity loop model for the Leading Sustainable Business Transformation program that we run. It is constantly evolving, but we think that it provides a useful frame of reference for starting to think about the key components of successful sustainable business transformation, in which companies build advantages and shape the future through new business models. Let us explain a bit more about each of the elements of the model. On the strategic side, the important components are as follows:

Strategists in many organizations tend to focus on the factual rationale for innovation and change, but this approach ignores the vital importance of the need to bring people along with you, both inside the organization and in the external ecosystem. And yet it is this leadership part of the equation that really drives change. Both elements need to be combined if businesses are going to play a full part in shaping the future and creating a more sustainable world.

Crafting sustainability strategy

Transformation requires strategic imperative and leadership

• Developing the reporting and disclosure capabilities to meet and exceed the expectations of regulators and investors. • Meeting and exceeding increasingly standard regulatory requirements.

When organizations concentrate only on the strategic side of the picture, the transformation initiative tends to happen in a vacuum, with an 68 I by IMD • June-Aug 2023

• Linking to the organization’s purpose. • Integrating sustainability within the core strategy. • Prioritizing through materiality matrices. • Widening the scope for business model innovation. • Building the business case for transformation. Responding to ESG pressures

OUR FRAME OF REFERENCE Responding to ESG pressures

Ensuring organizational readiness

Crafting sustainability strategy Roadmapping the transformation

STRATEGIC IMPERATIVE

Engaging stakeholders

ACTIVATING SUSTAINABILITY

Shaping the environment

Roadmapping the transformation

• Taking an outside-in, looking forward, and reasoning back approach versus an inside-out, incremental, year-on-year approach. • Combining long-term marathons with short-term sprints and targets. Ensuring organizational readiness

• Accompanying the case for transformation with changes in KPIs, metrics, and incentives. • Broadening out sustainability responsibilities so that they become a core part of a company’s structure and processes. • Building sustainability capabilities throughout the organization. Shaping the environment

• Integrating the non-market environment (regulators, government officials, NGOs) into the strategy development process. • Framing the non-market discussion to build your transformation case. And on the leadership side, the key dimensions are: Engaging stakeholders

• Including internal and external stakeholders early on in the transformation journey. • Engaging stakeholders through dialogue rather than managing them through orders. • Instilling a clear understanding of a company’s purpose at all levels. • Leading with passion and purpose to create connections with middle management and salaried employees. Mobilizing the internal ecosystem

• Targeting the right stakeholders to enable change. • Timing change management tactics in the right order. Enabling courageous actions

• Encouraging others to lead through courageous dialogue. • Facing and managing dilemmas with confidence. • Listening to and acting on radical viewpoints from the outside.

LEADERSHIP IMPERATIVE Enabling courageous actions

Mobilizing the internal ecosystem Inspiring passion and purpose Building alliances

The ‘infinity loop’ model for leading sustainable business transformation by Knut Haanaes and James Henderson

Building alliances

• Scouting partners both big and small. • Structuring partnerships for maximum trust building. We hope that this model can serve as a useful framework for the actions needed to deliver sustainable business transformation, and help organizations move from the “what” to the “how”. Executives understand the logic of sustainability and why it is necessary, but they often struggle to understand how to go about the transformation. The nature of the challenge and the scale of change needed will differ between companies, but all organizations have to undertake some form of transformation, and they can use this frame of reference to help them identify what they need to do. ■ Sustainable business transformation will be the focus of the September issue of I by IMD.

James Henderson is Professor of Strategic Management at IMD. He is an expert on strategic agility, or the development and implementation of strategy under uncertainty. His research focuses on competitive strategy, corporate strategy, digital transformation, and sustainability. Julia Binder is Professor of Sustainable Innovation and Business Transformation at IMD. As Director of IMD’s Center for Sustainable and Inclusive Business, she aims to help leaders find innovative solutions to some of the biggest challenges of our time. She was named on the 2022 Thinkers50 Radar list of management thinkers to watch in the coming year. Knut Haanaes is Professor of Strategy and Lundin Sustainability Chair at IMD. He is Program Co-Director of the Leading Sustainable Business Transformation program and the Driving Sustainability from the Boardroom program. Previously, Knut was a Dean of the Global Leadership Institute at the World Economic Forum, and a Senior Partner and Managing Director at the Boston Consulting Group, where he was Global Leader of the group’s Strategy Practice.

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[ The forecaster ]

Established yet adaptable, the financial giants ready to catch the next wave

e can’t get through a day without feeling the impact of the latest innovation in AI coming to life in real time. But it's the tangible ramifications in the near future of this exponential impact that bewilder us all. ChatGPT is not the only thing. Copilot by Microsoft is another. Then the stock market saw Nvidia hit a trillion-dollar valuation, surpassing Tesla and Meta. Nvidia is a company that a year ago few outside of the tech sector would know or care about. It’s a company quietly making chipsets for video gamers; and it just so happens that these same chipsets can be trained for AI. A trillion-dollar capitalization is a thousand billion: a thousand unicorns. The magnitude of change in our world, all of a sudden, becomes unfathomable. Should it be a surprise that the Writers Guild of America, with its 11,000 unionized writers, went on strike?

Future readiness is a balanced scorecard

At IMD’s Center for Future Readiness, we produce a biannual ranking to measure just that. We do this through objective, rule-based measures that are calculated as a composite score. The ranking is based on seven main factors: (1) financial fundamentals, (2) investors’ expectations of future growth, (3) business diversity, (4) employee diversity/ESG, (5) research and development, (6) early results of innovation efforts, and (7) cash and debt. These seven main factors, which carry the same weight in the overall result, comprise 33 variables. In our most recent Future Readiness Indicator, published in May, we investigated the consumer packaged goods, finance, and automobile sectors. We discovered that the top-ranking companies in each sector have the basis and foundations they need to take advantage of the next new thing. Five years ago, it was omnichannel, e-commerce, and the Internet of Things (IoT). Today, it’s generative AI. The top-ranking

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Illustration: Jörn Kaspuhl

‘Future-ready’ companies such as Mastercard and Visa are always prepared to pivot quickly to take advantage of the latest trends, writes Howard Yu

It's always at these junctures, these ruptures, that some companies manage to ride on the next wave while others get left behind. Put differently: technology upheaval is always neutral. It benefits those who are future-ready. It supercharges the growth of some companies but also causes irreversible damage to those who are not ready. A question worth asking, therefore, is this: Can you tell if a company is future-ready? How do you measure readiness?

companies in our indicator are more capable of absorbing and responding to new trends because their executives and managers have prioritized initiatives and are able to persevere to do the hard work that is required in those new areas. Let’s look at the financial industry as an example.

‘Mastercard and Visa don’t see themselves as credit card companies. They started off that way, but that’s ancient history. They are now technology firms that facilitate commercial activities’ The big trends in this industry are embedded finance and open banking. Consumers want them, regulators demand them, and investors are bullish about them. Imagine mixing finance with all kinds of commercial activities. That's embedded finance. It’s a fancy term that describes blending financial services into non-financial services. That would represent a big world – throwing into it banking, credit, and insurance. One popular example is Buy Now Pay Later (BNPL). This BNPL market is growing. Some project it to exceed $3 trillion by 2030. That may be why Block (ranked #6 in our indicator) paid some $29 billion to acquire BNPL tech firm Afterpay. But what is the key to success in embedded finance? The answer: easy-to-use, all-in-one experiences. This requires deep collaboration between banks, tech providers, and financial product distributors. Financial services will need to be integrated into everyday tools such as loyalty apps, digital wallets, and other online and offline shopping platforms. Making all this work together smoothly are application programming interfaces (APIs) – the behind-the-scenes tools that help different programs and organizations communicate. That’s why top-ranking companies such as Mastercard and Visa have been relentlessly investing in APIs for years. They make sure consumers can use their network to clear PayPal transactions. They make sure crypto giant Coinbase can use them for the peer-to-peer exchange of digital goods minted as NFTs. Whether you are signing up for Apple Pay, Google Pay, Revolut, or Uber, Mastercard and Visa are the easiest options to pick, and third-party merchants are likely to accept them.

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Beyond finance

Mastercard and Visa don’t see themselves as credit card companies. They started off that way, but that’s ancient history. They are now technology firms that facilitate commercial activities. It doesn’t matter if you draw down your credit line, use fiat money, or cryptocurrencies – that is all possible with Mastercard and Visa. The consequence, of course, is that these organizations have made themselves very easy to work with. Whether you are Apple, with its strict requirements for data security, or a fintech upstart in Vietnam that needs

Nvidia hit a trillion-dollar valuation, surpassing Tesla and Meta, after adapting quickly to opportunities offered by AI

speed and simplicity, Mastercard, for example, can cater to you. It’s an organization that can pull data and information across the enterprise if needed. It’s an organization where technology expertise can move around the world. It’s an organization where its salespeople can mix and match the features of a product and customize it for the needs of a local startup at ease and without complicated internal coordination. Now, ask yourselves, if not them, then who in the industry can take the greatest advantage of generative AI to further automate workflow, product development, or customer support? To harness AI, you need data that’s clean and ready. You need a clear architecture that facilitates data exchange and sharing. When you have invested in an API-first strategy for so long, you are ready to take advantage of generative AI. That’s maybe why we observe, also in the automotive and consumer package goods sectors, that our rankings don’t jump all that much year by year – it takes hard work and perseverance to move up the ranking. No great company emerges overnight. The thought of a burning platform that propels a company to greatness is a myth. Instead, look to those that are best and continuously prepared to pivot to take advantage of the latest trends or to buffer themselves against the worst. No matter what environment they are in, they are ahead of the competition. That, to me, seems like a fair definition of being future-ready. ■ Howard Yu is LEGO® Professor of Management and Innovation at IMD, and the author of LEAP: How to Thrive in a World Where Everything Can Be Copied (PublicAffairs, June 2018). He is also director of IMD’s Center for Future Readiness. Jialu Shan, a research fellow at the Global Center for Digital Business Transformation at IMD, contributed to this article.

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