report last week found that '90% of Europeans believe that business leaders should be as accountable to the public as political leaders.' I had to double check that statistic myself too. The study, conducted by leading global creative solutions company McCann Worldgroup is drawn from 27,000 people in 18 countries, including the UK, so it's tough to dismiss.
Before Bezos, Jobs, Zuckerberg, and others were finding their stride Jack Welch, the CEO of US conglomerate General Electric (GE) was considered the best business leader in the world. From 1981 to 2001, he oversaw GE rise in value from $12 billion to $410 billion. He also created what became known as the 'Vitality Curve.'
The Vitality Curve is straightforward. Every year Jack ruthlessly fired the lowest performing 10% of employees, regardless of their years of service. He saw over 100,000 out the door and acquired the nickname 'Neutron Jack' for taking out the people and leaving the buildings intact. Jack wasn't one for 'employee wellbeing' or probably humanity in general. He believed he was adhering to the law of fiduciary duty. Shareholder returns above all else. Shareholders and business schools loved him.
Today, far from the investing world presenting a unified force in recognising the social responsibility business leaders have to the public, a schism has appeared. There is a growing backlash against what's been called 'woke capitalism'. To you and me, that's investors getting mad because their chosen funds refused to invest in oil companies, for example, who are now making more money than ever before. In 2022 Texas comptroller Glenn Hegar blacklisted 10 financial companies and nearly 350 investment funds for boycotting the fossil fuel industry. Before you shrug your shoulders, Texas is the 9 largest economy in the world. The current utopian approach to holding business leaders to account via voluntary ESG, is unravelling.
So that's that then? Not quite.
A couple of weeks ago the Directors of Shell were notified they are being personally sued in the English High Court over their climate strategy - the first case in the world seeking to hold corporate directors personally liable for climate action failures. The public are increasingly incensed at what they can see as flagrant corporate profiteering. The actions of English water companies are another good example of justifiable public anger. The UK sewage spills of 2022 were a national disgrace, with the water companies doing for capitalism what Jack Welch did for staff welfare.
Only with the support of the entire C suite of executives, the middle management and front-line staff can meaningful culture change happen in business. This is no small feat. A recent report by PWC surveying over 4,000 global CEOs revealed that 43% of their C-suite colleagues don't encourage debate. A legally enforceable commitment to ESG metrics replacing the current myopic shareholder returns obligations would be a good start.
It's easy to talk about changing the values of a business, but statutory law trumps high ideals. Until the laws governing the priorities of directors change, there is no incentive for business leaders to be accountable to the public. Worse, it could amount to an unlawful or illegal action if directors take a 'responsible' approach that may hurt members' economic interests, as the litigation in the US today demonstrates.
Real change in business is driven by the law and that requires courageous legislators. Business leaders should want it to be lawful for them to 'care'. Sacrificing public accountability on the altar of short term cash will see their organisations likely share the same fate as GE's, tellingly now worth 20% of what it was in the days of 'Neutron Jack'.
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