The business of business is business, really?

My Leadership Trilogy - Part two «Diversity in the Team»

My credo is based on the principle that good leadership is not rocket science, despite the variety of valuable approaches and advice about leadership styles. At the end of the day, basically «just» three aspects need to be fulfilled in order to be successful. Sure, there's a lot more to it, but if this «framework» is in place, nothing can really go wrong:

  1. A common goal (purpose, mission, positioning) with which everyone in the leadership team identifies and for which it is worthwhile to work.  
  2. Diversity in the team, firstly in terms of core competences and skills, secondly personality and character traits and thirdly with regards to external characteristics such as gender, age, nationality, etc. And all of this embedded in the company's context to build the basis for a truly sustainable approach.
  3. Psychological safety, meaning a cultural environment in which everyone can be themselves, contribute, openly express their opinions, know themselves and their team, where «the masks have fallen» and people take each other as they are.

The first part of my leadership trilogy was about a common sustainable goal. In this second, I will focus on «Diversity in the team».

Milton Friedman's statement «The business of business is business»

That «companies should focus primarily on profits» is one of the most quoted statements by Milton Friedmann, Nobel Prize winner and one of the most important economists of all. With this statement from the 1970s, he justified the responsibilities in the state:

  • The employed management (CEO and his team) is responsible for the business and its employees and is expected to generate as much profit as possible for the owners.
  • The owners (shareholders) decide how to use the profit, whether and if so, what contribution to society they want to make and what their «corporate social responsibility» is.
  • The state (government) is responsible for society and the environment, enacts the appropriate laws and regulations and collects taxes to implement them.

Diversity: The glue between business and true sustainability

First of all: I am an absolute fan of diversity, I know from my own experience that it is not easy to manage diversity, but I also know that it is worth it (here I write about it). Diversity not only leads to better decisions, but it also broadens one's own horizon, opens the door to other cultures, promotes appreciation, humility and respect for other solutions and the awareness that one's own «truth» need not be the right one by definition as well as the ability to compromise for the good of the whole. I would like to distinguish diversity on three levels:

  1. Diversity as such and its inclusion, which is on everyone's lips. It is about characteristics such as gender, age, ethnicity, etc. and their inclusion. I think that's a good foundation, but also not more than that. I don't need to go into it, there are many studies that show that this diversity leads to better decisions, and none that I know of that concludes otherwise.
  2. Diversity in the sense of personality. This is about core competencies, skills, character traits, etc. I consider this level to be crucial for business success. A team consisting only of introverted, analytical and conservative decision-makers will hardly ever rock a market, and a team consisting exclusively of courageous, intuitive and less reflective decision-makers will no doubt run into a wall. 
  3. Diversity as a mirror of the company. Can you be sustainably successful in the Russian or Japanese market without Russians or Japanese in top management? Or a shopping centre run by a team of financial experts? Or a team staffed by men in a women's fashion company? Or a supplier of fishing equipment without passionate anglers? Very unlikely, the context of the company is just as important!

I am of the firm opinion that the «right» degree of diversity is achieved when a management team reflects and embodies the company and its environment in the best possible way and, firstly, has the crucial core competencies, secondly, consists of different personalities and characters, and, thirdly, covers as many different attributes as possible. This is the key to achieving the necessary credibility both inside and outside the company and to making the right decisions for the company in terms of true sustainability.

Sustainability and its three dimensions: People, Environment, Business

At some point, all resources are somehow limited, so it should be a natural, intrinsic imperative for everyone not to waste them and to use as little as necessary. But really interesting things get when you want to include and balance resources in all the three dimensions of sustainability, human, natural and financial; that's what I mean by «true» sustainability. In my opinion, it is «false» sustainability if you leave out one of these three dimensions. It is not sustainable if a company «only» cares about profits, neglects its employees and does not pay taxes. It is equally unsustainable to pay management and employees so lavishly that the business ends up going bankrupt.

The questions that arise: Is Milton Friedman right in his approach, or should companies by themselves, intrinsically, adhere to true sustainability in all three dimensions and, if so, how?

«There is no conflict between doing good business and being a good company»

This credo was instilled by Anders Dahlvig during his term as CEO and President (2000-2010) of the IKEA Group. For me, it was an eye-opener and an inspiration that, if I had my way, should be for many other companies as well. Let me explain the IKEA case:

  • Part of the DNA: Sustainability has been part of IKEA from the very beginning and represents the values of its founder, Ingvar Kamprad, who introduced, exemplified and enforced them until the end of his life in 2018. He saw the «IKEA idea» as a trinity and stated that a successful company needs three things: a dream (vision), and to realize it, on one hand a business model (business idea) and on the other people who make it happen (HR idea). He thus placed the human factor on an equal footing with the business factor in terms of its importance. Then, in his «Testament of a Furniture Retailer», as early as 1976, he determined that profits should be left in the company as a resource of being self-reliable to shape the future on it own. He has called the waste of resources a mortal sin and has thus at the same time considered the factor environment and minimized costs to make IKEA's products affordable for the many people.
  • The decades of consistency: Sure, IKEA has also made mistakes and suffered setbacks, but how the company has remained true to the principle of «relying as much as possible on its own» is impressive. From the very beginning, the principle of owning furniture stores, matching the pace of expansion with the own financial capabilities, and always keeping a high financial reserve for «rainy days» applied. Later, in 1991, after the fall of the «iron curtain», the group invested for the first time in its own production, on the one hand so as not to lose important suppliers from Central and Eastern Europe, but also to build up its own production know-how and drive its own innovations. Then, in 2015, IKEA started acquiring forests to «make responsible forestry the norm, stop deforestation, improve biodiversity and support people whose livelihoods depend on forests» (and updated its ambition in 2021). And last but not least, the company is on track to meet its goal of switching to 100% renewable energy in all IKEA operations by 2030 (more about here). Over the decades, IKEA has consistently used its resources to expand its business and develop the value chain of its own core business and its true sustainability and has never succumbed to the temptation to invest significant financial resources in unrelated areas or even to make acquisitions unrelated to its business.

It is obvious that this approach makes sense both strategically and economically: IKEA is now a major player in the entire value chain, from forestry, manufacturing, energy production and the supply chain to retail and commercial real estate, has its impact and can at least partially balance economic developments over its own value chain. I would argue that when it comes to sustainability, IKEA is ten, if not 15, years ahead of the majority of multinationals. Something that, as a side effect, considerably increases its attractiveness both among its customers and on the labour market.

Long story short - here's my summary

  • Core business: In my opinion, Milton Friedmann is right in the sense that business is the most important business of business, still.
  • Diversity: I am of the firm opinion that a leadership team reflecting and embodying the company and its environment, exhibiting the critical core competencies, composed of diverse personalities and characters, and covering many different external characteristics is the essential key to leading a business that is both successful and truly sustainable in all its three dimensions.
  • True sustainability: I am convinced that 50 years later we are at a point where Friedman's strict separation of duties is no longer sufficient. True sustainability cannot simply be delegated to the state; it is an attitude that companies should embrace, and the bigger they are, the more they should assume their social responsibility. I hope that with the IKEA case I have shown that this can bring very concrete competitive advantages if it is lived intrinsically and in all areas.

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PS Let the future be your guide - the best in life is yet to come.