Cybersecurity is a good example of a prisoners’ dilemma in business. Everybody has a direct interest in seeing their data protected: citizens, consumers, producers and creators alike. But nobody has an interest in investing too much in the security of their own systems. This leads to systemic vulnerability, where breaches of security caused could have a negative impact on all and literally take down companies.
The path to statesmanship
1. First, be a good citizen
A good statesman has to be a good citizen. Gaining trust requires behaving responsibly, and being perceived in this light by other stakeholders. Maximization of Total Shareholder Return (TSR) within given legal boundaries is not enough. Leaders need to define clearly a human purpose, the higher social goal which their corporation serves, and ensure that their impact is compatible with that purpose. And they need to ensure that their own operations are based on values and a commitment to integrity.
A good start is the assessment of your firm’s economic, social, environmental and political impact. To this end, BCG recently developed a new metric called Total Societal Impact (TSI), which can be used to lay the foundations for a sound sustainability strategy.
2. Understand and protect the rules of the game
Above being a good citizen, statesmen need to protect the rules and institutions which guarantee balance in society. Companies benefit from a “license to operate” from society. Statesmen understanding the underlying conditions of the game, and the lines that cannot be crossed without jeopardizing their license to operate.
For example, Allergan CEO Brent Saunders acknowledged that “The health care industry has had a long-standing unwritten social contract with patients, physicians, policy makers and the public at large”. Perceived breach of that contract could threaten the entire industry: “As the focus on price has heated up, the innovation ecosystem has come under assault, and it is fragile”.
To protect the game, Allergan offered a new “social contract” to patients, with a focus on responsible pricing. The company then argued for industry-wide action, along with other CEOs. Recent data suggests Allergan’s commitment on pricing may be shaping de facto industry norms.
3. Bolster government
To play the game of business, companies need a fair set of rules and a referee. We tend to forget the value of regulation and criticize overregulation, but the rule of law is a basic condition for economic development. African fintech CEOs have been calling for regulatory actions to prevent fraud and facilitate the development of the industry. “Regulations have a huge role to play in ensuring the fintech industry becomes bigger and better,” said SimbaPay CEO Nyasinga Onyancha
In developed economies too, corporations should support the role of the state as regulator and referee. Elon Musk’s letter calling for the banning of autonomous weapons, which select and engage targets without human intervention, is an example of embracing regulation for social good. His letter clearly states that this about protecting the game and preventing: “a major public backlash against AI that curtails its future societal benefits”.
4. Support smart regulation
Empowering governments is a first step, but corporate leaders also need to propose and support smart regulations to preserve social balance. A case in point is the financial industry, which is highly complex and interconnected. It shares many features with biological systems, where all actors benefit from the ecosystem. In such situations, actors that over-stretch the system by systematically maximizing their private benefits may provoke collapse that is ultimately detrimental to their own interests.
Because statesmen are aware of those dynamics, they address a wider responsibility and support regulations that underpin a sustainable future for their industry. ExxonMobil’s CEO Darren Woods realizes that “growing demand creates a dual challenge: providing energy to meet people’s needs while managing the risks of climate change”. Therefore, in his first blog post as CEO, he advocated a “uniform price of carbon applied consistently across the economy” as the smartest way to meet that dual challenge.
5. Oppose injustice
When confronted with situations that are obviously unfair, the right response of the statesman is to take action. As Elie Wiesel put it, “We must take sides. Neutrality helps the oppressor, never the victim”.
Assessments of “right” and “wrong” should be informed by universal values and principles that we have learned from history.
To use the framework developed by economist Albert O. Hirschman, there are 3 ways to act:
· Exit, or refraining from participating in certain markets that don’t meet standards,
· Loyalty, or remain silent where general interest prevails (but a chosen silence rather a silence by default — the decision can be explained later if necessary),
· Voice, public communication of disapproval.
“Voice” may generate exposure for a corporation. One option for CEOs to mitigate such a risk is to distinguish their opinions as citizens from those of their companies. Sergey Brin attended demonstrations in his personal capacity, not as President of Google. This can be a good way to respond without the company appearing to customers and stakeholders as politically biased.
6. Take the lead
The major issues of society are well-known. Sometimes even the solutions are obvious but political, social or economic conditions prevent those solutions from being implemented. Statesmen do not use this as an excuse and will instead take the lead and demonstrate that action is possible.
In the cybersecurity example mentioned above, Google built a group of hackers called Project Zero, in order to identify and address digital threats, with a focus on the software made by other companies. This is a tangible way for Google to show that it takes responsibility for the overall stability of the system.
7. Shape and join horizontal coalitions with other companies
Leadership and exemplification are meant to trigger collective action. For businesses, the rationale for engaging with others is not just about maximizing impact. Acting together with other industry players is also a way to ensure that the conditions of competition remain fair and equivalent for all.
CEOs can help form and shape such coalitions to realize their values. There are many ways to do this, but the UN Global Compact has been decisive in providing a unified framework for business coalitions across a wide array of sustainability principles based on universal values.
In a particularly striking example, 400+ companies including Microsoft, Adidas and Sony have committed to being climate neutral, i.e. to minimize their greenhouse gases emissions, and compensate for unavoidable emissions. Businesses should not be afraid to engage with other types of actors too: the climate coalition also includes individuals, cities and non-profits.
8. Shape vertical coalitions with investors
CEOs have a direct legal responsibility toward their shareholders. This is often used as an argument for business leaders to remain within the strict limits of their assumed mandates, and focus on the maximization of TSR. However, there are now many examples of investors pressuring leaders to take a stand on societal issues. In January 2018, two Apple investors pressured the company to address concerns over smartphone addiction. They requested management to better assess the mental health effects on children, and take appropriate action.
Neglecting this type of pressure might come at a high price. Norway’s pension fund, the world’s largest sovereign wealth fund, which owns on average 1.3 per cent of every single listed company on earth, decided to divest from oil and gas as part of a climate change strategy.
Sustainable investing enabled by technology and big data analysis, as advanced by firms like Arabesque, is making investors increasingly powerful allies for corporate statesmen in addressing social challenges.
9. Build narratives
It is often impossible for even informed citizens to know all of the facts, which are in any case often disputed, especially in the case of controversial social issues. People understand reality individually and collectively through stories. Statesmen exert influence and shape minds and foster action through narratives. CEOs need to explain why they believe what they believe and advocate for it by building understandable and compelling narratives, which not only stand up to scrutiny but which can create alignment and support.
Lyft co-founder John Zimmer is well aware of a risk of backlash against new forms of mobility. So he tries to argue that car sharing is more than a business, that it has a huge impact on the design of cities, with “tremendous implications on global economics, health, social equality, the environment, and overall quality of life”. This puts the company in a better position to shape the future of the industry.
Business leaders need to face the inconvenient truth that some aspects of collective welfare can’t always come from individual maximization efforts, even enlightened ones. They require the “technology of leadership” to solve the prisoners’ dilemma of non-cooperation leading to poorer outcomes for all.
Corporations that lead will be trusted more and accepted as a partner by governments and citizens. Actions will foster more actions, and 2018 could well be a foundational year for corporate statesmanship.
 Source: Merriam-Webster dictionary
About the Authors
Martin Reeves is the Director of the BCG Henderson Institute and Senior Partner and Managing Director at The Boston Consulting Group. Follow him on Twitter Martin Reeves
Georg Kell is Chairman of Arabesque, an ESG Quant investment firm and founder and former head of the UN Global Compact.
Fabien Hassan is an ambassador to the BCG Henderson Institute.
About the BCG Henderson Institute
The BCG Henderson Institute is the Boston Consulting Group’s internal think tank, dedicated to exploring and developing valuable new insights from business, technology, and science by embracing the powerful technology of ideas. The Institute engages leaders in provocative discussion and experimentation to expand the boundaries of business theory and practice and to translate innovative ideas from within and beyond business. For more ideas and inspiration, follow us on Twitter @BCGHenderson