Study of five-element framework suggests key pillar to drive outperformance over peers
Sustainability turned out to be a major theme at the World Economic Forum last week, with many leaders agreeing that it’s time for companies to focus more on climate change and other stakeholder interests. This could be a cause for alarm among shareholders who see a shift to responsible business coming at the expense of profitability.
But the results of a collaborative study between the World Economic Forum and Accenture suggest that the trade-off between sustainability and performance isn’t as costly as many expect.
The report, titled Seeking New Leadership, outlined a five-element model of responsible leadership. The five elements, which include attributes and characteristics leaders will need to accelerate growth and improve societal outcomes in the coming decade, include:
- Stakeholder inclusion – considering diverse stakeholders’ viewpoints in decision making and fostering an environment where diverse individuals have a voice and feel they belong;
- Emotion & intuition – being truly human and showing compassion, humility, and openness to unlock commitment and creativity;
- Mission & Purpose – advancing goals by inspiring a shared vision of sustainable prosperity for the organization and its stakeholders;
- Technology & Innovation – innovating responsibly with emerging technology to create new organizational and societal value; and
- Intellect & Insight – embracing continuous learning and knowledge exchange to continually forge better paths to success
“The climate crisis, growing inequality and economic fragility threaten human wellbeing like never before,” Adrian Monck, managing director for the World Economic Forum, said in a statement. “We need a stakeholder approach in which companies combine entrepreneurialism with purpose, working with others to improve the state of the world in which they operate.”
The report noted that leaders of large organizations will have to deliver on three challenges: organizational performance, continuous innovation, and sustainability & trust. While balancing all three dimensions may sound challenging, the report said it can be done.
Across more than 2,500 listed companies between 2015 and 2018, Accenture found that the top 20% in innovation exhibited a negligible premium in operating profit and operating margin over the average values achieved by their industry peers. The top 20% in sustainability & trust did better, with an operating profit premium equivalent of 1.4% and an operating margin premium of 0.2% over industry peers on average.
But outperformance was even more pronounced among companies that combined top-tier innovation with top-tier sustainability and trust. Such companies showed operating profits that were 3.1% higher on average than their industry peers, and operating margins that were 0.6% higher on average.
Accenture also did an analysis of thousands of earnings calls over the past two, three, and five years conducted by companies that successfully navigated the three challenges.
“The evidence is clear from all three time periods. To differing degrees, all Five Elements of responsible leadership are more pronounced among these profitable and trusted innovators,” the report noted.
Focusing on the two-year view in particular the report noted the following percentages based on extra mentions of words associated with each element:
- Technology & innovation – 97%;
- Emotion & intuition – 59%;
- Mission & purpose – 33%;
- Stakeholder inclusion – 18%; and
- Intellect & insight – 17%
