“There is one and only one social responsibility of business,” wrote renowned economist Milton Friedman in a polarising essay half a century ago. “To use its resources and engage in activities designed to increase its profits”.
It was not for business to solve societal ills, he argued. It became accepted that a company’s duty was to maximise profit and shareholder value - within legal parameters - above all else.
But scholars this century began to notice that an element of responsibility was missing. Friedman’s arguments no longer hold water.
Over the last five decades, the world has become a more connected and complex place. Today we face what we call “grand challenges” -climate change, poverty, inequality in education, global health problems. Changing circumstances demand a more sustainable and far-reaching approach from businesses.
At the same time, more is expected of them from a wider base of the population - communities, consumers, investors, as well as employees and shareholders.
Technology is sweeping through the world, connecting disparate groups - we now live in a global village. Consumers demand high standards from business. And businesses are beginning to realise that they can make a difference with a more responsible approach from the top.
In short it’s using influence and power to improve the life of everyone rather than simply generating value for the organisation.
Academics link responsible leadership with sustainable business decisions which accommodate the interests of the organisation as well as those of the wider community - but also benefit future generations - and the planet.
How can people become responsible leaders?
This requires exceptional self-awareness. By this I mean the awareness to understand your personal values and purpose, and ensure these are aligned with those of an organisation. Responsible leaders are first and foremost responsible for themselves - this is the foundation upon which this type of leadership is built.
This is a difficult but fascinating area to teach.
We tend to think we are self-aware. But if you ask, “what are your values? What’s the bigger purpose that you - or your organisation - serve beyond profit?” Then individuals begin scratching their heads.
A successful chief executive is of one who makes money - that’s the received wisdom. But the persistent idea that success equals only creating value for the company is out of date. That’s how we unlock this concept of self-awareness - by trying to understand what we value and what purpose we serve.
What do responsible leaders do?
Responsible leaders play a number of different roles. According to Maak and Pless (2006) one of these is to be a ‘visionary’. This means being able to communicate the organisational vision and purpose to employees as well as the broader community. Leaders must inspire and have the ability to bring people along with them.
A leader needs also to be a servant - a kind of facilitator. They must assume responsibility for building continuity amid today’s complex, fast-moving and volatile situations - notably the pandemic, or conflict in Ukraine. They must aim to become a force for positive change not just today but into the future.
Leaders must also be exemplary citizens - by this I mean assuming responsibility for environmental and other societal challenges in order to have a positive impact on society.
Leaders can play another role - they can act as a steward. This means leaving the organisation, society, the environment in a better place than where they found it.
At the heart of responsible leadership is the ability to navigate, even embrace, paradoxical tensions. It can’t be a case of “either…or” - profits or purpose for instance; growth or the environment; immediate demands or those of the future.
These are paradoxes that can’t be solved, and this means leaders must be able to work with and have an appetite for uncertainty.
When former environmental regulator Lisa Jackson (pictured) joined Apple as vice president of environmental initiatives, she recognised the need to embrace these paradoxes and dispel the myth that business success and sustainability, even societal good, cannot coexist.
She leads Apple’s efforts to minimise its environmental impact by championing renewable energy, greater energy efficiency, and conservation of precious resources. She also heads a $100 million initiative on racial equality and justice. She’s an example of a leader who’s able to serve multiple purposes - tackling big societal challenges such as race, justice, climate change, as well as enabling the organisation to be profitable.
This is a theory that is best understood in light of practical experience. Because everybody is familiar with paradoxical tensions - cost versus quality for instance, or creativity versus discipline - you can’t focus on just one at the expense of the other. There is no “solution”. Once we identify these polarities we can learn to be comfortable and embrace working with them.
Leadership fascinates those who come to study it. Whatever level we are in an organisation, we have the collective responsibility to do the right thing. While it’s difficult for a single person to fulfil all these roles, responsibility always starts with the person at the top - and the right culture will trickle down.
Maak, T., & Pless, N. M. (2006). Responsible leadership in a stakeholder society–a relational perspective. Journal of business ethics, 66(1), 99-115.
He also teaches Financial Conduct, Leadership, and Ethics on the MSc Central Banking and Financial Regulation.