The need for systemic thinking - a paradigm change - Challenges for responsible and sustainable management
| Author | prof. dr. Nigel Roome |
| Function | Director full-time MBA Programme and Professor of Governance, Corporate Responsibility and Sustainable Development |
| Organistation | Vlerick Leuven Gent Management School |
The modern corporate responsibility movement in Europe can be traced back to the late 1990s. Professor Nigel Roome had already started lecturing on corporate responsibility in universities and business schools in 1990, having worked in the field of environment & business since 1983, and on environmental issues since 1975. As of 1 September 2010 he has taken up his post as Director of the full-time MBA Programme and Professor of Governance, Corporate Responsibility and Sustainable Development at Vlerick Leuven Gent Management School.
The financial crisis would indicate that a number of banks had difficulties with their corporate responsibility (CR) programmes.
Nigel Roome: “Well, some won awards for their CR programmes and reports. What they did not have was responsible management. In my research I lean more towards responsible management than corporate responsibility. Many companies have organised CR as a function and that makes it faddish, whereas responsible management is not faddish at all.”
“I see ‘responsibility’ as raising the question of how you see and think about your business and the many relationships you have through your products, processes and strategy with other actors in society. And that requires a systemic view of business and organisations, within their context.”
That is quite a different approach from Ed Freeman’s stakeholder or hub-and-spoke model, with the manager at the centre of the stakeholder universe.
“Whatever firms do will invariably affect the nature of their relationships. So it is important for managers to understand those relationships and what might happen as a result of actions by the company or changes in the context of the business.”
“Unfortunately, very few people seem to be able to see those consequences, let alone distinguish economic, environmental and social consequences. And I do not believe many business programmes focus on developing the competences managers need to be able to see the relationships between a company and its activities, on one side, and other actors in society and environmental resources and systems, on the other.”
Is that a weakness of MBA programmes?
“It is; indeed, absence of systemic thinking was certainly a weakness in the financial crisis, as is strikingly illustrated by this quote from Lloyd Craig Blankfein, CEO of Goldman Sachs: ‘We focused too hard on what we were focusing on, and we forgot to look at the system.’
That sounds like common sense. So why is this systemic thinking still not generally applied?
“I think that we live in a world where symbols and metaphors are very powerful. And I have a sense that invariably we use metaphors and symbols that are simpler than the ones that we should be using. So as the world becomes more complex, more dynamic and more connected, we simplify it. One result of globalisation is that the consequences of our actions become even more complex. This means that if you as a company use a static hub-and-spoke model of your stakeholders, it is a misrepresentation of dynamic, complex reality and it will not help you with your analysis of how to create a consistent path into the future, who might be upset by this proposition, what alliances are out there, and so on. This means we must adapt our models to match this complexity if we want to get it right.”
“This seeing business as a system in a context originated in the seventies with the 1972 report from the Club of Rome and the fears of resource scarcity generated by the first oil crisis. But somehow these ideas got pushed aside since with globalisation everyone started to adopt a hyper-competitive model of business, focusing on consumption as a route to maximising profit. But as globalisation expanded, a number of concerns started to emerge around the way business was done - child labour, human rights, stress on global resources in fisheries, climate change and so on. And companies started to encounter cultures that were different from their own, and they discovered that their actions were not fitting...”
Have we finally come to realise that there are a series of social and environmental issues that we need to do something about?
“Yes... that is quite normal at the end of a period of economic prosperity, or rather delusional prosperity. This is not the first time we have had a phase of environmental consciousness, and you also find this emergence of a ‘bigger perspective’ in governance codes.
The King Report for South Africa from 2002 talks about governance being responsible for the efficient use of resources and their stewardship. Stewardship implies using resources in a way that maintains their value for the future as resources on which we can draw. Ten years earlier, codes were only talking about efficiency and effectiveness; nowadays they use words like stewardship, resilience, anticipation, precaution... It is a sign of new thinking.”
But why has it taken so long to realise something needs to change?
“Again, it all boils down to what Lloyd Craig Blankfein said. Most people do not see consequences or feel empowered to question what they see.”
“While most people see events, they often do not see the issues behind those events or the trends behind the issues. Actually, a lot of people do not even see events. Everyone knows about BP at the moment, but how many remember Exxon Valdez, Bhopal, Seveso, Silent Spring, the Lockheed brake scandal, Ford Pinto, etc. as events that created institutional change, new regulations and new responsibilities in business?”
“Events like these continue to happen and the trend is for them to become more commonplace. Despite regulation, they become more ubiquitous and more impactful. And there are many other trends. However, what is clear is that trends develop over time. They start as weak signals; we need people who can pick up on those signals and others who are capable of assessing their potential significance.”
Another trend is the loss of trust.
“That is right. And therein lies another challenge for the future: in order to build or regain trust, companies will have to be even more transparent, honest and responsible. Addressing the issues rather than denying them builds confidence.”
“All this has important consequences for senior managers. If companies want to develop a more sustainable approach to business, then they have to recognise the symbolic value of how senior managers behave. A CEO who drives a heavy SUV yet stresses the importance of recyclability will be much less credible than a CEO who drives a low-carbon car and makes the same statement.”
Are you saying we need more responsible leaders?
“First we need leaders. I agree with Friedman’s view that the purpose of business is to create value, but it is how you create it that matters to me. If you destroy your relationships with others and the planet in the process, then you destroy your ability to deliver on your purpose in the long run.”
“So we need people who can resolve the paradox: what is the way to be responsible and create value? One way of resolving it is by changing business models, by innovating. So we will need more people who are able to innovate, and to innovate with new and different partners, and fewer people who are able to control. Indeed, being able to resolve paradoxes is part of the art of leadership and in the future we will need that leadership more and more.
“This means there is a need for MBAs to have much better insight into the way that businesses interact within the modern world, so they can help to create a better future. And I am optimistic that our students are going to do a better job of addressing the issues because what I see at Vlerick is a true commitment to responsible management.”