What is the proper role of business in society? The answer to this seemingly abstract question is more hotly contested today than at any other time in the past 50 years. In a world of climate change and ecological collapse, fewer customers and employees are satisfied with the position, famously summarized by economist Milton Friedman, that the only social responsibility of business is to increase its profits, while staying within the law. Many would like to see corporations go further. But how far? And in which directions?
To discuss how business leaders can answer these questions and cultivate trust-based relationships with stakeholders, strategy+business spoke with Alison Taylor, clinical associate professor at New York University’s Stern School of Business. Her book, Higher Ground: How Business Can Do the Right Thing in a Turbulent World, was published earlier in 2024. What follows is an edited version of the conversation.
S+B: The debate about the environmental, social, and governance (ESG) responsibilities of business has become very heated, especially in the United States. For example, some politicians have attacked ESG as “woke capitalism.” What’s going on?
TAYLOR: Definitely, there’s a backlash against ESG in the US. There’s litigation at the state level, as well as a war of words. The problem, I think, is that the debate has become polarized. Neither the anti-ESG side nor the pro-ESG side is coming up with anything particularly useful if you are trying to run a business.
The anti-ESG group is saying, “Let’s go back to Milton Friedman and just focus on shareholder value.” Well, good luck hiring anyone under the age of 30 if you take that approach. Expectations have changed.
On the pro-ESG side, there’s an equally simplistic argument that says to protect corporate reputation you need to address almost any substantive issue that your stakeholders are concerned about. The problem there is that you end up with a never-ending set of obligations, and an expectation that business is going to solve problems it simply isn’t set up to solve. I call it the “everything everywhere all at once” approach.
If you’re trying to run a company, you’re caught between these two visions, both of which are highly impractical. I think many business leaders feel trapped.
S+B: Is there a “middle way” between these extremes? How do leaders navigate what looks like increasingly treacherous terrain?
TAYLOR: At the company level, it starts with being more restrained and realistic about the problems you say you can take on. Instead of focusing on your reputation and chasing tangential causes, make your best effort to do no harm, clean up your messes, and treat human beings with dignity and respect. And be much clearer about the role of business versus the role of government.
Instead of focusing on your reputation and chasing tangential causes, make your best effort to do no harm, clean up your messes, and treat human beings with dignity and respect.”
In my teaching, I use the example of child labor in cocoa farming in West Africa. According to most responsible business theories, this is [a problem] we should have been able to solve. Governments in the region are broadly sympathetic [to the objective of ending child labor], and there’s a relatively limited number of big cocoa manufacturers and traders. Yet people have been working on the issue for 25 years without much progress.
It turns out that many of the farmers want their children with them on the farms, because the children will inherit the land and need to learn how to farm. The farmers also ask, “What would you like me to do with the children instead?” Quickly it becomes a conversation about the education system. If you start intervening there as a company, you run the risk of undermining the political system and creating dependencies.
So, what do you do? The default response has been to say that you won’t buy cocoa from farms that use child labor. You spend a lot of money putting transparency and traceability mechanisms in place to counter media criticism and allow Western consumers to feel better about buying chocolate. An alternative point of view is that what you really should be doing is supporting local entrepreneurs so they have a route out of poverty and can choose where to send their children to school.
I’m not saying these issues are easy. My point is that instead of having serious conversations about root causes and impact, we end up focusing on due diligence and reporting that doesn’t necessarily play out as people expect.
S+B: What’s your perspective on the CSRD [the EU Corporate Sustainability Reporting Directive] and other legislation that asks companies to measure and report their nonfinancial impacts?
TAYLOR: I don’t think more transparency is bad per se, but we do need to ask who all this additional disclosure will benefit. What I fear is that we’re creating an alphabet soup of regulations that will turn a marketing exercise into a compliance exercise, when it should be a strategy exercise.
The most successful work I’ve seen starts with long-term scenario planning, looking at the material issues facing the business. There are senior executives at the table alongside their risk, sustainability, and compliance teams. There’s a focus on issues that are core to the business model and that the company can do something about, using materiality as a guide.
I think what Unilever has done is positive, even though it was accused by some of backpedaling on ESG. It has refocused on a smaller number of issues that are material to the business: plastics, nature, livelihood, and climate. It is making concrete commitments—a living wage commitment in the supply chain, for example. And it’s taking steps to align its policy positions with its commitments, which is something every company should be doing.
To me, this looks like a company that is thinking realistically about where it can have an impact and mechanisms for change within its sphere of influence. Of course, Unilever will still face challenges meeting these goals. Many of our prevailing business models as a society are unsustainable, in fact.
S+B: You’ve argued that United Nations human rights frameworks can serve as a good guide as companies think through their impact and priorities. Why are they useful?
TAYLOR: It goes back to trying to get beyond concern for corporate reputation as the basis for your ethical commitments. Thinking about human rights—treating people with dignity and respect, basically—is a more solid foundation. While they’re not perfect, the UN human rights frameworks are the most robust, practical guidance we’ve got on the responsibilities of business to society.
The UN Guiding Principles on Business and Human Rights [UNGPs] from 2011 are a good place to start. One reason I like the document is that it makes an important distinction: the role of government is to protect human rights through policies, legislation, and regulation; the role of business is to respect human rights, a responsibility that goes beyond compliance with laws and regulations.
The UNGPs also make clear that human rights are about individual agency, bodily autonomy, and dignity—as opposed to imposing your values on people who may not share them. In a world where CEOs are under pressure to speak on behalf of stakeholders on every issue under the sun, including some very divisive issues, this is another important point.
S+B: This distinction between the role of government and the role of companies is interesting. Most big companies seek to influence government through political donations and lobbying. How should business leaders think about these activities?
TAYLOR: In my fantasy world, corporations would stop political spending altogether. Or at least they would follow IBM, which has never made direct political donations to candidates. More realistically, I think companies need to aim for greater alignment between their public positions and their political spending. It’s no good speaking up for small business if behind the scenes you are opposing effective antitrust [legislation]. It’s no good putting out statements supporting the Paris climate agreement if you’re quietly lobbying for opposing goals.
This is an area where more transparency would be helpful. It’s no coincidence that some of the deepest thinking on trade association membership has come from companies in oil and gas and mining that are under the closest scrutiny. BP cut ties with industry groups whose policy positions were at odds with its net-zero goals, for example.
At minimum, there should be board oversight of political spending, and greater shareholder transparency. I think it’s inevitable that we are going to be having more conversations about companies’ activities as political actors—corporate political responsibility—even though these are conversations that most companies would prefer not to have.
S+B: Based on your experience, how should companies organize internally to maximize their chances of having positive impact, and therefore building and maintaining trust?
TAYLOR: The most interesting problems facing business leaders today don’t fit neatly in one department. If you treat responsible business just as a reputation problem, or just as a human resources problem, or even just as a sustainability problem, you’re going to look disjointed and you’re going to fail. The challenge is bringing together branding, culture, sustainability, risk, and ethics in a way that doesn’t create a chronic lack of role clarity.
It’s interesting to see some companies creating new CxO roles—Novartis, for example, has a chief ethics, risk, and compliance officer—although I don’t think this is always the right answer.
One big drawback with the legacy approach is that it treats organizational culture as separate from ethics and compliance. The fact is, you need employees to bring dilemmas to the table, debate issues, and think about ethical principles in their day-to-day [work]. It can be a route to a better culture. It can be a route to innovation. As a leader, the hard part is that you need to foster this without implying that the company is a democracy—that you’re going to change course if one group of employees yells loud enough.
Worker voice and worker rights is another blind spot for many companies. You can have the best sustainability program in the world and make a lot of noise about the wonderful things you’re doing for your community, but it will be undermined if you don’t treat workers fairly. Again, it comes down to honesty, dignity, and respect.
S+B: Can you say more about corporate culture? What does it take to create and sustain an ethical culture in an organization?
TAYLOR: In my experience, it’s the opposite of that famous Leo Tolstoy quote about families: ethical cultures are all different, but unethical cultures tend to be very similar. There’s an absence of perspective-taking. There’s an absence of pro-social purpose—something higher than “win at all costs.” There’s an absence of accountability.
Another common trait is selective impunity, the sense that there’s one set of rules for leadership and a different set of rules for everyone else. There are values statements and the usual rhetoric about zero tolerance, but it doesn’t seem to apply to senior leaders.
S+B: What does this tell us about the skills that leaders need to run a successful ethical business?
TAYLOR: I think we have conflicting expectations of business leaders today. There’s interesting evidence that CEO job descriptions have changed. On paper, the role is now much more about building networks, driving influence, and having skills and experience on issues such as sustainability and inclusion. Yet we still valorize these very traditional CEOs with big egos who deliver shareholder value.
What I tell my students is that they need to get comfortable with everything you need to run a responsible business—working across values and cultures, respectful disagreement, negotiating—while also understanding that pressure to drive performance is very real.