Corporate Responsibility and Good Governance: Prof. Alison Taylor’s Perspective — Business Talk

Hello and welcome to the Business Talk Podcast. I'm your host, Deepak. We are delighted to welcome Professor Allison Taylor with us today. Professor Allison Taylor is a clinical associate professor at NYU Stern School of Business, where she focuses on corporate responsibility and business ethics. Her expertise spans strategy, sustainability, political and social risk, human rights, and anti-corruption. Professor Ellison's first book, Higher Ground, was published by Harvard Business Review Press in February 2024. Previously, she held leadership roles at Business for Social Responsibility and Control Risk. She also advises organizations like Venture ESG and KKR and serves on the World Economic Forum's Global Future Council on Good Governance. Professor Taylor holds degrees from Oxford, the University of Chicago, and Columbia University. In this episode, Professor Taylor will share valuable insights from her widely acclaimed book, Higher Ground: How Business Can Do the Right Thing in a Troubled World. I invite you to join me in welcoming Professor Alison Taylor to our podcast. We eagerly anticipate her valuable insights on the topic. Professor Alison Taylor, a very warm welcome to you.

Thank you so much for having me. It is a delight to be here. I'm really looking forward to the conversation.

Professor, can you provide a brief overview of Higher Ground and what inspired you to write this book?

Yeah, I can. I suppose the good starting point is I would argue, and I argue in the book, that we've never been so confused globally about what it even means to be an ethical business. When I say to people, like, you know, ordinary people, that I work on business ethics, they tend to say, oh, well, they need get all the help they can get, or, ooh, that sounds really difficult. So we can also start by thinking about the word ethics. Like, we've come to associate the idea of ethics with the law, but then many, many people out there are concerned about things that are not about the law. They're concerned about climate change and inequality and biodiversity and human rights, and they think business should be doing something about those topics. So I think we've ended that idea from Milton Friedman, right, that you just focus on shareholder value but you don't break the law. We don't really have consensus on what replaces it. And then we're in a very polarized, divided world where companies are having to navigate values differences across geographies. So I, I wrote the book because I observed that there's an enormous amount of jargon in this field, that if you're not spending all your time thinking about these topics, there's a lot of weird language being used, a lot of ideas that aren't super easy to understand. And I tried to set out in a clear way, you know, if you're a manager trying to run a good ethical business today, what would that mean? What does that mean in the 2020s?

Professor, in Higher Ground, you discuss how the old world of business ethics is no longer tenable. So what are the key differences between the traditional view of business ethics and the new paradigm you are advocating for?

Well, I've spoken about this a little bit, but we used to say that as long as you don't do anything illegal, anything you can do to to maximize profit is okay. And then I think, so one of the things that's changed is the amount of weight that the legal system can bear has become a problem. Lots of governments are dysfunctional. We don't really trust governments to be properly democratic or set rules. And then there are topics like climate change or AI where development is moving so fast that the law can't even catch up, even if we think that the law is working properly. So we have this old idea that the law exists to regulate business. And as long as you focus on not breaking the law, you don't need to worry about anything else. With the rise of ESG, sustainability, human rights, all these other pressures and other ideas about what it means to be a responsible business, the law is not a reliable anchor. So the question is, what do we do instead? How do we think about these topics? The other thing that's going on, I don't know how much it's going on in India, where I think there's been a lot of progress on sustainability, but there's a big backlash against ideas of ESG and sustainability in the US. There's a lot of regulation coming out of the EU, lots of very different things going on in Asia. So we've also got this very confused global picture that we need to somehow find a way through.

With the rise of stakeholder demands, how should companies prioritize between competing pressures from employees, consumers, regulators, and shareholders? In this era of ethical turbulence?

Yeah, so, you know, one of the things we can clearly see and one of the stories we can tell about how traditional ideas of business ethics don't work anymore is a story of social media, right? So with the rise of social media, smartphones, many more people having internet access, companies have been forced into a much more interactive, fraught, turbulent relationship with their stakeholders, We can hold companies accountable or try to hold them accountable in new ways. We don't really hold— take the company's word for it anymore. We don't believe what they're telling us. We look at what other stakeholders are saying before we decide where we wanna work, what we wanna buy, where we wanna go on holiday, that kind of thing. So companies have to listen to or respond to a much broader range of voices than they did before. Where I think this tends to go wrong is a lot of companies try to figure out what to do, try to figure out what their values are based on who's yelling at them on social media. So you can do a lot of social media analysis. You can look at what issues are coming up and that kind of thing. I think the danger there is you end up looking really directionless. And if you don't— and as if you don't have any values and you're just responding to the loudest voices. So something that's happening in America right now, for example, is a real right-wing backlash against responsible business ideas. And so many companies are responding because that's where the noise is at the moment. So I think a big mistake is to pay too much attention to social media. I think another big mistake is to pay too much— too little attention. I'm sorry, too little attention to employees. So I make the argument that employees are the most powerful stakeholders. Employees have inside information on what you're doing. Young employees in particular are increasingly likely to leak damaging information about your company, you know, onto social media and into the public domain and to journalists. And then maybe most importantly of all, it's your employees that are talking to your other stakeholders. So if your employees aren't happy, it's quite likely your suppliers, customers, and communities won't be happy either. So if you want to get this right, I think you've got to start by putting employees at the center of your responsible business efforts.

You emphasize that simply maximizing shareholder value while following the law is no longer enough. What does it mean for companies to do the right thing in today's complex environment, and why is it shift so crucial for long-term success?

So, uh, I make the argument that the best place for companies to focus is that their impact on human beings. So a lot of the reasons that people don't trust business, feel cynical, feel that business is exploitative and greedy and corrupt, is the rise of awareness of negative externalities. So we're aware of the role of big business in driving climate change, in undermining equality, and destroying nature. And so, you know, I think where business needs to start is with those externalities, and particularly with their impacts on people. So I think if you start by treating human beings, particularly your employees, but your other stakeholders with dignity and respect, that is the best grounding for your ethics program. This also implies you shouldn't treat responsible business as PR. So if you're not paying your workers and supply chain workers a living wage, if you're not treating them fairly, if you're not giving them proper working conditions, You've got no business making a lot of noise out there for kind of advertising purposes. So start with the direct impact of your business on human beings. You will know what those impacts are. You know what impacts are big. You know what your biggest reputational issues are. Make a good faith effort to tackle those things before you start going out there and making more ambitious commitments. So I really think it's pretty simple. Treat people, including your workers, including your customers, including your suppliers, suppliers with fairness, dignity, and respect.

Professor, how can CEOs effectively cut through the noise to set and maintain strong environmental and social priorities without being overwhelmed by external pressures or criticism?

So I think what's really important here is focus. I think because companies feel very nervous about all these stakeholder pressures, they tend to overcommit. They tend to tick the box on 30, 40 things. They tend to write these long reports, here are all the wonderful things we're doing, Here are the 3 pillars of our programs, and here are our 20 goals and all our initiatives. I think what you've got to do is be much more strategic and focused. So pick 1 to 3 issues that are core to how your business makes money. Make those a strategic focus. Make them drive capital allocation. Embed them really into your strategy. Make sure they inform your ethics commitments. Get clear over what this issue presents to you as a business challenge. Is it a risk? Is it an opportunity? Is it an impact that requires ethical guardrails. But I think we've got a problem in that we've kind of diluted our efforts and we treat this as more of a kind of tick box reporting exercise and then actually trying to make anything better. So I think we need to stop ticking the box, stop trying to please the ESG reporters, please the regulators, and really have a sharp strategic focus like we would with any other business initiative.

When should business leaders speak out on divisive social or political issues, and how can they navigate this situation without alienating key stakeholders or damaging the brand?

So here, I think I would really advise restraint as well. I don't know how much of this is going on in India, but in the US, there was a real trend, particularly in the late 2010s, so that in the last Trump presidency, see, like 2018, 19, 20, when leaders felt they had to have a position on everything. You have a position on immigration, you have a position on climate change, you have a position on the invasion of Ukraine. And so there was this real phase of kind of we treat CEOs like we used to treat politicians, like they've got to have an opinion on every possible topic out there. I think in the last few years it's become pretty clear that maybe wasn't the greatest idea. So now what we have is a lot of companies in the West, in the US and Europe, really struggling because many stakeholders feel that those companies should have a position on the conflict in the Middle East. But of course, no multinational business, no matter how big or powerful, can actually resolve that conflict. And if you do make a statement on that conflict, you are by definition going to alienate enormous numbers of your stakeholders. This is a conflict about which people feel extremely strongly. And so that is a good example, I think, of where a CEO should not be going out there making statements if you can't actually do anything. So I would go back to what I just said in my last answer. Have a strategic focus on a few topics. You can talk about those topics if they're really material, they're really core to how you make money. I think you've also sometimes got to stand up for human rights, stand up for human dignity, stand up for freedom of expression, free speech. Speech, healthcare, you know, those kind of things. So I think you've got to think about human rights and people. Otherwise, I think you should be pretty clear. There are a few issues that are really material to us. We'll talk about those issues. We'll talk about what we've done. Otherwise, I think the default should be to stay quiet. Let your stakeholders say what they think as individuals. But I think it's become problematic to say that a corporation should have a position because Who's a corporation representing? I don't think a leader— leader's not a government, you know, a company's not a democracy. So you don't really have the right to represent your stakeholders on something that's as controversial as the Middle East conflict.

Transparency is a major theme in your book. How can companies build genuine trust with their stakeholders in an era of Item: scrutiny and mistrust.

So I think this is one of the trickiest challenges out there. We have a, a discourse in responsible business that what you need to do is be more and more and more transparent and people will trust you. Well, there's been a big rise in transparency. Companies are reporting more and more and more and more data. Trust has not risen. Actually, we trust businesses less and less. And now we have this enormous volume of information that companies are publishing, even if they're not trying to pull the wool over our eyes. It's very, very difficult to unpack who's doing a good or bad job. I don't know about you. I find myself in the supermarket quite often being like, well, what vegetables should I buy? What kind of coffee should I buy? What products should I buy? Who is a good brand or a bad brand? And I know a lot about these topics. So I think we're overestimating the ability of the, the, the general public, the ability of even investors to establish who's doing a good job and hold companies accountable. And then the other thing that's, I think, a consequence of all these transparency pressures is treating responsible business as PR. We've been talking about this already, trying to tell a nice story about all the wonderful things you're doing, trying to write these kind of glossy reports with all these happy smiling children in them. And people don't like it. People are turned off. People don't believe it. So I think you've got to again be clearer and more focused. I think you've got to be able to admit we don't have all the answers. We don't have everything right. This is what we're working on. We don't know if we can tackle tackle climate change. We need better policy. We need better innovation. So I think you've got to be more honest and clear about the limitations of what you're doing. But then I also think you've got to align your messaging. Like, there's been a real tendency in the US as well to sort of— for companies to say, we really care about climate change, but then they're lobbying against action on climate change. So if you do that kind of thing, you've got mixed messaging, then the public will trust you even less. So I would say fewer things, but I would make sure that you can back up what you're saying.

Professor, in today's business world, ethical challenges are often not black and white. What advice would you give to leaders navigating ethical gray areas, particularly when laws and rules are ambiguous?

Well, it's a really good question. I define ethics in the introduction of my book as a kind of collective process of exploring, you know, exploring what you believe in. So one of the things I think you need to do is involve the workforce in making these decisions. I write in the book about 2 Dutch banks that have ethics committees where they have young employees involved, and they will consider as an organization, what should we do about GMOs or casinos or AI? And really have that collective conversation about those gray areas, come to a decision, find a path forward. But you need to have some kind of internal governance mechanism to consider these ideas. It's not enough for the senior leadership to make a decision because, as you said, these topics are inherently really grey areas.

How should businesses approach corporate values when society itself is so divided on issues such as racial justice, climate change, and income inequality?

Well, again, you see, I think we need to prioritize human rights and human impact. And one of the things that human rights frameworks say is that you should not impose your values on people that don't share them. So that also kind of informs all the answers I've given you already. So, you know, if you are in an atmosphere as divided as the US right now, you can make a statement on something. You will by definition be really alienating some of your stakeholders and making them angry. So you've got to be really, really careful about that. Maybe the better thing to do is say, go and use your own voice, go and work, go and vote. No, go and take a position on the issues you care about. It is not up to us as your employer, as the corporation, to impose those ideas on you. So I think you need to make ethical commitments around your own impacts. And I think you need to really respect the fact that you don't get to impose your ideas on people that don't share them. So that's, that's where I really think we should land. I think there are other, you know, there are, this brings up other challenges. So, you know, a question for you or a question for people to think about, you know, if you are an Indian business operating internationally, do you say we've got Indian values, we've got Indian values, whether we're in the US or Saudi Arabia or China? Or do you say we're a global business and we adapt? We have American values in America. We have, you know, Saudi Arabian values in Saudi Arabia, Chinese values in China. So, So that's the kind of dilemma, you know, are you being top-down about your national identity, or are you driving local adaptability, which will of course lead to inconsistency? And I think that's a really big challenge because organizations like the UN, for example, are not doing the greatest job, and we don't have the greatest international alignment anymore. So probably there is a need to lean more to the question of kind of local adaptability, but that doesn't mean you don't have any values or commitments at the corporate level.

Professor, last two questions. The first one is, based on your years of experience in anti-corruption work, what are some of the most valuable lessons businesses can learn to prevent corruption and ensure ethical integrity in their operations?

Oh, I love this question. There's been real progress on anti-corruption in the past couple of decades, but where companies tend to focus is on like compliance programs. We've got a whistleblowing line, we're doing third-party due diligence, we've got a lot of policies. I think the key thing to recognize about corruption is that it's a political risk problem. It is very, very common, for example, for a political candidate to accuse their rival of being corrupt. It is very, very problematic if you're very associated with a particular set of politically connected people and the government changes and then you don't have any friends anymore. So I think part of the answer is for companies to look externally and think about this as a strategic external problem that is closely connected to your political risk and not think you can manage this entirely with like policies and procedures and zero tolerance rules.

Professor, when a company makes decision based on ethical principles, it often faces backlash from one side or another. So how should leaders handle such pushback, especially when they are trying to uphold their company's values?

Well, I mean, I think part of the, part of the answer is recognizing that society is really, really divided. To me, this supports the contention that you just focus on a few issues that are directly relevant to your business model. In the book, I talk about an example of a company called Chobani. It's a yogurt company. And it has a strategic focus on the American agricultural system, which is not an easy topic, you know, but that is clear to how a yogurt company makes money. That company is not, you know, running a save the chickens campaign or a save the woodchucks campaign. It's not necessarily intervening in topics it can't influence. So I think that is one of the things you need to do. I think you also need to really focus on paying people properly, paying, rewarding people properly for their work so they can support their families, so they can have a good career, so they can have a private life. So these are things that have not been very fashionable in the past few years. We, we more prefer to hear about companies kind of driving social change. I sort of think we've got to get back to basics with how we treat people. And it's okay to have environmental and social priorities, but just make sure they're relevant and don't take on too many.

As we wrap up today's episode, I want to extend a heartfelt thank you to Professor Allison Taylor for joining us and sharing such invaluable insights from her book, Higher Ground. Professor Taylor's deep expertise in corporate responsibility, ethics, and sustainability has truly shed light on the evolving challenges that businesses face in navigating today's complex and volatile environment. Thank you again, Professor Taylor, for your time and wisdom. And to our listeners, we hope this conversation has inspired you to think more deeply about the role of ethics in business today. Stay tuned for more insightful discussions in our upcoming episodes. Thank you so much, Professor Alison Taylor, for joining with us today.

Thank you so much. It was a wonderful conversation. Thank you for your great questions. Would love to hear from any of your listeners who read the book, what they hear, what they think about it. So thank you so much for having me. It was a privilege.