In the current business environment, characterised by change and new and sometimes unpredictable challenges, it is important that leaders have the capability to act responsibly, to deliver a business which meets those challenges without causing detriment to their stakeholders or the world in which they exist.
Responsible leaders should be able to deliver organisational performance, whilst acting sustainably, and innovating for long term success.
Link to stakeholder theory and strategic planning
It would be easy to consider responsible leadership as an extension of stakeholder theory. In its simplest form, stakeholder theory refers to the need for an organisation to consider multiple stakeholders, not just the shareholders, when determining strategies and behaviours. However, responsible leadership is so much more. There are several considerations when determining responsible actions. Whilst there is no single definition of what these are, a good starting point would be to adhere to the following three behaviours:
- Focus on the broader needs of others rather than on personal interests
- Consider the societal and moral implications of decisions
- Ensure that decision-making is based on the long-term rather than satisfying immediate priorities at the potential expense of future success.
We can see that there is a clear link with strategic planning, which should take all these factors into consideration whilst ensuring the organisational objectives are met. The planning process may take longer as a result, but the benefits are more likely to be realised and long-term success assured. The reputation of the organisation can increase dramatically if it is known to always behave in a responsible way; not merely to choose areas of responsibility and to use these for marketing purposes.
Consider the situation whereby a car manufacturer takes care of its staff, through good reward packages, as well as exceptional manufacturing plant safety. It meets the needs of end-customers by providing value for money whilst using quality materials. It works with local authorities to ensure that chosen sites for manufacturing plants meet all planning requirements and don’t have a negative impact on the local population by choosing appropriate sites and enhancing traffic management in those areas. The company also shows its environmental and sustainability actions through the manufacture of hybrid and electric vehicles. Through these actions, the manufacturer can operate effectively and compete in its chosen market, thus providing profit for shareholders. On the face of it, the company is acting in the interests of stakeholders, whilst maintaining a healthy profit, a good example of stakeholder theory in action.
However, whilst the organisation may believe it is behaving responsibly; there is much more to consider, not least the stakeholders which cannot speak, such as the environment and the natural resources within it. The same manufacturer could be considered much more responsible if it took the following actions:
- Involving stakeholders in the decisions made. For example, giving the workforce a choice about overtime, and ensuring that the overtime worked is not excessive, even if the rewards to the workforce are good. Showing an openness to new ideas from the workforce, rather than assuming the business has everything right. This will benefit both the organisation and its customers, as well as motivating staff. Ensuring that the workforce has continuing professional development, regardless of their level within the organisation, will both enhance their lives but also lead to a more sustainable business in the long-term.
- Considering human and environmental impacts when making supply chain decisions. For example, minimising the use of materials such as rubber or leather where possible, as these can have significant negative effects on biodiversity. Or purchasing only from suppliers with positive approaches to human rights. Designing vehicles using advanced computer aided design systems can ensure the repeated use of components in new vehicle models, reducing the need for costly and energy inefficient component design processes, and the build-up of obsolete components.
- Implementing end of life vehicle (ELV) processes. These processes can be implemented to avoid unnecessary stockpiles of obsolete vehicles or component parts. This could include recycling and remanufacturing of old parts and supporting facilities for the dismantling and depollution of ELVs.
- Behaving in a socially responsible manner. This could include such diverse factors as implementing environmental management schemes or even providing protective clothing for workers which has been purchased from ethical and sustainable sources.
- Providing public value and addressing societal problems. For example, sponsoring university research programmes into the development of safer or more energy efficient vehicles. Some car manufacturers work with not-for-profit organisations to provide vehicles for charitable use, or to support specific charities through events and fund-raising activities organised by the manufacturers.
- Developing a socially responsible culture throughout the organisation. Company staff are encouraged to share the same values of equity, sustainability, quality and acting in the best interests of society. Leaders can show their commitment to this culture by introducing volunteering programmes, managing and encouraging diversity and reporting on issues such as gender pay gaps within the organisation and the industry as a whole. Leaders can enhance the culture by rewarding appropriate behaviour, such as recognition for staff who make innovative suggestions to enhance future energy efficiency in operations, or through reinforcement of values in company meetings and literature.
- Always behaving ethically. For example reporting vehicle emissions truthfully and accepting responsibility for any vehicle faults and dealing with recalls in a responsible and timely manner, as well as standard business ethics such as paying fair taxes, which benefit society as a whole.
Over the long term, this organisation will develop a reputation for responsibility which will encourage existing and potential staff, customers and communities alike. As reputation increases, more suppliers and investors will want to be involved with this organisation, allowing it to continue to be successful, even as it grows.
Responsible leadership may be considered an extension of stakeholder theory, but the business should focus not only on the stakeholders but on sustainability, social responsibility, and ethical behaviour in addition to financial objectives. Of course, it is important that the tone is set from the top, the CEO and the Board of Directors, thus paving the way for managers at all levels of the organisation to practice responsible leadership at the appropriate level for them. Therefore, it should be considered to be a key factor of organisational culture, enabling and encouraging responsible behaviour throughout the organisation.
Responsible leadership is not a new phenomenon. As early as 1991, David Winter1 discussed the need for ‘responsible power’ of those in leadership positions with Maak and Pless2 (2006) proposing a series of ‘role models’ for responsible leaders, interacting with stakeholders rather than treating staff, for example, as subordinates. These role models included responsibilities towards several stakeholders, achieved through different actions of the leader. The idea of a responsible leader being a steward, a citizen, a coach, and a visionary is as relevant today as it was two decades ago.
Interestingly, Maak and Pless create an overlap between responsible leadership and cultural models, describing the leader as a ‘storyteller and meaning enabler’, creating a shared paradigm and vision for the organisation for which they have stewardship. Both papers emphasise that responsible leaders should take responsibility for others, rather than act as though others (for example, the workforce) have a responsibility to them.
Whilst there are numerous examples of irresponsible leaders in the press, there are many examples of innovative, forward-thinking, and responsible leaders. Not all behave in the same way; indeed, it would be difficult for all leaders to display enhanced levels of responsibility towards every aspect of society. For example, a supermarket chain could display greater responsibility towards suppliers, particularly far upstream in the supply chain, educating them on environmentally friendly farming techniques, and assisting in the provision of new technology to aid these techniques. A professional organisation, such as an accounting or investment firm, might display elements of responsible leadership by creating enhanced safeguards for its staff and its clients, and by ensuring that staff wellbeing is emphasised, in organisations traditionally known for long working hours.
Responsible leadership can be seen to bring benefits to organisations. For example, some organisations, and even countries, have introduced a four-day working week, without implementing a pay cut for workers. There is evidence of benefits to both the workers and the organisations. For the workers, there is a reduction in stress and an improvement in work-life balance. Some of the organisations involved have found increased productivity (one large technology company reported a 40% increase), greater staff retention and satisfaction in the long term. Organisations implementing this have also reported enhanced environmental ratings (lower use of energy, and a reduction in vehicles on the roads) and the ability to attract talent into the organisations, which could lead to greater innovations over time.
Responsible leadership cannot be considered a standalone area in the role of a strategic business leader; there are close links with strategic planning, culture, ethics, sustainability, and in terms of public value. Organisations should no longer consider public value to be the realm of public sector organisations alone; all organisations have a responsibility to deliver this for the future benefit of society, and it is the role of the leaders of organisations to embrace these responsibilities.
Where do accountants fit in?
We can all play a positive role in society by being responsible leaders. As a result, businesses will flourish, and stakeholders will benefit in a multitude of ways. Accountants often hold leadership roles in organisations within which they work, so should exemplify the characteristics of responsible leaders and encourage others to do so.
A key role for accountants particularly is to ensure that the company is not simply focussed on financial objectives, but rather to propose and implement other key metrics, and provide evidence of the positive impact of responsible decisions. Integrated reporting can assist with this, although it is important to recognise that not all examples of responsible leadership have a measurable impact individually, but cumulatively they contribute to a better organisational culture and performance.
(1). Winter, D.G., 1991. A motivational model of leadership: Predicting long-term management success from TAT measures of power motivation and responsibility. The Leadership Quarterly, 2 (2), pp67-80.
(2). Maak, T. and Pless, N.M., 2006. Responsible leadership in a stakeholder society–a relational perspective. Journal of business ethics, 66 (1), pp99-115.
Written by a member of the Strategic Business Leader examining team