Building more ethical and effective cultures with Alison Taylor, head of Ethical Systems

Video transcript

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource looking into the future to examine big themes that will impact the C-suite and executive boardrooms worldwide. Today, we’re exploring the future of ESG and its strategic implications for people, process and the planet.

I’m thrilled to welcome Alison Taylor to the program. Alison is an adjunct professor at the NYU Stern School of Business and executive director at Ethical Systems, which is helping companies build more ethical and effective cultures through a more holistic approach to the future of corporate integrity. Alison is also currently an adviser at BSR, Business for Social Responsibility, a global sustainability business network and consultancy, where she works with companies on strategy and business development. She is an expert on ethics, sustainable business, political and social risk, human rights, corporate governance, and stakeholder capitalism. Alison, thank you so much for joining me today.

Alison Taylor: Thank you so much for having me.

Joe Kornik: Alison, let’s start with ESG. I’ve been doing a lot of interviewing and have had a lot of conversations for this particular theme that we’re working on, the future of ESG, and I’m discovering that ESG actually means many different things to different people. I’ll start there. What does ESG mean to you? What’s your definition?

Alison Taylor: I will start just by saying it is like that. It’s a bit like the blind men and the elephant, and everybody sees it in a slightly different way. The way that I would describe and define ESG is, it is the financialization of sustainability, or corporate responsibility. That’s a very old movement—centuries old—but there was a lot going on in the late ’90s with people being very concerned about slave labor in factories and deforestation and that kind of thing, so there’s a long-running responsible-business movement. And ESG is what happens when financial services and investors get hold of that and they try to translate it into financial data and financial results.

Joe Kornik: Can you tell us a little bit about your role at Ethical Systems?

Alison Taylor: I’ve been with Ethical Systems since the end of 2019. It’s a research collaboration, or maybe a think tank. We’re based at the NYU Stern School of Business, and we’re trying to help companies build more ethical and effective organizations and, particularly, organizational cultures. And, more specifically, what we’re trying to do is get the best ideas from academia and bring them into business. There is a lot of amazing research being done on responsible business, on ESG, on ethics and compliance, and the business community, a lot of the time, just ignores it. I think of myself as a translator: I’m trying to get the best ideas out of the brains of professors and explain them to businesspeople in a way that is practical and useful and makes sense, and then, by doing that, try and advance innovation and get people to think in a bit more of a fresh, different way about what they’re doing.

Joe Kornik: Interesting. How do you think we’re doing in general? How would you say companies are doing these days when it comes to not only sustainability and ESG but also integrity and ethics, which I think is a big topic and will be going forward?

Alison Taylor: Every business out there has noticed that something big is going on. We can see this everywhere. There are a million examples—more than we could cover on this recording—but it used to be, back in the 20th century and in the Milton Friedman era, that as long as you didn’t break the law, anything you did to maximize profit and shareholder value was at least ethically neutral. You could say you were a good business as long as you weren’t doing anything illegal.

Now, if I give my students a discussion question on business ethics, they’re quite likely to go away and talk about climate change or human rights or something like that. So, our notion of what a good and ethical business is and needs to do has completely changed. Everybody’s noticed that, because it would be hard to miss, whether you’re looking at Disney in Florida or the Paris climate agreement or all the culture-war stuff, all the employee pressure, all the revelations about human rights abuses and supply chains, the Xinjiang forced-labor law that just passed.

There’s a huge amount going on, and what I think is going on is that business leaders are feeling completely overwhelmed. They have no idea what to do about these things. Very often, there isn’t someone whose job it is to deal with these things. These things sit somewhere in between compliance and sustainability and corporate affairs and government relations and risk, and so, at the moment, it’s a real struggle to figure out how to respond. You don’t want to say, “We don’t care about any of these concerns — we’re just going focus on shareholder value,” but on the other hand, you don’t want to suggest or claim that you’re solving problems you can’t solve.

Companies are caught in the middle, between a rock and a hard place, trying to figure out what to say or what to do and how to tie things to their strategy and then how to respond to all this pressure. Where it often ends up is a governance by Twitter, where you’ve got someone in the marketing department saying, “Someone’s yelling at you about this today,” and companies pivot and try and respond as quickly as possible.

One of the biggest problems is that there’s so much bad advice out there, and so a lot of the debate also falls into this idea of some people saying, “Well, this is all nonsense, and you can ignore it,” and other people saying, “No, it is your job to solve climate change and human rights and inequality and democracy, and there’s not really a sensible middle path forward,” so that’s where I would say we are at the moment.

Joe Kornik: That’s interesting. You mentioned Twitter, and that’s an interesting point, because Twitter has forced executives to make a stand—or to feel like they need to make a stand—on several of these social issues. They’re not all going to be as easy as Russia-Ukraine. There’s going to be a lot more gray areas as we go forward. Do you think that executives will need to take more stands, take more positions, take a side, and should they? Would your advice be that they should, or should they try to steer clear as much as possible?

Alison Taylor: I’m a bit of a skeptic about companies taking a stand, because a lot of it is PR, and I hate to sound like such a historian, but before about 2014, it used to be that a business would say, “I am neutral. I don’t get involved in controversial issues. I don’t take positions. Republicans buy sneakers too”—whatever it is—“I don’t get involved in politics. It’s got nothing to do with me.” But always, beneath the surface that’s never been true. Companies spend money. They usually spend money on either side of the aisle. They lobby. They try and get things done in their own interests.

Businesses have been forced to take a stand, but then, what that’s done in turn is make employees and other stakeholders and everyone else be, like, “Hang on a minute. You’re saying one thing, but what are you doing beneath the surface? Do you mean it? Are you greenwashing? Are you spending money that undermines your position?”

I don’t think there’s a problem with a company taking a stand if it’s been really thoughtful about it, but it’s very dangerous to take a stand and treat this like it’s just messaging, because now what you’ve got is armies of employees investigating and trying to figure out if you mean what you say. It’s OK to take a stand, but make sure you’ve got your ducks in a row internally. Make sure you can talk about what your business is actually doing about the issue. Don’t just talk about something that’s got nothing to do with your business to have an effect.

We are, as you’ve doubtless noticed, very polarized in this country at the moment. Republicans and Democrats have always disagreed, but now, there’s been a big rise in what we call effective polarization, which means we don’t just disagree with the other side. We think the other side is evil and stupid. You can see surveys where people are quite happy for their children to marry someone from a different religion, but marry someone from a different political party? No way. We’re in this really dangerous situation, and I certainly don’t think it’s business’s role to save democracy, but business needs to be very careful about the backlash and the turmoil that you have seen going on with some very high-profile companies recently.

Joe Kornik: Let’s stick with business leaders, then, if we could. You had mentioned them earlier. You think they’re really struggling. They’ve just been inundated with all of this information. ESG has become a real front-burner issue for all of them. When it comes to ESG and, specifically, ethics, what would be your advice for business leaders? What steps could they be taking to make sure they get this right?

Alison Taylor: I have a one-word answer that, but I’ll expand my one-word answer: focus. There’s a f confusing aspect of ESG, which is that because a lot of it is driven by investors, what investors want is a bunch of ESG ratings. What they want is for the company to disclose information on 30, 40, 50, 100 issues, and then the investors can look at that data. They can put the company in a portfolio of companies, and they can use it to make more money.

I’m not saying there’s a problem with transparency, but I don’t think “What can I do to get a better ESG score?” is a good way to run your strategy, because you will end up completely overwhelmed. Realistically, a business cannot be ambitious and cannot be doing a good job on 30 or 40 issues. The advice I give when I consult to companies on this topic is, pick, ideally, one issue — but definitely no more than three — that is genuinely relevant to your business, where you can genuinely get something done and it is genuinely relevant to your stakeholders, and focus on that issue.

Do something ambitious, do something strategic, partner with NGOs, make sure that’s your message. On everything else, just be aligned with your peers, but don’t try and solve world poverty. Just work on the things that your business can do, and try and do that properly, because the alternative is that this is just treated as PR, and you end up with a team that spends all year writing the report and gathering the data and doesn’t do anything about the problem. I’d much rather see companies focus on one really important thing.

I read an article in the Wall Street Journal a couple of weeks ago: The former chairman of Aetna said, at the end of this article, “Running a business is now table stakes,” and I thought that was a pretty terrifying comment, because running a business has probably never been so difficult. I would like the people running businesses to focus on running the business and not on saving the world, where we have other institutions—at least in theory—whose job it is to do that.

Joe Kornik: That’s interesting. You mentioned focus and staying focused on one or two. Do you have any suggestions or any thoughts about which may be the most important? I’m sure it varies by business or by geo, but are there some that have risen to the top in terms of their import for business leaders to focus on?

Alison Taylor: I think everybody is concerned about climate change, obviously—or all young people, at least, are concerned about climate change—and the other thing we’ve seen since the pandemic is, there’s now a very big focus on good jobs, a living wage, healthcare, things like that. We’re starting to see the rise of unions again. Those two topics are really important, but otherwise, you’re right—it varies a lot by industry. If you’re an oil and gas company, you’ve got an obligation to do something about climate change. If you’re a pharmaceutical company, you need to be looking at drug access and pricing. If you’re a social media platform, you need to be looking at the social impact of tech.

Companies would rather not focus on those problems, because they’re core to their business model and they’re difficult problems, but if you want trust and credibility and to be ethical, you’ve got to do something about the things that are core to your business model. The good news is that that also will result in programs that are relevant to your business, not just you speaking up on some random thing that’s got nothing to do with you.

To go back to that speaking-up point, I’m making this sound easier than it is, because those issues around race and gender and things like that obviously are relevant to all companies, and they need to think about what they’re going to say or do if there’s a lot of employee pressure, but you can be thoughtful about that. But I keep going back to this point, and everything that happens out there in the ESG world just reinforces this for me: You will be most likely to be successful if you are very focused about what you’re trying to do and honest and clear about that but you don’t overpromise. You don’t make promises you can’t keep. I think that’s very dangerous today.

Joe Kornik: It seems to me that often, ethics gets overlooked when we talk about ESG or corporate responsibility. As you mentioned earlier, it’s going to be hugely important over the next decade. One, is that a fair statement, and accurate? Two, where do you think it could have the most impact for companies when they think about ethics and integrity and their position on those things going forward?

Alison Taylor: I’ll try and be brief, but one of the interesting things about this is that—and this started in around the 1980s—we’ve seen an ethics and compliance function grow up on one side, and then we’ve seen this sustainability, or now ESG, grow up on the other side. And in fact, those two departments haven’t had much to do with each other until now. So, we’ve had this view that ethics is about the law—we’ve discussed that already—and ESG is about the voluntary things you do to make the world better. But of course, the voluntary things you do to make the world better are also based on ethical viewpoints. People are upset about climate change and inequality because they’re perceived to be ethical issues, so it is completely wrong to say ESG has nothing to do with ethics. But it comes from this idea that there are two different lines of thinking, and that ethics is only about the law.

What we’re now seeing—and I wrote a paper for the World Economic Forum about this with some colleagues—is rise of what we called the chief integrity officer, but what we’re starting to see is a more expanded integrity role, in the U.S., at least, that takes the form of the compliance team very often taking over ESG, and that can be bad if ESG is just seen as another disclosure and set of regulations. But for the right business leader to start to take a role that’s more strategic—that thinks about “What are our commitments going to be? What laws are we going to make? What position are we going to take globally? Can we operate in this market? Should we pull out of China? Should we pull out of Russia?”—you need a senior executive thinking about those challenges, and they cut across ethics and compliance and ESG. What I hope is going to happen is a more strategic approach to ethics over the long term.

Joe Kornik: Interesting. Thank you, Alison. You’ve been very generous with your time. We call this program VISION by Protiviti because we want people to give us their vision of the future. We want to bring smart people to the table and have them tell us about where we’re headed. When you look out a decade or more, what do you envision for this space?

Alison Taylor: It’s probably a question of what I think might happen and what I hope will happen, but certainly, what I hope will happen is that companies will have a big mindset shift and understand that a company is not just a self-interested entity, and you’ve got to protect the value at all costs. It’s a system. A company in real life is a social system, and it interacts with the environment, with other social systems, with political systems, and it relies on those systems and it relies on those stakeholders for success.

You can’t make money over the long term unless you cooperate with your customers, with your suppliers, with your employees, and so I hope we will move toward a model of business that’s more cooperative, more collaborative, that understands that you have a fundamental responsibility not to make the planet worse, and then, a very different sort of leadership that’s more democratic, that’s more about network building, more about listening, more about emotional intelligence.

I might be on to something here, because there’s been a recent study showing that job descriptions for C-suite executives have changed over the last 17 years. It used to be that what we wanted was just operational or financial experience and, really, the ability to bark orders from the top. Now, what job descriptions are looking for is exactly what I described: more empathy, more emotional intelligence, more network building. I hope that in 10 years, we’ll have this new generation of leaders that thinks differently about how you run a business and how you succeed in society, and we’ll have employees that want to support that, and we’ll have a little bit less turmoil and a little bit more focus and a lot more responsibility.

Joe Kornik: Bring it on. That sounds like the kind of world that we’d all be happier with.

Alison Taylor: I think so.

Joe Kornik: Alison, thank you so much again for your time today. We really appreciate it. And thank you for watching the VISION by Protiviti interview. I’m Joe Kornik. We’ll see you next time.

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