Have you ever wondered how long it would take a CEO to make the UK’s average yearly salary?

High Pay Day marks the moment at the start of the year when median pay for a FTSE 100 CEO surpasses the median annual wage of a worker in the UK. This year it took just 30 hours. Last year, following the grind of a global pandemic, it arrived a little later on the 7 January at 9am.

Businesses and the general population alike suffered hefty financial burdens in the wake of COVID. What sets this year apart, is that despite having learned the crucial value of key workers (children in schools, mail delivered, food and goods transported) many of those key workers are currently involved in protracted and knotty strike action over real terms pay cuts. Meanwhile, CEO pay has risen and can be anywhere between 12 to 14,000 times what their employees receive.

The recovery of CEO pay – up 39% since this time last year – is set against a backdrop of small businesses struggling to survive a tide of unsustainable costs, while families in prosperous cities like Birmingham and Glasgow resort to skipping meals to stretch budgets, as well as an 81% increase in foodbank use since 2017. Workers see just a 6% increase to help them navigate staggering price increases in energy bills, food and other essentials.

Why, then, are the dividends reaped by the most powerful leaders in business not reflective of the extraordinary hardship faced by the majority of society? Well, the answer isn’t necessarily to be found in the bounty of those companies, but rather in the mindset of its leaders. It lies in what many choose to prioritise and whether they are able to make strategic decisions which go beyond the current culture of short-termism and the growth imperative.

Humans are not the most reliable decision-makers, being susceptible to countless biases and self-interest that frame their assessment of their contribution in misleading ways. The same is true of leaders, whose experience of power amplifies such pre-existing mindsets, increasing their confidence to act on their immediate thoughts and feelings, however biased they might be. In the workplace, this can lead to situations – or worse, an embedded culture – that are influenced by the CEO’s distorted views, sometimes lurking unseen and unsaid within an organisation’s subconscious.

But it isn’t just a simple case of power corrupts. Social psychologists have conducted research demonstrating that the way people construe their power affects how they use it. So, if leaders see their position as being responsible for others, rather than for their own personal attainment, power can have a very positive effect on the leader and on the organisation. Power in the right hands (or should we say, in the right mindset) can increase inclusion, eradicate corruption and discrimination and promote equality and human rights.

By contrast, business leaders who operate solely to maximise profits can inflict extensive reputational damage to their organisations when the results of their single-minded decision-making are uncovered. Often the cracks first appear in their global supply chains, where the margins can be squeezed and their deleterious social consequences kept far from view. For instance, workers from a factory in the notorious district of Mae Sot in Thailand recently brought forward a lawsuit against Tesco, claiming they are responsible for their appalling working conditions. Workers claim to have been subjected to unsanitary conditions, threatened by managers who had control of their immigration documents, and forced to work 24 hours once a month to fulfil large orders – all for as little as £3 a day.

With an increasing emphasis on responsibility in business, CEOs can no longer just be preoccupied by a company’s short-term financial performance. They must also make their companies socially and environmentally sustainable, protecting profitability in the long term. This far wider scope of performance for a responsible business, which stems from its social purpose and values that are rooted in the UN’s Global Goals, demands a different kind of leadership from the simple ‘leader–follower’ model of bygone times.

A more teams-based, participative notion of leadership is becoming mainstream, with power distributed across the company rather than held at the top. This allows CEOs to access a much broader skillset and utilise the diverse life experiences and viewpoints of the whole organisation to inform decisions. In this model, the theory is that leaders with the most appropriate traits will emerge as and when the situation arises, and the role of senior management is to facilitate this process by unlocking their employees’ leadership potential.

What gives this disruption and democratisation of traditional leadership structures in the workplace such potential is that it unleashes the extraordinary collective power of teams and crowds, which research has proved make better decisions, provide greater perspectives, and forecast more accurately than any leader or cabal of managers can hope to do on their own. Process-driven decision-making has also been shown to play a vital role in safeguarding against irresponsible or undesirable outcomes. Whether it’s a simple checklist, a series of set questions, or a more elaborate role-playing exercise, researchers have found that people improve their ability to achieve their goals by creating a set of conditional rules to follow.

The ever-widening pay-gap between employees and senior managers in many companies can be seen as symptomatic of leaders’ poor decision-making, a preoccupation with profit maximisation, and the amplifying effects of power on outdated and irresponsible business mindsets. Unions are currently appealing to the government to introduce formal pay ratio policies to curb inflated management pay packets to reflect the hardship and real terms pay cuts experienced by the majority of their staff. Much like the monitoring of the gender pay gap, keeping a tally on this pay ratio and holding companies to account can urge more responsible practice and create an alternative to the current race to the bottom.

The rewards for doing so are enormous. Companies with leaders that pursue such a responsible business agenda are not only more sustainable and future-proofed against huge social and environmental risks – they are also thriving. Besides, apart from a minority of ultra-rational, profit-maximising sociopaths, the vast majority of business leaders want to improve society in some way. But without the right responsible business strategies in place, even the most well-meaning and modestly paid of CEOs can find themselves on a slippery slope.

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Why High Pay Day matters

This month, it’s 70 years since the Great Smog of London. Estimated to have caused up to 12,000 deaths, it remains one of the biggest man-made disasters in UK history.

It’s also a neat microcosm of our current deadlock over who takes responsibility for the global climate crisis, perfectly illustrating how ‘everyone and no one’ is to blame and why individuals and businesses can feel so helpless. But they shouldn’t; quite the opposite in fact. Let me explain why.

Complex adaptive systems (CAS) theory suggests that the world is a socio-ecological system that is made up of an interconnected web of different systems – be they natural, social, cultural or economic – that relate to each other in complex, non-linear and dynamic ways. So complicated and cumulative are these relationships that it becomes almost impossible to scientifically prove the impacts of any one part on the overall socio-ecological system. So when a systemic disaster strikes, like the Great Smog of London, it’s easy for individuals to pass responsibility, claiming ‘it wasn’t me’ because other people were to blame too.

While the weather in London in December 1952 was cold, it wasn’t unusually so. People responded the way they normally did in winter by putting a bit more coal on the fire and burning the fire for a bit longer in the day. Darker, colder days put extra demand on the electricity systems as well, which at the time were generated from coal. And most of the factories in London were largely powered by coal generators, too. Traffic levels had grown alongside the population of London, with more steam locomotives, diesel lorries and buses than ever before after the closure of the electric tram system.

But when this noxious mix was combined with some unusual weather patterns, the level of air pollution turned lethal. Suddenly there was no wind to disperse the air pollution and a heavy fog acted to trap the air pollution at nose-level of London’s unsuspecting population. This stagnant weather continued for a few days, allowing the pollutants to accumulate to the point where people couldn’t see or breathe. But Londoners, who were used to smog, initially didn’t change their behaviour, continuing to expose themselves to this toxic air. Death wasn’t instant, coming about through respiratory infections over the following weeks and months that took a major toll on the very young, very old, those with underlying conditions and those in poorer living conditions.

So who was to blame for all those deaths? The citizens burning coal? The coal producers? The factories? Those running the transport system? The people who went out in the pea-souper? The landlords who provided poorly ventilated houses? The government for not locking down the communities? The planning authorities that had known about London’s air pollution problem since at least 1661?24 The weather system? The butterflies half a world away whose beating wings may have shifted the anticyclone over London? The list is endless, but no one can identify the source of the soot that tipped a normal set of behaviours into catastrophe or know exactly where this tipping point lay. What we can see is that each individual soot emission reduced the level of resilience of the complex adaptive system that is London, until the system collapsed so dramatically and tragically.

The solution wasn’t to hunt down and punish individual culprits, but rather to look for ways that re-established London’s resilience to reduce the risk of this concurrence of different events from ever happening again. This included systems-level reforms, such as the Clean Air Act of 1956, changes to the powers of local authorities and revised planning regulations. The Great Smog of London was a critical learning event for many other cities and nations that had the opportunity to understand the systemic complexity of air pollution and act in advance. While many did, many others chose to ignore it, resulting in massive deaths from human-induced air pollutants combined with predictable weather patterns that continue in some countries even today. London itself failed to learn and act quickly enough, leading to another lethal smog event in 1962 – no doubt due to the significant controversy over the science, risks and who pays for solving the problem in 1952 (in much the same way as what happened during the recent COVID-19 crisis).

However, CAS theorists suggest that the flip side of this systemic complexity and volatility is that the effects of any individual can also be remarkably powerful too – which should be hugely encouraging to small and medium-sized responsible businesses doubtful of what impact their individual efforts can make. Who knows how many catastrophic ecological tipping points have been narrowly avoided by the responsible actions of just one person? Equally, how many social and economic recoveries have been sparked by the influence and investment of one business? The most important thing is for businesses to try to understand how these various systems operate and interact so they can recognize what impacts they have (or could have) on the resilience of society and the natural world.

That’s why CAS theorists argue that sustainability needs to be subtly reframed as supporting socio-ecological resilience – or ‘resilience-based stewardship’, as they call it. In practice, this would encourage responsible businesses to look beyond the impacts of just their operations and take an active role in the preservation and enhancement of the wider social and ecological systems their operations are dependent on. So rather than Unilever, for example, just looking to improve the sustainability of the palm oil it sources from somewhere like Borneo, it has been working with other national and international groups, governments and agencies to prevent the wider degradation of regional and global ecosystems and alleviate the underlying social issues that damage the longer-term resilience of Borneo.

Such cross-sector partnerships with NGOs and public sector bodies – whose expertise and core mission are about socio-ecological systems – can provide the knowledge and skills to help businesses of all sizes ‘close the loop’ between their operations and the wider systems they depend on and need to protect. These collective activities might be harder for companies to direct and measure than their own sustainability strategies, but there can be no effective strategy for business resilience that doesn’t also support the resilience of wider society and the environment.

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Why it is essential we takes responsibility for the global climate crisis

A key theme of COP27, which is taking place in Egypt’s Sharm-el-Sheik from 6 – 18 November, is a ‘global stocktake’ of the world’s progress since COP26 met in Glasgow last year.

Central to that will be assessing countries’ promises to “revisit and strengthen” their decarbonisation plans to help meet the Paris Agreement’s goal of limiting global temperature rises to 1.5 degrees by 2030. So far, only a handful of the UN’s 193 members – just 23 – have improved their plans and most of those (including the UK’s) were adding policy details rather than making their top-line emissions targets more ambitious.

The standout country was Australia, whose new Labor government submitted revised climate plans that took their emissions reduction targets from 26-28% of 2005 levels to 43%, putting it more in line with other developed countries. And while Indonesia and COP27 host Egypt strengthened their targets, both made much of their ambition conditional on international finance, with Egypt also only including emissions from certain sectors of their economy.

There will undoubtedly be many other broken promises from COP26, but this continuing controversy around Nationally Determined Contributions or NDCs (as the UN refers to countries’ emissions targets), how they are measured and who should fund them could derail the whole Paris Agreement. At the moment, there is a systemic imbalance with how they are calculated. A country’s carbon emissions are based on its production, not consumption, which is grossly unequal and skewed in favour of richer Western countries that have outsourced much of their carbon-intensive industry and manufacturing to poorer countries where consumption per capita is much lower.

Indeed, while air pollution and climate change affect the health and environment of everyone, they impact the poorest most severely. The majority of the 8 million deaths each year from air pollution are in poorer countries, which also have the least resources to cope with extreme weather events. Moreover, notwithstanding that the vast majority of the 40% increase in atmospheric carbon dioxide since the 18th century is a result of more affluent Western countries’ mass industrialization, the world’s richest 10% are still responsible for more than half of all carbon emissions through consumption today, while the poorest 50% are behind just 10%.

This is why many developing countries are demanding ‘climate reparations’ as a key part of any net zero plans by the UN, which would address this historic dimension to countries’ emissions targets and the injustice of the climate crisis’ disproportionate impacts. Such a compensation fund has been mooted by G7 politicians in the past, with Scotland and Denmark recently committing $15 million to tackle loss and damage at a global level. But the US and other major carbon emitters are yet to put any money on the table and the G77 group of 134 developing countries have promised to make it a crunch issue at COP27.

If the UN and its richer members can’t produce the necessary finances, they should at least commit to decarbonisation plans that are more holistic and consistent with each other so everyone knows what they are zeroing to. Currently, many countries’ plans are either inadequate, incomplete or full of caveats. The UK’s own net zero commitments are based on flawed, territorial measures that don’t include any emissions from imports or shipping let alone historic emissions. The Office of National Statistics alone uses five different methods for calculating the UK’s greenhouse gas (GHG) emissions – each of them different and producing wildly varying results. If the UK’s carbon footprint was calculated based on consumption rather than production, for instance, its total emissions would be at least a third higher.

Unfortunately, having played host and led the way at COP26 in Glasgow with some of the UN’s most ambitious net zero targets, the UK government appears to have been backtracking ever since. Despite high-level recitations of the UK’s 2050 net-zero aspiration, there is considerable doubt, uncertainty and contradictory evidence of any real commitment to ‘levelling up’ or a just transition to a sustainable UK, let alone support for sustainable business transformation.

It’s clear that the current Conservative government now sees sustainability and the ESG business agenda as a low priority. Their prioritising of growth and deregulation, with a threat of a return to the age of austerity, signals a lurch back to an unsustainable economic orthodoxy. A determination to expand fossil fuel extraction, through more fracking and oil and gas drilling licenses, and to conduct a ‘bonfire’ of EU legacy regulations, including the bankers’ bonus cap, is aimed at repeating the ‘Big Bang’ of liberalised market-led growth in the 1980s, amplified by threats of cuts to public services.

While many of these measures may well help big corporates, the costs of them are likely to be borne by SMEs that already face a dizzying rise in energy and other costs and the likelihood of a recession. As a result, there is a real risk that companies in the UK will be looking to roll back their investment in ESG initiatives and their commitment to the UN’s Sustainable Development Goals.

A responsible government would be helping industry to stay the course during these turbulent times, not encouraging them to imitate their short-termist, growth-at-all-costs approach. As things stand, we could see the return of the outdated, greenwashing idea that a company that invests one per cent of its profits into sustainability makes them a responsible business, when we now know that to be truly responsible means making every pound generated beneficial to society and nature.

Businesses have to change and adapt if the UK is to reach its net zero targets and keep its COP26 promises. But they need governments to set an example with clear and consistent net zero measurements and policies, not to chop and change and break promises. Standardised and robust measures of emissions are vital to combatting the climate crisis. And until everyone – the public, businesses, governments and UN member states – are all aligned and working towards the same standard, many net zero or even carbon-negative targets will remain ineffective, prolonging the confusion and timeline of when we can expect to limit the damage of the climate crisis.

Read more:
Broken promises from COP26 and the implications for SMEs