Future of leadership
Future of leadership
Questions about sustainability are relevant to a very broad range of business subjects reaching from the existential question about a company’s purpose to specific accounting of CO2 emissions.
In order to reflect the broad range of sustainability perspectives in regard to leadership, the cases focus on reporting, board focus and purpose.
Salesforce has actively chosen to push the boundaries of what can and should be disclosed in terms of environmental, social, and governance criteria. Among investors, ESG ratings are used to measure the sustainability and ethical impact of an investment in a company or business. These criteria help determine the future financial performance of companies. However, it was not by external demand that Salesforce began reporting on these criteria. Currently, software companies have few guidelines to follow for reporting on environmental impact.
The Stakeholder Impact Report is one of Salesforce’s initiatives to a solution, and Salesforce opted to add third-party audits in the reporting to ensure credibility and show that Salesforce takes sustainability seriously. Reporting on sustainability is a complex technical task; however, soft skills and organizational culture are crucial elements to the success of Salesforce’s sustainable development.
“You have to have a culture that enables people to run with these ideas. It can be difficult to formalize structures that enable collaboration across teams. We need passionate people to do this, and we need to have managers that green-light it both among middle managers and at the top. I don’t think we could do this at Salesforce if we didn’t have this culture.”
Companies should look at sustainability as a challenge owned by multiple divisions, and in Salesforce’s case, the company sets precedence for other companies looking to go in the same direction.
Due to few regulative standards for reporting on sustainability measures, leaders will have to decide if they want to conform to existing standards or set precedence for what and how to report on sustainability in terms of both social and environmental criteria. For this case, we spoke to senior technical accountant at Salesforce, Chris Power. Salesforce discloses emissions of domiciles and data centers, ambitions for renewable energy, financials, philanthropic activities, the company narrative, disclosure of demographic within the organization, and ambitions for diversity and inclusion.
“Today, some companies have more influence than nations, which also should result in hyperprofessional governance, and now more than ever, this calls for long-term stewardship. In this regard, directors should be held accountable as we would with public servants.”
Robert Strand of UC Berkeley’s Center of Responsibility explains that long-term thinking and responsibility should be the key priorities to executives and directors.
In this regard, companies and its leadership need to be “attentive today, and be accountable for tomorrow.” One of the companies famous for looking toward the future of the business, especially in terms of sustainability, is the apparel company Patagonia. At Patagonia, the most important thing is “to build the best product,” meaning that the products should be the most durable and long lasting, while causing “no unnecessary harm” to the environment. It reflects these ethics in its supply chain as well as in its corporate governance practices. According to Patagonia’s founder, Yvon Chouinard, the company is trying to build something that could last 100 years. In order to do so, Patagonia started donating 1% of total sales to environmental organizations in 1985, and Chouinard said back then, “Every business should say to themselves: ‘We’re polluters, we’re using our nonrenewable resources and, therefore, we should tax ourselves.’”
“Boards should say to themselves, ‘We are the leadership 20 years from now.’ The role of the board is to ensure long-term liability. For this reason, directors need to be educated in what it means to be ethical and responsible — not only responsible to ensure shareholder value but attentive to other stakeholders as well.” Interestingly, when Robert Strand spoke to others about Patagonia and the likeliness of the company going public, the concern was that Patagonia would not be able to keep up its sustainable profile.
Challenges managing short-term needs related to shareholder value and supply chain with long-term strategic goals are not unknown to Patagonia either. The tension is interesting because it is constantly there.
Balancing short-term interests from year to year and the long-term strategy is a significant tension for leaders. The Californian apparel company Patagonia wants to last for 100 years, which affects the decision-making and corporate governance. Robert Strand from UC Berkeley, is the author of, “Patagonia: Driving Sustainable Innovation by Embracing Tensions”, gives his views on what boards can learn from their long-term approach.
Kapor Capital is not the typical venture capital firm in Silicon Valley. Their investment activities are driven by rigorous criteria and an overarching goal of closing the gaps in society. When releasing the fund’s first impact report, they exemplified how it is possible to invest solely in impact start-ups and outperform industry benchmarks at the same time.
“At Kapor Capital, we’re trying to imagine what sustainable capitalism look like. We have some very rigorous criteria when investing in early stage start-ups that are different from mainstream VC firms in the Valley. We only invest in companies that focus on closing gaps. If a company’s products caters to an affluent customer base, we are not interested.”
The way the investment team decides if a start-up has gap-closing potential is by looking closely at the core business model and especially who will have access to the product or services. LendUp, a socially responsible lender that offers borrowing alternatives to people that banks and credit unions decline, is one example of a portfolio company. Investing in companies with gap-closing potential is often connected to investing in founders from underrepresented backgrounds, even if it is not a direct criteria for Kapor Capital.
“It often goes hand-in-hand that the founders of the companies we have in our portfolio come from an underrepresented background and are the ones coming up with the business ideas to close gaps of inequality. They have lived the experience and have a better view of what problems need to be solved.”
Investors are increasingly using sustainability criteria to determine which companies to invest in long term. Social criteria evolves around developing a company culture based on inclusion, having products and services meant for a diverse consumer base, and diversity in hiring and promoting employees — but how do these criteria go hand-in-hand with growth and profitability? We spoke to Dr. Freada Kapor Klein, founder of the venture capital firm Kapor Capital, about impact investment.
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