Alison Taylor on Environmental, Social & Governance — The Human Risk Podcast

Welcome to Human Risk, a podcast dedicated to the understanding of human behaviour as a risk. Here's your host, Christian Hunt. Hello and welcome back to the Human Risk Podcast. On this episode, I'm exploring a 3-letter acronym you've almost certainly heard of, but if you're like me before I looked into the subject in detail, might not know what it means in practice. And no, that acronym isn't WTF, but I guess as human risk-related acronyms go, that's probably one I should cover in a later episode. In fact, the 3 letters I'm going to look at are E, S, and G, which stand for Environmental, Social, and Governance, representing key factors that investors use to assess how sustainable companies are. In simple terms, how environmentally and socially conscious the company is and how well it's being run. Or in even simpler terms, is this a good ethical company? Now, as regular listeners will know, this is not an investment podcast. So what's my human risk angle here? Well, metrics like ESG are a good example of how we develop systems, in this case, a way of looking at and managing companies in order to answer complex questions. Those systems can sometimes oversimplify the world such that we miss things, induce unintended consequences, and feel good about ourselves when in fact we really shouldn't. So I wanted to explore what ESG is and the flaws of looking at the world through the artificial lens it creates.

And who better to explain that to me than Allison Taylor?

Allison is the Executive Director of Ethical Systems, part of NYU Stern School of Business, which is a collaboration between academics working on behavioral science, systems thinking, and organizational psychology. Ethical Systems, as the name implies, aims to help companies build more ethical and effective cultures via approaches based on credible academic research. Alison has been on the show before, there's a link to that episode in the show notes, and is always incredibly insightful and great company. In our discussion, we don't just dissect ESG, we also look at how companies are responding well and badly to 21st century dynamics. That gets us into areas like how organisation responds to social movements like Black Lives Matter and post-COVID trends like working from home versus working in the office. It's a wide-ranging conversation, and I think you'll learn a lot from it. At least I did. So please enjoy my discussion with Alison Taylor on ESG.

Alison, welcome back to the Human Risk Podcast.

It's so nice to be back. It's so nice to see you, Christian.

I'm really excited to have you back here because, well, there's so many things we could talk about. And what I thought I'd like to start with is to talk about ESG because everybody's heard these magic 3 letters and we generally know what the words are, but people don't really know what it is. Can you give us an intro as to what it is and why it matters?

Yeah. So as you've said, everyone knows what it means, but it stands for Environmental, Social, Governance. Issues, it's been really, really big. I would say since around 2018, I really think that the, one of the big turning points, uh, was Larry Fink's annual letter in 2018, which took very direct aim at Milton Friedman's original purpose of business and kind of said, now a business must prove it has a social purpose. And then about a year and a half later, the Business Roundtable, which is the most powerful business association in America, said, we're no longer managing to shareholder value. We're managing to all our stakeholders. So all of that, I think, really has changed the narrative and money has been flowing into ESG funds. But the idea that a company should take account of environmental, social, and governance issues obviously isn't new at all. It's been called corporate social responsibility. It's been called sustainability. It's been called conscious capitalism. It's been called purpose. It's been called shared value. It's been called triple bottom line. One thing that certainly characterizes it is an absolute ton of jargon and efforts to reframe and redefine and rename what this thing is every few years, which is fascinating. And I think very, very revealing in itself. So the way I describe ESG is that it is the financialization of sustainability. So sustainability and corporate responsibility have been around for a really long time. Um, but this, um, term ESG shows the pivot by the financial services industry and by investors into this space and their effort to make money essentially by trading on these factors. So it's, it's, it's, it's spread out from its original concept of being a financial services tool, but that is the easiest and most sensible and clearest way to understand it.

So as you say, there's, there've been all these different badges out there for it, but it's essentially the same thing, which is sort of being a good citizen, right? And doing the right things and focusing on other metrics that are out there. And the logic behind that is one, it's a good thing to do. So we all like it for the planet, but it also, if you wanted to play an economic argument, it's also the argument goes makes economic sense to do so. 'Cause that's how you build a business that's gonna be around for a long time.

Yes. And so another characteristic of the current ESG discourse is you will hear everywhere what a win-win it is. If you speak to any corporate executive today or you go to conferences on these topics, what you will see is person after person will get up on the stage and say, guess what? We wanted to do the right thing because we love doing the right thing. And then we found out how much money it makes. It's a win-win. And everybody goes, yay. And so that is definitely a dominant rhetoric kind of in this area. And there are hundreds of academics. This is not just a corporate issue. There are hundreds of academics studying this and trying to prove one way or the other whether ESG makes more money or saves money. There's long-winded and very contentious debates on this topic. I will save all your listeners from reading the 10,000 papers or so that exist on this issue and tell you that the evidence is mixed. Right.

In a way, that's kind of obvious, right? Because on the one hand, you would go, there are obviously going to be some things that you can do that will tick both of those boxes. But very often, particularly if you've got a legacy business model— I don't know, you're running a fossil fuel business or something, right? The shift to be able to move from a business model that was perhaps reliant on things that are not ESG-friendly to that is going to cost you in some way, shape, or form.

Yeah, exactly. I mean, it is interesting that it is so obvious to anyone on the street that this would only make sense some of the time, but it doesn't seem to be obvious to, uh, all the incredibly brilliant academics and corporate executives that are constantly spinning this line. Um, my favorite data nugget on that one is that, um, you know, uh, insurance companies make more money from higher death rates. So quite obviously there are many, uh, ways to make profit that are not very ethical. There are ways to make more profit, uh, by doing these things, and there are ways to make less profit by doing the right thing. So the answer is it depends. And I think that largely accounts for the enormous volume of mostly confusing and unhelpful noise that you see out there in the public domain.

And the other sort of simple thing that you often hear is kind of like, well, as long as you can think long-term enough, you're going to get to the right answer. And so we have quarterly reporting, we have sort of the short-time news cycle. That often gets cited, and the short tenure that people have in the position. So if we could think more long-term, this would solve itself, which again, on the one hand, is probably correct on some level. On the other hand, it's quite simplistic.

Yeah, I mean, correct, intuitive. Of course, you can see if you're having to report quarterly on your numbers and you're getting dinged by investors, that's not a very good kind of incentive to think long-term. But you're right, it's not the answer to everything because what do we even mean by thinking long-term? I mean, last time I looked out in the world, things were changing faster than we can imagine in highly unpredictable ways. So giving either executives or investors the ability to step back and say, here's what we're going to look like in 10 years. Well, good luck, guys. Good luck figuring out what things are going to look like in 6 months. So I think it can also very easily become a tool of manipulation and for people driving certain agendas. So this really gets to the debate about what is the best way to govern a company. And the critics of all this stuff say that if you start to say we're governing in the interests of all stakeholders, that is just a ticket to to manipulation, to vested interests, and to kind of managers saying whatever they— doing whatever they want to do. That is usually what people that are very, very shareholder-led would say as an objection to this whole kind of idea of managing a business in the interest of all stakeholders. And if I put it that way, we're going to manage our businesses now in the interest of all stakeholders, that's quite self-evidently a totally banal and unhelpful statement.

And I must say, when we look at— I love that. When we look at the E, the S, and the G, I mean, we sort of lump them together and we can kind of create an umbrella of sort of these are all sort of things that feel good or whatever. But if we break it down and go, what do those individual components involve? They're quite different things. And so I'm intrigued by something that you've said to me before. When we go looking for how we solve this problem, we bucket all these things together because they feel like they belong together because we put these things in that label. But how do we solve that? Well, the answer is we get ESG specialists. And you've rightly pointed out to me before that They don't exist because we're working this stuff out. And in any case, it's quite a broad church when I look at those categories.

Yeah, I mean, this is another thing that one could take massive issue with. You're right. It is a catch-all term. And this is because of its etymology and this kind of history of doing the right thing. It is really a bucket of what is quite often called non-financial risk, which is a term that makes no sense because these risks do have financial consequences or non-technical risk. And so that's one way to think about it. You can think about environmental and social issues as being about externalities. So the cost that businesses dump on the rest of the world rather than paying for it themselves, but then governance doesn't really fit because that's not an externality. So, I mean, basically a bunch of people at the UN came up with this in 2005. And my personal prediction is given another few years, there will be endless— I think it's already starting actually— endless commentary with people saying it never made sense for this to be a category in the first place. Let's break it all up and get more specialized. Because quite self-evidently, you close a factory, you will reduce your carbon emissions. You'll also put 1,000 people out of work. So there you have a positive E and a negative S. And so, um, this kind of bucket of issues doesn't really make sense. In terms of expertise doesn't make that much sense conceptually. And for that, and the tendency of this field to pivot to a new piece of jargon every couple of years, my prediction will be not that the underlying drivers of these issues are going to go away. I don't think the notion that business should have to take account of these issues is going to go away, but the term may not have that long for this world. We will see. I maybe proved wrong on that one.

Well, your message to companies therefore is implicitly this stuff is important, right? There's no question about that. But if you approach this as sort of a coherent bucket, you're going to get yourself into trouble. So you're basically saying we should break these things, think about it slightly differently. And does that mean that means bringing some other things that are on a par with it? How do companies handle the fact that you're expected to have some sort of ESG thing going on, so you can tick the investor box. But in reality, for all the reasons you've pointed out, it feels a little bit like window dressing.

Yeah, so ESG obviously consists of a huge, huge, huge list of potential issues. That's one of its problems. There's new issues on that list of ESG every day. People have luckily given some thought to this. So they've also realized that ESG issues vary greatly by industry. So for example, if you are a pharmaceutical company, access to medicines is going to be one of the most kind of relevant ESG issues you have. If you are Facebook, then it's going to be about the social impact of technology. If you are oil and gas, it's going to be climate change. If you are tobacco, it's going to be human health. So you, you get the message. It's, it's kind of what, what issues are relevant to your business, not about philanthropy, but what issues are actually going to be relevant to your business. And the people that care about it. So that's kind of, um, one piece of guidance would be, you know, focus on the things that are actually relevant, which means a handful, which really means kind of less than 10. Now you will not be able to do that very easily if you focus on responding to investor interest in ESG, because what ESG really is in its current iteration is a sort of scoring system for investors So that investors can ask the company to run around all year gathering data, um, and filling out spreadsheets and forms that the investor can then use to build portfolios and make more money. So what I'm really trying to say here is that's not for the company. That is not for the benefit of the company. That is for the benefit of the investor. And so a lot of the conversations you see are about, we've got to have directly equivalent apples-to-apples data to make investors' lives easier. Well, that might make investors' lives easier. It's not going to work because there's no such thing as apples-to-apples data. And it's sure as hell not going to make the life of any corporation easier. So the best way I think for a corporation to respond is to do an assessment of which issues are relevant and then focus, focus, focus, focus, and try not to get distracted. Because another kind of characteristic of this field is this kind of notion that, oh, now this is an ESG issue. Public health, which wasn't really on anyone's list of ESG issues, suddenly became an ESG issue in 2020. DEI, which used to be a separate thing dealt with by the human resources department, suddenly made its way onto ESG issue lists in summer 2020. And as of this spring, a bunch of investors have suddenly started saying that Ukraine is an ESG issue. So If we think of it that way, then where does it end? We're all going to be kind of pivoting to something new in another 5 minutes. That is not a sensible or strategic way to run your business.

And that's, that's a really interesting perspective there because, as you say, issues have always been there, right? Stuff companies do have an impact.

Yes.

And, and that's, it's sort of been known about. And obviously as time has shifted, you know, you've had things like tobacco has had to reflect on the health issue in a way that it didn't obviously when it, when it first started out. And so these things, they seem to be coming in thick and fast at the moment. And I think that's possibly one, maybe because of the sort of general social trends, but also information spreads more quickly. We've got greater transparency, greater— there's a whole load of sort of social factors that probably mean that even if these things are coming thick and fast, they're going to come even thicker and even faster because of those, those pieces. So as you say, this kind of feels like it's just building up and building up. And so ESG feels like a very simplistic bucket. And I love the way you were describing, well, we'll just shoehorn it into this. Right? So, well, health becomes— it doesn't call— social, that'll do. Right? Where do I stick this?

Oh, yeah. Oh, yeah. The other thing that is remarkable is everybody and his dog is constantly trying to add a fourth letter or sometimes a fifth and sixth letter. So there's about a column a day of like, we need an extra E or we need J on the end or we need— DP for data protection, or we need whatever it is we need. ESG is not right. And so that's another, I think, bizarre and unhelpful kind of urge that a lot of people have. But it shows what a kind of baggy and imperfect concept this is.

But it's interesting with this stuff coming in. I mean, you obviously can't ignore— so I could take a very idiotic view and go, oh, this all sounds a bit difficult, Alison. I shall ignore all of this stuff. Because it's all nonsense. It's going to be replaced next week. And of course, that is not a smart strategy. So we have to look at these things. And clearly, if you are involved in business in Russia or Ukraine, you have to start thinking about things that you might not have been— that you probably should have been thinking about in the case of Russia, but you probably haven't done. So you've got this thing that suddenly appears. And I wonder what your thoughts were on how can companies get a handle on this stuff? Because if you're a sort of traditionalist thinker, ESG feels quite convenient, right? Because I've now got a label I can pin and I know I've got somebody that can take responsibility. I can outsource that problem in some respect to the ESG personal people. But this stuff keeps on coming. How can I start thinking about managing that? Because I think you can't be blind to it anymore in a way. And I mean, to some extent, I mean, willfully blind in a way that you probably were able to in the past.

Yeah, I mean, it's a great question. I think the most sensible place a lot of people would advise you to start is reputation, right? What issues can hit your reputation? I'm just going to go ahead and say that's terrible advice because once something becomes a reputational risk, it's too damn late. Like, look at reputational risk case studies and it'll be like, oh, Toyota and VW and Wells Fargo and Siemens. And it's kind of like, well, yeah, it's a reputational risk crisis because that was an ethics crisis. So, so I think if you look out there and you start obsessively social media monitoring and thinking what could be a reputational risk, you're probably probably, um, going to miss it because one thing we know is that reputational risk now is very, very unpredictable and can pivot kind of on a dime. A possibly more sensible piece of advice is to look at your externalities. So go back to this kind of notion that your business model will have, um, lots of, of costs that it is dumping on society. I mean, hopefully not too many if it's a reasonably well-run business. But whether it's pollution or water use or, um, the wages that you're paying, um, or your exposure to corruption, um, or, you know, your transport costs, obviously your energy use, these are all externalities that maybe are not reflected in your balance sheet, but are having an impact on people out there, whether they're your customers, your suppliers, your investors, or your employees. So if you start with externalities and you consider that those externalities at this point in where we are will always expose your business to some risk and some cost, then that is a more sensible place to start kind of analyzing where you, where you might want to go. So a quicker way to say that is that if you look at your impact on society, you will then be able to figure out what is most likely to kick back and become your risk. If you start with the reputational risk, it's already— the horse is out there rampaging around the field and the stable door is open.

I was going to say, right, yeah, yeah. But I think that there's something fascinating about, uh, the human condition where we'll focus on— we'll do something when we really have to. So there's that classic sort of, I'll decide to go on a diet at the point where I feel a bit overweight, I'll slow down at the point at which I see the speed camera, I'll react So we sort of don't do anything until it's absolutely necessary, until, in simple terms, there's clear and present danger. And what you're suggesting here is that we do something that potentially feels quite unnatural to us, which is like, let's not think about stuff that we know is already happening. Let's think about stuff that we've dared not contemplate before. And that takes us into the Donald Rumsfeld type. I don't mean the military side.

No, you mean the unknown unknowns and the unknown unknowns.

Right. And so I think that's quite— you know, he was ridiculed at the time, but I think that what he said was actually really intelligent. And I've even forgotten, I think it was something to do with the rock. I've forgotten the context, but I thought that analysis was good. But the reason he was ridiculed is precisely because that feels really odd, right? It's looking into— it's almost opening the box that we don't— lifting up the rocks and looking underneath it, which is starting to ask some very awkward questions about what we're in business to do, how are we doing it, all those sorts of things.

Obviously, everything that you've just said applies in spades to compliance, right? So this is, I'm sure, a long-running kind of conversation with other guests on your podcast that compliance officers don't tend to get rewarded for missing some giant disaster. Everyone says, oh, well, nothing's happened, so I guess you don't need that many people next year. And so this is very, very similar, perhaps even a notch more complicated because proponents will say, This isn't just about risk, it's also about opportunity creation and your business model. So you don't even get the benefit of being able to put it in risk and, and think about it that way. Um, but yeah, I mean, I think you're right that this isn't psychologically very natural and companies historically are very, very reactive. I think that the world, however, is changing so fast that I don't know that any business that kind of keeps going that way, um, is going to be very successful. And indeed, if you look at the data for, um, how long companies stay in the S&P 500, it's collapsed over the past several decades. So quite clearly companies are not doing very well at responding to changes in the external environment. And maybe they should think about getting a bit better at that and considering, considering these issues as part of that picture.

Where's the limit? If you talk about those issues, right, as we think about, there are lots of things. So if we, if we are sort of on the one hand, we could stick to the strict ESG buckets, goes not in those, we don't need to worry about it because we're We're pandering to investors and we're thinking we're sort of reacting rather than being proactive. So if we go into that proactive frame of mind, that could take us to all sorts of different places. And of course, if you wanted to sort of think creatively about it, there are lots of things that companies are involved in where there is potential risk. You could sort of walk around and say, I see danger everywhere.

Yes.

And so how does one think about calibrating that and going, what are the things I really need to focus on? Or is it potentially that actually everything is game? And that even that idea of restricting it starts to potentially make us vulnerable.

No, I mean, I think you have to go through a very rigorous prioritization process. And I think you have to identify the issues that are materially, financially material to your business and the issues where you are having a significant impact externally on your stakeholders, either positively or negatively. And you need to basically look for the, the overlap in the Venn diagram. So things that are both business critical. And critical to your stakeholders and focus there. And that should be a maximum of 1 to 3 issues. And those should be issues where you can really make a difference. A company I believe is very, very good at this stuff is Shopify. And if you look at their mission statement, unlike most companies out there, they don't promise to save humanity and end climate change. They just say that they want to help business owners make better businesses, and that's what they do, and they do it very well. So I think that kind of clear, pragmatic, bullshit-free focus is what companies should be aiming for. They then still will need to look at the full range of possible issues affecting their industry and need to react to pressure. But I think we also need to be very, very realistic, which, which investors do not seem to be realistic, and nor do proponents of this stuff seem to be very realistic about whether we can really expect expect a company to take a leadership position on 30 or 40 ESG issues. If you spend one second thinking about how initiatives get done in companies, how many meetings are required, how many KPIs, how many goals, and you think about the substance of these issues, all of which require cross-functional collaboration, I think we would both agree that a maximum of 3 issues is probably sensible. To try and do something realistic on. And because, because of the investor ESG landscape and this kind of scoring system I've described, what I fear companies are rather doing is focusing on duking the stats so they can get a better ESG score and ignoring the underlying drivers that caused ESG in the first place. So that is the fun outcome we're grappling with now.

And it almost reminds me a little bit of sort of companies and policies. We need a policy on this. And I mean policy in the sense of internal policy, but also like a position on something. What will we say if they ask about that? And so it's almost like a press office-driven thing where we need a line to take. And I feel like there's a convergence between what is expected of politicians. So a politician is expected to have a view on everything. What do you mean you don't know this or you don't think you haven't thought about that? And there's a dangerous headline because they haven't, you know, there's something that they've never considered before, as if they're superhuman or to have it. But the same pressure seems to be on their own companies. It's like, well, if I follow the logic of what you're saying is anytime. So, well, we better think, what are we going to say on this and what are we going to say to our employees? And of course, that melding of the— you can't have a different message internally to externally. So if you've got your employees asking about something, you probably do need to think about it. But then that potentially becomes your external message as well because things will leak out. So in a way, I can kind of see why there is a temptation to respond to everything. But as you say, that doesn't lend itself, particularly in older bureaucratic organizations, to getting anything else done.

Yeah. And so two things I want to say kind of in response here is, first of all, you flagged a lot of the kind of reasons all this is going on around kind of transparency and employee activism and so on. But I think a really, I think, helpful way to think about this, this whole thing, is that we've basically collectively and globally lost faith in governments to solve our problems. There's a lot of data around that. There's been a huge rise in popular protest. Uh, we're both British, so enough said on that. Um, but, uh, but nobody trusts or likes, um, their kind of government anymore. Um, and then the world is moving much, much faster, and so Really, the question is like, why would you wait 4 years to stand in a line and fill out a piece of paper in a gerrymandered system when you could pressure a brand and they are far more likely to act and react and you're going to feel better that you got somewhere out of boycotting kind of a brand. So to a great extent, we are turning to companies to solve issues we used to rely on politicians to solve. Everyone was super keen on this for a really, really long time. There was an incredible— this really took off during the Trump presidency for kind of obvious reasons, but there was a lot of business commentary in kind of 2017, '18, '19 about kind of the new CEO activists and CEOs are the new politicians and CEOs are these statesmen. And we started to kind of talk about and think about CEOs in that way. I think we're now, or hopefully it's starting to dawn on some people other than you and me, that this may not be the best idea in the world. And the former CEO and chairman of Aetna gave in a quite incredible quote to The Wall Street Journal last week. He said, wait for it, running a business is now table stakes. I mean, if running a business in the middle of the Ukraine war, the run-up to the midterms, giant supply chain disruption, the Great Resignation, etc., etc., etc., if that's table stakes compared to what position we're going to take on abortion or gun control, we're screwed. We're screwed. We do not have— have the people running companies have neither the training nor background nor proclivity to take ownership of these issues. So where are we really going? And at what point is someone going to say enough's enough? And I think we need to stop.

Wow. I'm still— I'm still waiting for that. I hadn't read that quote. That's like— silenced me, which is a rarity in itself, as we know. But I mean, that's interesting because the basic dynamic that you described there of, like, I want to do something about X, I mean, on some level it does make sense. So if I'm particularly worried about child labor, as an example, going to boycott fashion brands that don't think in those terms and protest against it, that will have an impact, right? If I look at people using natural resources in an unhelpful way, there is a logic to it. But what's interesting about some of the things that you mentioned is it goes into a realm where the linkage possibly no longer exists. And therefore, I have easy access to them, as you say, it feels like I can do something, I can withhold my money, I can protest. They're much more physically present, I can access them in a way that I can't access my politicians and I can influence them. So on the one hand, you wouldn't want to discourage that, right? Because there is a logic to it and we do want to keep pressure up on firms on the things that they can genuinely control. The question comes, where does it get too much? Where is it slightly pointless? And where are we going into realms that are outside their area of expertise? Because I would expect somebody running a fashion company to have an understanding about where their stuff is coming from and how it's being made and what's happening there and what they're doing in terms of fast fashion and all those sorts of issues. That seems relevant. You're right if we then get into things like gun control where you'd say, well, what's the head of a fashion brand got to do with that subject? But I don't know where that dividing line is and how we how we balance the, the sort of bits where it is, you know, I'll call it appropriate, inappropriate. I, I'm sort of not trying to ward anybody off from doing or saying it's wrong, but sort of there is a, there comes a time when, when you get into the realms of it doesn't make as much sense as it did when it directly relates their business, right?

100%. So I think point one, I would, I would kind of go back to this point on externalities and looking at your own operations. If this is directly relevant to your stakeholders, you are having an impact on that issue. You are having an impact on the wages in your supply chain, no question. Or that impact is creating risk for you. You can no longer source mangoes because it's got too hot to work in India. That's relevant. Deal with your own operations. People used to have this notion that corporations should aim to do no harm. That's now dismissed as old-fashioned and regressive. I would actually love to see companies kind of go back to basics and focus on that. So that's the first category of issues. I'm all for corporate responsibility. Responsibility over those issues. What you tend to get at the moment is an ongoing lack of corporate responsibility over those issues combined with a very aggressive PR campaign implying that you're solving climate change or inequality, which I think is kind of having very unnecessary unintended consequences. Then there are a bunch of issues that are not relevant to your business where you might face pressure to speak up. For me, the most unbelievable example of that was how many CEOs commented on the George Floyd murder verdict last summer. I'm sorry, that's a police killing. It's a jury, it's a judge jury verdict. What on earth does the CEO have to do with commenting on that? It's very, very strange. Save the Woodchucks or whatever kind of irrelevant sort of issue it is, I would really prefer companies to keep quiet. But that brings us to the third issue and where I think companies are really, really, really struggling is around these kind of identity issues. So women's rights, racism, um, sexuality, kind of freedom of expression, human rights issues in supply chains— these are issues that are relevant because companies have employees, and they are policy issues, and they are extremely contentious. So I think you can see from Disney, and then you can see from Roe versus Wade over the last week, That is where companies are really, really, really struggling.

And it's tough, right? Because it's sort of— I could make a coherent argument for why you should sort of step into this space. I could make a sort of lazy, I just want to get rid of this problem, right? If I just say the right thing, it'll go away type logic. But sort of doing nothing, which is kind of where, you know, you're suggesting you just step away. You don't need to step into that turf unless it's directly relevant. That, as you say, becomes a lot harder when you could make an intellectual argument that is not relevant, but your employees or your customers think it is and they have decided it's relevant so that it becomes a matter of perception on their part. And therefore you're being— on the one hand, it's a very strong position to sort of say, well, we can't get involved in everything, we're not going to touch that. On the other hand, you are particularly where it's personal to them.

Exactly.

Because it goes to their identity, that gets a lot harder.

Exactly. And there's a tendency to frame stuff like racism as political and for people to sort of say we don't get involved in politics. But obviously, if you're a victim of racism, that's not political, it's personal. So there are a lot of that. You know, this is where a company like Basecamp, right, went wrong. They tried to ban quote unquote politics at work. And the problem was, wasn't that people were sitting around on Slack kind of debating whether Joe Biden was doing a good job. They were upset about some internal discussion where people were making up funny names for their clients, a lot of which were racist. So to call that politics is such a disingenuous move from the management. And so unsurprisingly, a third of the workforce quit. So, but I think you're, I think you're exactly right that the employees are very upset about a lot of these issues. And I think what makes this more difficult is that young employees in particular have a tendency, maybe we all do, have a tendency to equate speech with action. So I think there's a lot of pressure on companies to kind of make knee-jerk statements and to think about this as a PR problem, whereas it's not maybe necessarily a PR problem. And so what I think companies need to work a lot harder to do is to look at the action that they're taking and get their ducks in a row on that before they get tempted into speaking. And that is, um, important for all sorts of reasons, but, um, There is vastly increasing pressure on companies over political spending and much, much, much more scrutiny of when your words don't match where you are spending money. And then I think, you know, the other thing to say is that the US in particular, and Britain to a certain extent as well, and other countries are massively, massively polarized at the moment. So we're getting to a point where corporate PR and the backlash it generates is, is causing more problems than it solves. And I think honestly, that's only just getting going. I think by the midterms, this is going to be, um, a real mess, even more than it is right now.

And that implicitly would continue if you— so, so if you, if you state on— if you make a statement on a position, or even you do— so let's, let's go for the sort the, you know, the, the, the sort of more impressive standard. If you, you do something, you're seen to be taking a position on something, and therefore you are getting some friends and people like that, but you're also alienating people. Being silent, and I've seen, it's a great thing that we see at sort of rallies, and I love, I love using it in a completely different context. You know, um, silence is compliance.

Yeah.

Is the great, is the great phrase. And so you get lumped in with them. So you're either with us or you're against us type mentality. So this is really hard, right? Because there isn't an optimal route out of this.

Yeah, I mean, it used to be that there was a safe middle ground and you could say, I'm not getting involved, Republicans buy sneakers too, um, I'm just neutral, I'm just a platform. That's become much, much harder because these issues are so emotive and they're so high stakes. And I think people kind of often rightly say, if you're not saying anything, you are coming down on one side by your silence. I mean, you can think about One of my favorite examples on this is Uber, which carried on operating during the Muslim ban, quote unquote Muslim ban. And that was what led to the Delete Uber hashtag. And they were just making a profit-driven decision to carry on operating. They didn't think they were weighing in, but by not weighing, not taking action, they were weighing in. So it's definitely not easy. But if I were running a company right now, I would be trying really hard to communicate internally about the need to create, you know, to take concrete action, and that I'm going to be looking and talking and coming to you for ideas, but really emphasizing that a supportive statement is quite often going to make things worse. And this is what I hear in the classroom all the time. You know, I was teaching during the big Black Lives Matter protests, and 100% of my students thought these kind of Black squares on Instagram and these statements were sort of embarrassing. And they were immediately kind of trying to figure out what the company could actually do to diversify its workforce or meet these goals or show some kind of substantive commitment. So I think the other thing here is, you know, young employees expect you to speak up, but they're also incredibly savvy about how to manipulate social media and what a colleague of mine at NYU calls performative authenticity. So the art is performing, but seeming like you are not performing. So I think as, as more and more young people enter the workforce, they are, they are so sophisticated on this kind of impression management strategies that I don't think companies know what's going to hit them, right?

And, and it occurs to me that there's, there's another challenge here, which, which is sort of social media being the best example of which is where your employees are tied to you as an employer. And so things that they say, they may not be speaking in an official capacity, but we've seen lots of examples of sort of, I'm going to report that to you. Somebody does something on social media, it gets reported to their employers. That's one way of looking at it. The opposite is somebody does something and it's assumed that that's done with the employer's blessing.

Right.

And, and so how do you manage that risk? Well, the answer is you stop your employees participating. No, you ban them from saying anything on social media. You ban them. I think there was an example of McKinsey, of all people, were banning its employees. There was one office issued an edict that nobody was allowed— effectively, you can't go out and protest, no political activity whatsoever, not even a risk of any association with the firm. But we're just going to blanket ban that. And then they recalled from that. But there's obviously an interesting challenge here because this plays directly into my sort of human risk piece. In the 21st century, we're employing people to use their brain. Because if we just, if it's just repeat tasks, we can give that to machines. So on some level, we want people to be more human at work, bring some human attributes. And that takes us with all the dynamics you've talked about into a world where we might have our corporate messaging and decision-making under control. And I stress the might, but we can't necessarily control what they loosely defined do.

Yeah, I think that's right. And I don't think companies have quite got comfortable uncomfortable with this notion that all this stuff is now out of their control. There are amusing kind of internal statements of teams sort of begging Facebook employees, KPMG employees, just not to leak. Please, please, please stop leaking. I think that McKinsey decision, clearly McKinsey employees are leaking like absolute crazy. That's how we found out that it was the same team of consultants working for Purdue Pharma and the FDA at exactly the same time. So the power of the strategic leak is not going away. There's a lot of efforts to try to control and manipulate what employees are saying on social media, rewarding them for saying the right thing and that kind of thing. I think if I were, again, if I were running a company, I would try to limit and contain the values that I take a position on as a corporation. I would try within kind of some carefully defined limits to emphasize that employees can say what they like. I'm all for free speech, I'm all for freedom of expression, but they can do that. They can donate to who they want, they can say what they like on their company time. They would probably, you know, there's going to need to be some limits there, but make it very clear that's not the corporation's position. So it's okay for you to work here and speak your values and protest when you want and have a position and complain, but, but let's not mix mix that up with the corporation being some kind of representative of all the personal values of its employees.

Right, so don't wear your corporate t-shirt out on a protest.

Yeah, I mean, I think that's right, and you are an individual citizen. So I think we've also, you know, as well as this kind of lack of criticism of the notion that companies have started to become essentially social and political actors in new ways, We have this other notion, right, that you ought to be able to bring your whole self to work, um, and speak your kind of values. And I guess maybe what I'd like to see is a little bit more, maybe not severance style, but a little bit more of the redrawing of boundaries between work and personal life. I actually don't want to bring my full self to work. I want to bring my personal self and switch off my personal life for 8 hours and concentrate on other things. And then I want to concentrate on my personal life in the evenings and be able to say and think what I want. And so I think maybe rather than corporations trying to get further and further into employees' personal lives with their intrusive surveillance and their wellbeing programs and their mental health and this and that, they should say, you know, come to work, be a good employee, do your job, and then in your spare time, do whatever the hell you want, you know, and provide a bit more freedom and a bit more of a reality check about what a job and what a corporation is really for.

And I think that, I mean, that is anathema to lots of places, right? It's, it's, it's— you're right, the tendency is let's have more control. So let's go, yeah, in crude terms, let's go more North Korean on this and give people less autonomy. And so we'll have more surveillance software, as you say, more rules, more kind of snooping on them to check what they're up to and to sort of steer them away from doing things that we don't want. And I think that's interesting in the context of what other— there are times when companies claim they want people to speak up. So we want you to speak up. And yet, on the other hand, we don't like it when you speak up in other contexts. And I'd be interested in your views on this because I think this is seriously detrimental. If you're turning around to people saying, you know, I'm going to police what you do on social media in a personal capacity, then the likelihood of people wanting to speak up in that environment when they're already encroaching on yours, I would suggest it's fairly fairly limited. I think it has a much more detrimental impact than just the thing they think.

100%. I mean, there's so, so many examples of this kind of mixed messaging of, um, you know, why don't you speak up? Why aren't you braver? Maybe you should make it, uh, a little bit easier to be brave rather than, uh, requiring so much courage in the first place. But yeah, people— I mean, it's, it's kind of like all these things, you know. It's, it's a little bit like, um, saying that you're committed to these things because it makes more money. I mean, it's such an obvious turnoff, but companies, uh, companies just don't seem to be able to, uh, uh, figure that out. And I think that, you know, I think it's interesting, this kind of notion of control, because something else I really, really see in the classroom is that notions of what a leader and manager should be doing are really, really changing. And so, when I was young, which was centuries ago, I had this notion that, you know, I would enter the workforce and what I had to do was go and buy a lot of horrible clothes and go and sit at a desk and be told what to do. And then my goal was to get promoted and amass enough power to tell other people what to do. Depressing view of life and work, but that was honestly what I thought. And now, when I talk to young people, they want to be mentored and coached and encouraged and nurtured. They don't like this idea of someone barking orders at the top and you do what they're told, and you do what you're told. And I actually don't think they're as responsive as my generation was to the kind of even notion of carrots and sticks. So, I think we're also just kind of starting to run into real changes in notions of what a leader is for and what management actually does that I think people who don't think in this way are really struggling to adapt. To.

There is that sort of interesting, well, it didn't do me any harm logic.

Yeah, exactly.

Which, which I think is one of the most pernicious things ever to sort of say, well, it's almost like I don't want you to have a better existence than I had because I had to suffer this and you will too. And we see that going. You have lots of examples of that, which I think is incredibly unhealthy on so many levels. But that's the, that's the underlying logic, right? Is it sort of this has got me. But what I think is interesting is when you look at the senior people in organizations, particularly in large organizations that have grown up, been there, been through, almost been through the rites of passage that you're talking about, it's perhaps not surprising that some of them are ill-equipped to handle some of these changes because they've been playing a particular game. And I love the way you described it of going, you were not doing what you wanted to do. You would just, I'll just exactly what I'm told. I will play the game.

Right.

And if I play the game long enough and I stick around for long enough and I survive and I don't rock the boat, I'll get promoted eventually. And then I'll get to some senior position and that'll be great and that'll see me. That's how I grew up. And so I think it's interesting when you look at people, top organizations who were playing a game that I think if they were trying to play it nowadays, they wouldn't be where they are. And they're also not particularly good at responding to people who aren't playing that game because they don't understand.

100%. There was an amazing article in New York Magazine about 6 months ago about— there was a— for people that are listening in Europe and don't didn't follow this, there was a big kind of— not big, there was an employee rebellion by young analysts at Goldman Sachs. And they put out this PowerPoint and they were like, the hours are brutal and it's 120 hours and we're not doing it anymore.

I love the fact that they chose PowerPoint to do it though, right?

Which is really funny as well. But then there were, in this article, there were amazing quotes that are exactly like you're describing with all these kind of managing directors at Goldman. Talking about this analyst program like it's a frat house hazing ritual and basically sort of going, wow, it didn't do me any harm, and blah blah blah, and sort of exactly what you're saying. And so, you know, these nimby-pimby have got to shut up was the basic kind of message. Um, and I mean, good luck with that because you're gonna have a lot of trouble, I think, retaining anyone under 30 with that strategy.

And it's just weird, though, because even if you were to take a sort of extreme economic position on it and go, well, we're a money-making machine, it's a well-oiled machine that we run here, I look at it and say it's a really piss-poor use of human capital. Oh, right. If you're getting in some incredibly well-paid graduates and all they're doing is dumb stuff in the middle of the night on PowerPoint, right? You wouldn't do that with any other form of investment. You wouldn't go and buy some factory machinery. Great expensive technical equipment and then go, oh, let's just have it do something really pointless because we've got it sitting there. You go, how can we maximize that particular thing? And so I find this really astonishing. Just even if I, even if I ignored the sort of social trends and pretended not to understand those, it's just from a pure utilitarian perspective. Why are you wasting resource on that level? Why are you hiring people and then, and then kind of constraining them in that way? It just doesn't make any sense.

I had this exact conversation with my undergraduate class last autumn where I was like, they were all like, well, you know, I was asking them, would you, would you work at Goldman Sachs, basically? And a bunch of them were like, well, you know, you've got to do this for a few years. And like, and then I was like, wait a minute, no one actually needs to work 120 hours a week. And it's not like Goldman couldn't hire more analysts so everyone could work a still egregious 80 hours a week. Um, what gives? And, um, and they gave me answers that were about the prestige and competition of the job, which is what tells us this has no commercial purpose other than socialising these young employees into this culture and ensuring that they replicate that behaviour. We've got some culture and ethics issues in banking, no idea why. I don't know, you tell me.

But it's almost like Hunger Games logic, right? It's, we have this We have these processes and we're going to trumpet them as being amazing. And it is just absolutely fascinating. And as you say, if the prestige is so great, you don't need to pay people that much money. So therefore you could just pay them less and still have the— but there seems to be this sort of Lord of the Flies. Let's keep bringing out literature.

100%.

It's very strange. And yet it seems quite—

It's not objective and it's not logical because it can't be. Just hire some more analysts. Hire some more analysts. They'll do a better job. They'll be less exhausted. Hire some more medical staff so they don't have to work two nights overnight in a row. A lot of this comes down to how we account for human capital. We don't measure turnover. We just measure the cost of quote unquote human capital. So it's not that there aren't costs. It's not there isn't a logic. It's just that we don't like to look there. So if you do look there, I think you get a very, very different story.

And I think, I mean, it's interesting when I, when I listen to you now saying, and my sense is that lots of people listening to this, there'll be a few people going, no, that's rubbish. There's a reason, they'll be finding justifications for it. But the majority of listeners will kind of be nodding along and going, yeah, she's right. And yet there's a reluctance to sort of buck that system. There are, I see lots of people, some of my former colleagues, and they may or may not be working in places I've worked, or they may have moved on to other things. I'll leave that to the viewers and the listeners' imagination. But people seem trapped in this old paradigm.

Yes.

And until we sort of help people to break out of that, these unhealthy tendencies— I mean, they would eventually— it's almost as an evolutionary process. Eventually, when we look at some of these things, they will start to buckle, as we've seen lots of other things shift.

Yeah.

But it could happen much more quickly if people were honest with themselves.

Yeah. Though I think— I mean, I've been thinking about this a lot, Christian, but I think I think part of this comes down to our notions of leadership being, I'm going to say schizophrenic, right? So, um, I've seen some really, really interesting data showing that CEO job descriptions have really transformed over the past 15 years, which you would expect from everything going on. So much more emphasis on social skills, networking, empathy, emotional intelligence, sustainability. And much less, you know, on the kind of former command and control kind of, um, kind of notion of what a leader is for. So certainly our ideas of leadership are moving, uh, more women, more people of color. I mean, there's obviously a sort of very white male concept of a leader as well that's still out there and dominates. At the same time, we still seem to be, um, completely obsessed as a society with what Elon Musk is doing and saying, and we still seem to find it very easy to forgive and nurture and reward these leaders that are still giant egos. So we're sort of asking for leadership qualities that you don't get in the same person, I think. And I think, you know, it would be one thing if we'd all kind of collectively as a society decided, wow, we've got a bunch of really crap leaders, and what we need to do is look for different leadership skills. And is sort of saying that, but at the same time, we are still quite happy apparently to indulge these giant raging egos out there. Um, and I don't see that coming to an end anytime soon.

Right. And it is, it's fascinating to me, so that, because I was sort of thinking about Zelensky. Yeah, that's a good example. So everybody's going, great, you know, like, like, I don't think you, apart from Putin and a few sort of other apologists, I'm not finding anybody that's got anything negative to say about what he's doing, right? He seems seems to be largely people accept that he's doing a fantastic job in incredibly difficult circumstances. He stepped up to the plate, and so that we praise that. On the other hand, when you get the opportunity to vote for that— and I do recognize there's a difference between a peacetime leader and a wartime leader, and he's clearly much more popular now in Ukraine than he was, as I understand it, before, so I recognize it's a unique set of circumstances— but nonetheless, we get given the opportunity to vote for that sort of a— we're unlikely to take it. Because that sort of person is not particularly in— if I think of, you know, as you mentioned, the UK, uh, lots of other places where there's sort of two or three-party systems, those people tend not to get to the top of those.

Yeah.

So we tend not to be getting the oppo— either we're not given the opportunity to vote for them or we don't take that opportunity when it's offered. So to, to— that's a really interesting thing. We sort of want to break out and yet don't have the courage to do it or, or don't take the opportunity when it presents itself because I don't know, there's some other barriers there.

It's fascinating. Yeah, it is really fascinating. And so I think, I guess that's where I'm kind of landing in our conversation is schizophrenia. We want new things from leaders, but we haven't necessarily dropped our interest and obsession with the old things. And I think ESG is a lot like that as well. We've realized all these new things are incredibly important, But we haven't dropped our old obsession with short-term shareholder value and making money and needing to say everything's a win-win. So maybe that's why you see so much confusing random noise out there. I'd love to think it's going to stop, but all the indications are it's just going to keep getting worse.

So the only upside of it not stopping, right, is that we continue to get amazing insights from people like you. Of you who are thinking about this. And I think one of the things that is amazing, and I really, really want to praise you for this because you've massively helped me to think about things, is I think you're in a fabulous position where you're able to think about these things and call stuff out and have opinions and say things. And I think it's hugely to your credit that you take full advantage of that. And so I'm going to be putting lots of links to things that you've written and said and put out there because I think you're an absolute necessity in a world gone mad. We need people like you to be mulling things over as well. And I like the fact that you are not prepared to accept simplistic answers, right? So things are a little bit complicated and I think there is a tendency for lots of people to, we want simple solutions to things. And I know for a fact that as, as people will have heard on this, this episode, you are not somebody that's gonna settle for that, right? You love a bit of complexity in thinking about things, and I think that's hugely powerful. So I wanna say on behalf of all of us, thank you for doing that and please continue.

Thank you so much. And, and, um, Yeah, for, for those of people listening that don't know me, um, I'm trying to write a book, so I spend most of my day obviously procrastinating on social media. But I am, uh, I am there genuinely to get ideas and feedback. I've got into a habit of putting out kind of half-formed nuggets of ideas to see how people will react, and I get so much value and so much joy out of how people do react. I love people critiquing, arguing, giving me a new angle. And so come on, come on in and join the debate. I'm so there, not in fact doing what I should be doing, which is turning off social media and focusing. So look forward to seeing you all on LinkedIn or Twitter soon.

Well, I will encourage that. And look, you do it, do a quick plug for Breaking the Fever because you've rebooted that podcast. And I want you to tell the people about what they can expect. I'll put a link to that in the show notes. But what's all that about?

Yeah, so, so you hosted our first season, which was um, really came out from the early stages of the pandemic and started being a lot of group discussions of, um, where we look for different expertise on what was going on. Um, and now a few years later, Jerome, uh, who I, who I run this with, have come back for a second season. And what we're looking at this year is power shifts. So we're really seeing, you know, lots of shifts out there, and we're trying to understand what's happening, particularly about questions of power and voice from various different dimensions. So we've got great guests coming up. We've managed to improve the production a little bit. And yeah, come, come and listen and tell us what you think about that as well. Thank you very much.

Amazing. And look, when the book comes out, I will drag you kicking and screaming back in front of the microphone. Hopefully not too— hopefully it won't be too difficult to come and tell us about it, because I know it's just going to be one of those books that everybody is going to— ought to be reading and is going to want to read. But before that happens, Alison, I'm going to let you get back to your writing. So just to say, one, thank you so much for just being great fun, really inspirational. I love your sense of curiosity and adventure. And as ever, for being a fabulous guest on the podcast.

Thank you so much for having me.

So that's it for this episode of the Human Risk Podcast.

My enormous thanks to Alison for appearing and to you for listening. To find out more about Alison and her work at Ethical Systems and the Breaking the Fever podcast, have a look in the show notes. There are links to those there. If this is your first time listening to the Human Risk Podcast, welcome. You can subscribe wherever you get your quality audio content. It's available on all of the major podcasting platforms. To find out when I release a new episode, do subscribe to the Human Risk Podcast newsletter. There's a link to that in the show notes. If you're interested in finding out more about the work that I do to help companies mitigate their human risk, then visit human-risk.com for further insights and some tools that you can use to think about mitigating human risk in your organisation. I'll be back very soon with another episode of this show, but in the meantime, stay safe, try and manage your business by a little bit more than just ESG, and thank you so much for listening.