Executive Search

Sustainable leadership: Talent requirements for sustainable enterprises

 



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​Preface

Leadership is about envisioning and shaping the future. There is an urgent need in business today for a new type of leadership—one that makes the long-term sustainability of our world a top priority. Business leaders have an important part to play in making the right strategic choices in order to create this sustainable future.

The world we live in is an increasingly uncertain place. In the wake of a global economic downturn, the political institutions capable of addressing the complex transnational issues we all face seem to be fragile or captive to special interests.

Against this background of uncertainty, organizations are increasingly expected to take responsibility for the ways in which their activities impact their customers and workers, the wider society and the natural environment—as well as seeking to maximize profits. In addition, the private sector is expected to play a crucial role in the realization of the United Nations’ Sustainable Development Goals (SDG)1. The achievement of the SDGs will depend heavily on the involvement of the private sector.

Balancing priorities
There is growing social pressure on companies to consider “people, planet and profit” and to respond to the concerns of multiple stakeholders, both inside and outside the business (Galpin et al., 2012). Organizations, therefore, are in desperate need of sustainable leaders who can balance short-term and long​-term priorities and create value for a variety of stakeholders.

This report defines the characteristics of sustainable leadership to help organizations identify and recruit leaders with this vital skill set. Based on an exhaustive review of the available research in this area and our own experience, we offer ideas on how to find and develop board members, chief executive officers and senior leaders who are capable of executing long-term sustainable strategies.

Taking an alternative path
Sustainable leadership demands a fundamentally different approach to selecting and developing leaders vs. the methods being used by most business organizations today. It requires a change in mindset on the part of boards of directors to start operating according to this logic. Current human resources practices in large corporations typically adopt a more short-term outlook, which does not support sustainability.

The winners of the future will be those companies that are proactively embracing sustainability as a business opportunity instead of seeing it as a matter of compliance or a way to defend themselves against critical stakeholders. Indeed, a recent McKinsey survey of executives (McKinsey #1, 2014) shows that sustainability is becoming a more strategic and integral part of their business, beyond reputation management, though the latter continues to be important.

We believe the concept of sustainable leadership is here to stay, although the field still is emerging and the terminology will evolve. We hope the ideas in this study will inspire further research and spur useful debate.

We welcome your feedback and ideas. Please feel free to email us at Pieter.Ligthart@russellreynolds.com.

Timo de Haan
Paul Jansen
Pieter Ligthart

This study of sustainable leadership is the result of a joint project between Russell Reynolds Associates and VU University Amsterdam. It is based on an extensive review of the academic literature on the topic by graduate student Timo de Haan, supervised by professor Paul Jansen at VU University and Pieter Ligthart, a partner at Russell Reynolds Associates.

In September 2015, the United Nations General Assembly will agree upon new goals to achieve a just balance among the social, environmental and economic needs of present and future generations. These Sustainable Development Goals supersede the Millennium Development Goals, which expire this year. Global Citizen is a global advocacy campaign to raise awareness and support for the implementation of the Sustainable Development Goals. Russell Reynolds Associates is a partner of Global Citizen.

Executive summary

Why do we need sustainable leaders?
Complex, transnational issues—pressure on natural and food resources, our ecological footprint and climate change, regional instability, security issues, access to healthcare and education, social disruption and technological change—cannot be solved by political institutions alone. There is growing social pressure on companies to consider “people, planet and profit” and to respond to the concerns of multiple stakeholders, both inside and outside the business. Organizations, therefore, are in desperate need of sustainable leaders who can balance short-term and long-term priorities and create value for a variety of stakeholders.

What is a sustainable leader?
Sustainable leaders look beyond immediate, short-term gains to see the role their organization plays in a larger context. They set strategies and ensure the delivery of results that meet the triple bottom line of social, environmental and financial performance.

Sustainable leadership behaviors
We first looked at the distinctive behaviors exhibited by sustainable leaders, based on a model that highlights eight leadership behaviors key to sustainable corporate development: promoting the company’s vision; operationalizing corporate social responsibility (CSR); obtaining top management support; engaging diverse stakeholders; empowering and developing stakeholders; communicating with stakeholders; measuring performance; and setting ethical standards (D’Amato et al., 2009).

Key competencies
We next identified a number of key competencies required by sustainable leaders, as distinct from other more established leadership styles.

These can be broken down into three main areas:

Sustainability mindset
A strong interior sense of purpose combined with a long-term orientation and an inherent motivation to meet the triple bottom line.

Systems thinking
The intellectual flexibility to see the bigger picture, as well as to appreciate the details—and to shift perspective between competing interests in order to develop a strategy that inspires all stakeholders.

Relationship building
An understanding of people across cultures; an advocate of diversity; and the building of productive, long-term relationships with key stakeholders.

Background and experience
Although some of the competencies for sustainable leadership are innate, we believe that the majority are acquired or enhanced through experience. We identified four key factors in the background experience of CEOs that correlate closely with positive sustainability outcomes in their organization. We suggest that these experiences build the three broad sustainable leadership competencies described above:

  • Education: The higher a chief executive officer’s (CEO) educational attainment, the greater the likelihood that he/she can cognitively process and contribute to the complex practices required to achieve sustainability.

  • Functional background: Crossfunctional experience leads to more awareness and open-mindedness about the demands of multiple stakeholders.

  • International assignment experience: CEOs’ international assignment experience is positively correlated with corporate social performance (CSP).

  • CEO tenure: CEOs with long tenure are more likely to be concerned with corporate sustainability objectives. Those with shorter tenure may be motivated to prove themselves and build a reputation through attaining short-term goals.

Selection and development of sustainable leaders
Current human resources practices generally do not support sustainable leadership, with corporations increasingly attracting, developing and promoting leaders with narrow expertise and underestimating the value of crossfunctional and international experience. We suggest that there are a number of important steps that companies can take to ensure they recruit and develop leaders with the mindset necessary for sustainability, systems thinking and requisite experience.

Sustainable leadership model and conclusions
We present a model for sustainable leadership that brings together the thinking in this report, as well as highlighting the need for a fundamental change in approach toward sustainability in the corporate world in order to facilitate adoption. For sustainable leaders to be effective, they need the support of the board of directors and other stakeholders.

What is sustainable leadership?

Before identifying the behaviors, competencies and relevant experience of sustainable leaders, it is important to define what we mean by this distinct leadership type.

Sustainable leaders look beyond immediate, short-term gains to see the role their organization plays in a larger context. They set strategies and ensure the delivery of results that meet the triple bottom line of social, environmental and financial performance.

This means fostering long-term relationships with multiple internal and external stakeholders in order to show concern for their interests, encourage their engagement and create value for them, motivated by the goal of corporate sustainability.

In this context, stakeholders are groups or individuals who gain from, or are damaged by, organizational actions and whose rights are respected, or violated, by such actions. Stakeholders can include employees, consumers, suppliers, pressure groups, communities, shareholders and even future generations (Freeman et al., 2004).

Corporate sustainability is defined as an organization meeting the needs of its direct and indirect stakeholders without compromising the needs of future stakeholders (Dyllick et al., 2002).

Corporate social responsibility is defined as actions on the part of an organization that advance or comply with the promotion of some social good beyond the immediate interests of the organization and its shareholders and beyond that required by law (McWilliams et al., 2011).

Corporate social performance is defined as stakeholders’ assessment of the outcomes of corporate behavior (Wood, 1991).

Environmental, social and governance (ESG) is a term that appears to be succeeding CSR, according to a report by Deutsche Bank (Fulton et al., 2012) and can be broken down as follows:

  • Environmental: Issues such as environmental compliance as defined by law; environmental health and safety for employees; genuine interest in society; the natural environment and climate change; the reporting on and taking responsibility for environmental impacts; and ethical investment.

  • Social: Employee relationships with management; diversity; employee and external stakeholder rights and involvement; and community participation.

  • Governance: Issues such as transparency of board structure; anti-takeover provisions; management performance; commitment to stakeholder protection; legal protection for investors; and transparency of activities through voluntary disclosure.


 

Key competencies of sustainable leaders  

Competencies consist of knowledge, skills and attitudes (KSA) (Hartle, 1995). Sustainable leaders must meet basic competency requirements for leadership and carry out good management practices such as creating and communicating a vision, leading teams, developing people, making decisions and delivering results. However, sustainable leadership requires a new interpretation of these competencies, as well as some additional capabilities. 

Based on a review of the research in this area and using the KSAs derived from these studies, the competencies distinctive to sustainable leaders fall into three
overarching categories that represent the key aspects of sustainable leadership: sustainability mindset, systems thinking and relationship building.


Sustainable leaders have a strong interior sense of purpose that grows into a stronger sense of purpose and mission within the organization. They are oriented toward the long term. They feel an inherent motivation to meet the triple bottom line of social, environmental and financial performance or “people, planet and profit.” Special competencies that sustainable leaders possess include the following:

Enlightened self-interest: Valuing the interests of stakeholders rather than using people for individual gain (Crane et al., 2004). Seeing stakeholders in the broadest sense; for example, including future generations.

Long-term orientation: Focusing on long-term goals and not being dissuaded by pressure from parties with different and competing goals while being aware that there is no long-term success without short-term delivery (Hind et al., 2009).

“Presencing”: Achieving one’s highest future potential through a combination of sensing (feeling one’s future possibility or purpose) and presence (the state of being in the present moment). Inspiring others and working together in the pursuit of a vision. Integrating careful observation of a situation, quiet reflection, reaction to feedback and then decisive action where required. Combining “doing what they love and loving what they do” with being deeply immersed in the world (Gitsham et al., 2009; Senge et al., 2004; Scharmer et al., 2013).

Courage: Being driven to overcome resistance and keep up momentum toward desired goals. Making decisions in uncertain conditions, unhindered by an overload or lack of information (Hind et al., 2009).

Integrity: Demonstrating honesty and moral values in both their professional and personal life so that stakeholders see sustainable leaders as role models (Hind et al., 2009).

Open-mindedness: Displaying an unprejudiced attitude toward new ideas and the beliefs of other stakeholders (Hind et al., 2009).

Transparency: Disclosing the bad news, as well as the good. Offering both positive and critical feedback to reinforce the best behavior in others while curtailing the worst (D’Amato et al., 2009).

We believe that a sustainability mindset is the foundation and defining aspect of sustainable leadership and that two important aspects—having a strategic outlook and building networks of stakeholder relationships—are driven by this mindset.

Sustainable leaders are adept at systems thinking and always will be aware that there is a bigger context beyond the immediate focus of the organization. They have the intellectual flexibility to see the big picture, as well as the capability to analyze the details of a strategy, and can shift perspectives quickly and frequently where necessary. Sustainable leaders can formulate a vision that inspires all stakeholders and can decide between competing interests:

  • Seeing the bigger picture: Realizing that there always is a bigger picture (Sir David Brown, personal communication, 2014). Engineering an advantageous future for their organization through awareness of wider, more complex systems beyond the organization, with a deep understanding of how to manage the competing demands of different stakeholder groups (Senge, 1990; Hind et al., 2009; Waddock, 2007).

  • Appreciating the details: Recognizing that successful execution of a strategy depends on getting the details right. Willing to zoom in as required to get to the root cause of an issue and zoom out equally fast to regain the big-picture perspective.

  • Maintaining balanced decision making: Considering both global and local perspectives to make and gain support for well-founded decisions (Hind et al., 2009).

  • Keeping it simple: Fundamentally understanding one’s business, products, organization and processes. Ruthlessly eliminating complexity wherever possible. Developing products, services and solutions that serve a clear customer need and that easily can be explained to all major stakeholders.


Sustainable leaders understand people across cultures; embrace diversity; and build productive, long-term relationships with key stakeholders through dialogue, leading to concrete and positive results:

Understanding across cultures: Enhancing the knowledge and ability to recognize, interpret and react appropriately to people, organizations and other stakeholders (Talalakina, 2010; Waddock, 2007).

Appreciating and embracing diversity: Eliminating unfair treatment and maximizing the potential stakeholder benefits of a diverse organization (Jackson et al., 2004; Waddock, 2007).

Networking: Recognizing and acting upon sustainable business opportunities and building new relationships with stakeholders (Gitsham et al., 2009).

Facilitating meaningful dialogue: Sharpening listening skills, demonstrating the ability to make decisions on a collective basis and exhibiting a willingness to encourage a sustainable language. Convincing skeptical stakeholders of the benefits of a sustainable course of action. Managing conflicts, mediating between different stakeholder interests and aligning them with the desired strategic direction. Being dependable, cooperative and flexible (Jackson et al., 2004; Driskell et al., 2006; Hind et al., 2009).

Empowering: Giving stakeholders autonomy, allowing them to solve problems in new ways, and providing the intellectual stimulation to engage with their work and the sustainability objective (Waldman et al., 2006).

Measuring improvements: Finetuning the analytical and reflective ability to measure improvements on multiple dimensions beyond bottom-line results. Gauging the impact that decisions will have on various stakeholders and assessing whether the relationships among stakeholders show reciprocity in terms of commitments, responsibilities and benefits (D’Amato et al., 2009; Waddock, 2007).

Relationship of sustainable leadership competencies to CEO experience

Organizations reflect the values and cognitive bases of their senior people (Hambrick et al., 1984). Research on individual CEOs shows that their experiences, values and personality influence the strategic choices of their organization to engage in sustainability.

An analysis of the demographic characteristics of executives (Manner, 2010; Simerly, 2000) helps to relate these to the competencies of effective sustainable leaders. Several characteristics of CEOs, such as their functional background, are found to positively correlate with sustainability outcomes (Manner, 2010).

The role of CEOs in securing “good enough” corporate social performance is not significant. However, leaders do play a key role in taking sustainability outcomes from good to great—that is, achieving exceptional performance.

Educational level
The higher the leader’s educational attainment, the greater the likelihood that he/she can cognitively process and contribute to the complex practices required to achieve sustainability. In particular, the systems thinking necessary for strong CSR outcomes is likely to be linked to educational level (Huang, 2013)—potentially being a proxy for intelligence.

Functional background
The mindset of CEOs is both shaped and biased by their career experience (Hambrick et al., 1987). A company wanting to appoint a CEO who is adept at envisioning the business case for CSR should find a candidate with breadth of functional career experience, particularly in areas that focus extensively on dealing with different stakeholder groups (Manner, 2010).

International assignment experience
Living and working in a foreign country clearly give executives exposure to new cultures, systems, languages, institutional environments and often a greater breadth of responsibilities. Leaders frequently are required to adapt quickly, find solutions and act autonomously—skills that also are necessary for corporate sustainability (Carpenter et al., 2001). Indeed, the international assignment experience of CEOs is positively correlated to CSP (Slater et al., 2009). Foreign experience in both developed and developing countries makes a CEO even more desirable. CEOs with such experience, therefore, are more likely to have the requisite competencies to manage complex information and multiple (or global) stakeholders.

CEO tenure
CEOs with short tenure may be motivated to prove themselves and build a reputation through meeting shortterm goals, thereby giving lower priority to long-term objectives like corporate sustainability (Hirshleifer, 1993). CEOs with longer tenure tend to have the mental capacity and confidence to think beyond the short term.

However, long-tenured CEOs may increasingly focus on running their organization in ways that are compatible with their own beliefs (Hambrick et al., 1991; Miller, 1991). Accordingly, long CEO tenure can foster certain trends that impede sustainable leadership, and there may be a turning point at which these negative aspects prevail. Overall though, as long as CEO tenure is positively correlated to consistent CSR performance (Huang, 2013), a long CEO tenure generally is indicative of a longterm orientation and persistence.

How common is sustainable leadership among top CEOs?
A comparison of the Harvard Business Review’s 2014 top 100 global CEOs with an analysis of the same list by consultants at the Reputation Institute reveals some surprising findings (Ignatius et al., 2014). The Harvard Business Review lists the companies that delivered the highest long-term financial returns to shareholders. Recognizing that a company’s greatness also depends on non-financial factors, the Reputation Institute was asked to reorder the list based on the reputation of these companies along seven dimensions: products and services, innovation, workplace, governance, citizenship, leadership and performance. Ignatius says the order of the names on the two lists turned out to be “utterly unrelated.” Only a few CEOs achieved high scores on both lists. Assuming sustainable leadership requires strong performance on both lists, then sustainable leadership seems to be rare among CEOs.

It is interesting to note that the CEOs in the top 10 for company reputation are founders, are closely related to founders or have been with their company for a long time (27 to 35 years) (Ignatius et al., 2014). This might suggest that a company’s reputation score tends to rise with long CEO tenure. An alternative explanation is that leaders whose identity is so thoroughly tied up with their company’s identity are more attuned to leaving legacies that aren’t only about financial value created. This is consistent with the findings outlined above about CEO tenure.

The research suggests that examples of sustainable leadership can be found at all levels within an organization “if you know where to look for it” (Collins, 2001). It is important for companies to be aware of sustainable leadership characteristics so the right people are promoted.

Impact on financial performance
One might argue that the reason for the apparent scarcity of sustainable leaders is that a focus on sustainability comes at the expense of long-term financial returns. However, an extensive review of more than 100 academic studies of sustainable investing by Deutsche Bank shows the opposite (Fulton et al., 2012). The research reveals that companies with high ratings for CSR and ESG factors have a lower cost of capital in terms of debt and equity. The market recognizes that these companies are lower risk than other companies and rewards them accordingly. Furthermore, the research suggests that such companies outperform the market—in other words, there is