CEO Coaching: Can ESG, DEI, and Profit Coexist?
The CEOs I work with and talk to have had several difficult issues to deal with in the past few years, none more so than expectations around ESG and its component DEI—two acronyms that have been around for a while but came to the forefront lately.
A recent Wall Street Journal column (ESG Feeds Inflation, Hurts Economic Growth) caught my eye. The authors assert that companies that have used part of management’s attention to focus on ESG issues have lost efficiencies, which leads to higher prices. I don’t doubt their claim, but I also don’t think CEOs should be deaf to society’s challenges.
In conversations I’ve had with leaders over the past several years, I’ve observed that companies with cultures that supported their coworkers and communities—and didn’t do foolish things to maximize short-term profits—navigated ESG and social justice issues much more easily than those that focused more intensely on short-term, bottom-line results.
When companies formed “committees” or off-loaded responsibility to ESG or DEI “experts” separate and apart from executive leadership, things went off the rails. Factions developed within the companies, and trust (if there was any) between work groups and senior leadership plummeted.
I’m hard-pressed to agree with Milton Friedman’s counsel that companies focus solely on maximizing profit and shareholders always come first without some qualifying statements. I do, however, believe many CEOs let go of the reigns during this period and lost control of the dialogue and priorities, which caused some companies to stumble. Diverting attention away from profitably satisfying customers and toward “staying out of trouble” didn’t work well.
For example, some CEOs delivered those “committees and experts” scripted messages for internal and external audiences, which exacerbated situations. Lost for words and uncomfortable with what was going on societally, they used others’ words and it didn’t work well.
When ESG and DEI became “programs” rather than “the way we do things around here,” it didn’t work well. When a CEO tried to say the right thing rather than what they really believed—even if that was “I don’t know” or “I’m struggling with that”—it didn’t work well.
When DEI and ESG became more important than profitably satisfying the marketplace, things didn’t work well. As Peter Drucker said, the purpose of a business is to create and keep a customer.
Profitably addressing a market in a sustainable, ethical way is not an oxymoron. Too much focus on profit doesn’t work well. Too much focus on political expediency doesn’t work well. It’s about balance, and that’s perhaps the leader’s toughest role.
Hewing to DEI and ESG is good, but your efforts must be about cultural change rather than a “project” orientation. It’s a bit like dieting. Being “on a diet” is pretty much a waste of time. Permanently enhancing your lifestyle, now that’s the ticket! Perhaps a subtle difference, but leadership requires a deft hand!
coaches CEOs to higher levels of success. He is a former CEO and has led teams as large as 7,000 people. Todd is the author of, Never Kick a Cow Chip On A Hot Day: Real Lessons for Real CEOs and Those Who Want To Be (Morgan James Publishing).