‘First of all, make sure you’re treating human beings with dignity and respect.’

A conversation with Alison Taylor, author of ‘Higher Ground: How Business Can Do the Right Thing in a Turbulent World’

Welcome to Sunday conversations, a (sort of) new, (hopefully) regular interview series with authors, writers, journalists, and researchers whose work I’ve found interesting and inspiring. (If you have guest ideas, I’d love to hear them! Just reply to this email.)

For the inaugural Sunday conversation, I spoke with Alison Taylor, a clinical professor at the NYU Stern School of Business and the executive director at Ethical Systems, a research collaboration based at NYU and focused on building more ethical organizational cultures. Alison is also the author of Higher Ground: How Business Can Do the Right Thing in a Turbulent World.¹

This conversation has been condensed significantly and edited for clarity. To listen to our full conversation, head here, or search for “Reframe Your Inbox” wherever you listen to podcasts.

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ADAM: Tell us about Higher Ground.

ALISON: The core argument of the book is really that, in the 2020s, we’ve completely lost sight of what it means to be an ethical business.

Maybe even more interestingly, the topic [of ethics] has become somewhat taboo. Many prominent ethics experts I interviewed for the book would get on the line and say, I try, at all costs, to avoid using that word.

There’s been an interesting maneuver that everybody in ESG [environmental, social, and governance] and sustainability, for example, will be very keen to argue that nothing that they’re doing has anything to do with being an ethical business, and it’s all about “value creation.”

I felt, however, that whether it’s the ESG-anti-ESG debate, or a load of other topics—speaking up, corporate activism, et cetera—what we’re really arguing about is the appropriate role of business in society. And so I over-ambitiously try to answer the question of, if you were trying to run a good business in the 2020s, what would that look like? What would you do?

In the process, I try to clear up what I think are some very pervasive misunderstandings and tropes that are anachronistic at this point but [that] we’re still clinging to, and to really tackle some of the myths and somewhat unproductive ideas, I think, that have come to dominate.

One of those myths that you take on is this “win-win” promise of stakeholder capitalism, this idea that businesses not only can save the world, but also that they’ll make more money than ever by doing so. No one has to give up any privilege or profit or power, and everybody is better off. People sometimes talk about this as the “business case” for stakeholder capitalism.²

If you look back at the history of sustainability and responsible business and what ultimately became ESG, in the twentieth century…everyone believe[d] that there is a trade off. You can do the right thing or you can drive profit, but you need to consider this as a check and balance, and you can’t have everything be a win-win.

But early in this century, that discourse shifted. The term ESG gets coined in 2004 or so. There is a very, very influential article written by [Harvard Business School professor] Michael Porter called “Creating Shared Value.”³ And so where we start to pivot is saying, Maybe there aren’t these trade offs. Maybe you can do the right thing for your stakeholders or for the planet and make more money.

You start to see the emergence of this win-win rhetoric, and you start to see the notion that we can judge the quality of environmental and social efforts, or indeed make the argument about how corporations should choose which environmental and social efforts to focus on, on the basis that they drive more profit.

I think the problem with [this argument] is it’s really banal and unconvincing, and no one believes it, and so arguably it’s driven the rise of this ESG backlash. It causes all sorts of other problems and means that we can’t treat environmental and social challenges with the rigor that they deserve because we’re making these “business case” arguments that don’t really hold.

You write, “When a person is truly committed to a value, they’re unwilling to trade it off against other benefits, including money. … So when leaders declare that they care about such issues as climate change or diversity because of the business case, they’re tarnishing that value in the eyes of people who hold it sacred.” This felt like a very profound and meaningful point.

That discussion and part of the book builds on and draws on an academic research study [by Rachel Ruttan] called “Instrumental Use Erodes Sacred Values.”⁴ [For example,] if you believe in diversity and you hear some self-serving executives saying, We have a diverse team because…it makes us a more profitable business, there’s something really off-putting and self-serving about that.

I see this in the mainstream business discourse all the time, saying that it’s inappropriate for businesses to think about ethics because that’s ideological. When I talk about business ethics or values, I often hear people being like, Well, you know, people disagree on values, and we’re so polarized, and we’re in this really fraught environment. We don’t want businesses to be ideological.

But that in itself is an interesting reframe of what is actually going on. We can think about the rolling crisis at Boeing [as] being a really good example. We can think of the Norfolk Southern train derailment. We can think about the Hertz settlement where they were having their customers arrested and accusing them of stealing cars that [Hertz], in fact, lost in lots somewhere. We can think about Amazon workers being forced to work next to dead bodies.

There are numerous instances where these are really clear ethical violations that are not partisan or ideological. I don’t think, in any of the examples I’ve just given you, there’s a meaningful division between Republicans and Democrats in terms of, do we want to get on a Boeing plane? Do we believe it’s safe?

I think there’s more consensus on what we would like businesses to do and not do than we tend to suggest in the responsible business discourse.

There are a lot of business and management books about some of the themes that you cover in this book—ESG, ethics, sustainability. But not a lot of them are willing to call out the relentless push from corporations and their executives for what you sum up as “our complex array of tax cuts, deregulation, and influence peddling.”

One of my favorite lines from the book was, “Speaking up for democracy is less important than withdrawing funding from candidates who show authoritarian leanings; supporting effective antitrust efforts is more important than speaking up for small business.”

There’s a really interesting backstory here, which is that, arguably, what became sustainability and ESG was all along an effort by corporate executives to use PR and communications tools to deflect regulatory scrutiny.

The fact that ethics and compliance and dealing with regulators and dealing with legal risk is a completely different function and mindset and department from the sustainability team is incredibly revealing about the mindset of companies and how companies treat these problems, in my opinion.

One person who you quote in the book is [University of Chicago professor] Luigi Zingales, who [said], “We now have the politicization of the corporate world because we have corporatization of the political world.”⁵

CEOs like to say that they have to take the lead on challenges like climate change and income inequality because governments have failed. But, of course, part of the reason that governments have failed or proven incapable of addressing [these challenges] is because corporations have spent decades pushing disinformation and public policies that have left governments devoid of revenue and legitimacy.

Exactly. There’s an irony here, which is that if you spend all this time undermining regulation and the public interest because you think lower taxes and less regulation is in the interests of your business, that has the long-term, highly ironic consequence of dumping all those public policy problems in corporations’ laps, which is what’s happening. And that has now led to a lot of corporate over-promising about what can be done about those problems, and basically a tendency to treat this as messaging and PR.

The anti-ESG backlash is relevant because companies were treating ESG as PR in the first place. And when there’s no PR upside, everyone dials it back.

You write that “the next phase of anti-corruption activity will focus on practices that are both legal and commonly pursued by almost all multinational businesses.” Can you unpack that?

I have a chapter on corruption because I think corruption is this really interesting example of what regulation will and won’t do.

The story of anti-corruption regulation is an incredible story of change and international consensus and movement. If we had been having this conversation in 2000 and were thinking about the prospects for anti-corruption regulation, I think we both would have laughed and thought it was pretty hopeless.

It’s kind of remarkable that we’ve seen this enormous consensus emerge on anti-bribery. We now have a very clear idea of what corporations should be doing [about] it. They’re all doing it. They’ve all got zero-tolerance policies, and their business partners and suppliers anywhere in the world know that they need to promise not to pay bribes in order to do business with multinationals. And there’s enormous amounts of international cooperation.

In other words, the state of anti-corruption regulation is the kind of thing a climate change or human rights activist—it’s beyond their wildest dreams. And so it’s pretty interesting that corruption doesn’t seem to be any better and that we have not really got very far in tackling the bigger and systemic issues about the impact of corruption.

There [are] a lot of companies with policies and procedures to protect themselves and tick the box and get the regulator[s] off their back, but we haven’t really got very far tackling corruption as a societal issue.

This is interesting because what is regulated is not corruption, it’s bribery. [Bribery] is a subset of corruption that is easier to detect, easier to define, and easier to prosecute—whereas influence peddling and [the] use of offshore financial vehicles and lobbying and trade associations and a lot of practices that are legal, are still very, very widely used. Yet the way that the term “corruption” is commonly used includes many of those practices.

It’s become clear—because of the Paradise Papers, Panama Papers, and all those various offshore leaks—that the kleptocrats and criminals and money launderers are using exactly the same corporate structures and financial vehicles as the prestigious multinationals, and that vast amounts of wealth are offshore and out of the sight of ordinary people.⁶

This ties into what seemed like probably one of the most controversial arguments in the book, at least within the corporate responsibility-slash-good governance world, which is that transparency is not the panacea that many people and organizations have promised and believed it was for decades.

This is definitely the most controversial argument for sure. I think if you’re not knee-deep in this world, maybe it’s not so obvious how provocative that argument is.

The way I put it in the book is that transparency has taken on this quasi-religious meaning. There’s this consensus, it seems, that transparency is the solution to everything, and that we just need people to be more transparent. It’s almost like transparency and accountability are hyphenated, as if transparency leads inevitably to accountability.

And so it’s pretty fascinating that we’ve been having this discourse for many, many decades, and we do not seem to have got that much further.

Let me be clear: I don’t think transparency is bad. I think it is an improvement that there is much more information about what corporations are doing and saying and thinking than there used to be. But I think there is a lot of magical thinking that disclosure will somehow magically lead to accountability, and there’s not much evidence that that is the case.

Business disclosures are becoming exponentially more complex and difficult to interpret, needing many, many more specialists to figure out what’s going on. It is incredibly difficult for even a really informed investor doing a lot of work to parse and diagnose how well a company is doing based on ESG metrics.

Maybe even more strikingly, what we’re saying to corporations is, You need to disclose all these non-financial material topics and all this data and report to all these frameworks, and investors are going to score you and rank you and allocate capital on the basis of this. That’s what we’re saying. And then we’re surprised that what we get is self-serving spin and companies trying to show themselves in the best light possible. I don’t think that’s surprising at all.

What we get is more and more and more disclosures and more and more and more compliance, but we never seem to get to the point of actually doing anything. If you look at the founding documents of the CDP [a nonprofit that organizes corporate climate disclosures] in 2000, they’re sort of like, Investors are backing all this climate disclosure, and companies are going to start disclosing their climate actions. And then we’ll solve the climate crisis.⁷

It’s 24 years later and we’re still arguing about what companies have to disclose.

The way you frame it in the book is that “transparency can become a substitute for action.”

It’s kind of curated disclosures to show the company in the best light possible. That’s what we’re calling transparency.

Something else that felt new in the book to me is your focus on human beings and human rights. This feels depressingly revolutionary [to emphasize] in a business or a management text. What does it mean for a company to really, as you put it, “base[] its ethical commitments on its impact on human beings”?

The core argument of my book is that, yes, we should base our ethical principles on impact on human beings, and we should use human rights principles to do that because they’re much more rigorous and thoughtful about the role of business versus the role of government than ESG or compliance frameworks.

What’s amazed me is, for people that are not neck deep in these efforts, they find this argument obvious. Why wouldn’t companies do this? Why wouldn’t companies treat human beings with dignity and respect? Why wouldn’t companies focus there first? Someone even said to me, I can’t believe you took seven chapters to make this argument.

But if you are very deep in the world of ESG and responsible business, you do find this argument radical.

I presented to a number of very powerful CEOs of NGOs in this area a couple of weeks ago, and they were very, very challenged by this. Because the idea of focusing on impact is thought to undermine the business case and be unreasonable and be unrealistic and that kind of thing.

But we’re really missing the point because the reputational risk problems facing companies, and a lot of these ESG value drivers and these ESG material risks, all stem from the notion that the general public and stakeholders in business think that corporate behavior is egregious.

It is the impact that you’re having on the world, it is your negative externalities, it is how you’re impacting human beings—[these] are the source of all your risks, even if they do not play out in a linear way.

You work with and talk to a lot of executives. These are people who are used to being applauded and celebrated for promising to save the world, even if the only concrete step they’ve taken toward saving the world is publicly pledging that they intend to save the world.

One of the case studies that you talk about in the book is Starbucks, which is a company that has actually gone beyond just publicly pledging to do good things—[it has] been a genuine leader in some ways—but also a pretty tyrannical company in its attempts to shut down employee efforts to organize and unionize.

Starbucks and former CEO Howard Schultz feel like the epitome of the savior CEO or the savior corporation: “We swear we’ll take care of you and your colleagues and the planet and everything, but we’re going do it on our terms.”⁸ It’s very paternalistic and, to me, feels devoid of the human dignity that you write so much about in this book.

Yeah, so I open and close the book with Starbucks because it’s a very interesting example of many things. Starbucks has been completely slammed over its anti-unionization efforts.

This whole storyline has destroyed its reputation, basically, which is fascinating, not least because Starbucks ticks all the boxes on ESG metrics. It’s widely acknowledged to be a sustainability leader. Even in how it treats its employees—pay and benefits and that kind of stuff—it’s the leader in its sector. And its knee-jerk anti-unionization efforts aren’t particularly unusual in corporate America.

For me, this is a story of how you can’t treat sustainability as a tick box effort. You really need to, first of all, make sure that you’re treating human beings with dignity and respect and valuing and appreciating your workers. That is more important than all your glossy reports and sustainability efforts. And it’s what people care about. [This] is the source of all your ethical impacts.

So Schultz is interesting. I do think it’s paternalistic. He’s also very, very anti-union. And I think now that’s kind of started to shift. But he’s a real model of that kind of business leader that we’ve seen in the era of stakeholder capitalism: making a lot of noise at Davos, making these big philanthropic commitments, putting themselves out there as a societal leader.

And I think that idea—that corporate leaders can take over the roles that politicians used to have in society—is pretty dangerous. There’s even a very interesting study out of Stanford showing that narcissistic CEOs get higher ESG scores.⁹

Part of this is about the kind of behavior that we reward and valorize in society. In most firms I’ve encountered and worked with, being very self-serving and self-interested and self-promoting and hyper-competitive and over-ambitious and not thinking about risk is the way you get powerful.

So we valorize people like Elon Musk and Jeff Bezos, and we think that they must be more talented than everybody else and more clever, and we listen to them. And then we’re surprised that we get the kind of leaders that we see out there.

There is some evidence showing that what we’re looking for and expecting from leaders is really shifting. But I think a lot of the ESG and responsible business discourse has basically empowered people at the top of companies with big egos to make big flagship commitments, to look at this for PR upside, to think of themselves as new societal leaders, and not really deal with the complexities and trade offs that real ethical leadership involves.

Higher Ground brings a much more critical and challenging narrative to companies and bosses than most other business and management books that they are likely to read. It even felt a little like a Trojan horse for introducing some really radical questions to powerful people. Have you heard from executives since the book came out?

Yeah, I have had some really nice notes, actually. Some companies feel that what I’m saying is very much in line with what they’re thinking.

I think a lot of what I’m arguing is pretty uncomfortable, but then I do think we’re in this era where a lot of leaders are regretting this over-promising, tick box approach that they’ve taken. There’s an appetite for more narrow, focused, realistic, honest commitments.

I doubt I’m hearing from the people that disagree, but what’s been quite interesting is I think senior executives like the book more than powerful people in the ESG community do because [the book is] really challenging a lot of conventional wisdom.

Can you unpack that a bit? That is a huge and also under-discussed aspect of this whole conversation.

There’s been the emergence of an enormous industry of ESG ratings agencies, data gatherers, carbon accounting specialists, consultants, lawyers. A long time ago, The Economist called the anti-corruption industry “FCPA [Foreign Corrupt Practices Act], Inc.”¹⁰ We’ve got ESG, Inc.

We’ve got this kind of conventional wisdom: Run your business in the interests of all stakeholders. That will all be a win-win. You’ll drive “intangible value.” You’ll get all this upside. Having a great sustainability program is the path to a better reputation.

All of those tropes can be questioned, and there is a lot of counter-evidence, [but] people don’t really want to hear it. One of the things that’s been quite interesting is when I try to critique ESG efforts, people sort of assume I’m right-wing or want to go back to shareholder value.

We’re all familiar with the Republican arguments about, This is all an effort to drive woke socialism by stealth, and so on. But I think we need to pay a little bit more attention to the efforts and the arguments being made by the ESG community and the sustainability community, which sort of amount to, You need to be ticking the box on all these things. You need to be disclosing more and more. You need to be balancing the interest of all your stakeholders. Nothing you ever do will be good enough. You’ve got to report more and disclose more, and everything will be ok.

I think that’s evolved to be part of the problem.

Last question for you, and this is one that some readers might know I’ve taken directly from Ezra Klein’s show. What book would you recommend?

The book I’ve been recommending, which I quote from in [Higher Ground], is by a German-Korean philosopher called Byung-Chul Han. It’s called The Transparency Society.¹¹

He’s written a lot of other books. They’re very short and very dense. There’s one called The Burnout Society, for example.¹² There’s so much in them to unpack. But he is the person that made me radically rethink what I thought I knew about transparency. And I would highly recommend that book.

There’s also a book from the 1980s about business ethics called Moral Mazes. That is an incredible read that I could not recommend more either.¹³

1. https://www.alisontaylor.co/higher-ground

2. https://hbr.org/2017/09/we-shouldnt-always-need-a-business-case-to-do-the-right-thing

3. https://hbr.org/2011/01/the-big-idea-creating-shared-value

4. https://www.ethicalsystems.org/rachel-ruttan-on-business-role-in-eroding-sacred-values

5. https://www.wsj.com/articles/to-get-politics-out-of-business-get-business-out-of-politics-ce492e1c

6. https://www.icij.org/investigations/paradise-papers; https://www.icij.org/investigations/panama-papers

7. https://www.cdp.net/en/info/about-us

8. https://www.theguardian.com/business/2022/nov/20/stakeholder-capitalism-jp-morgan-walmart

9. https://www.gsb.stanford.edu/faculty-research/publications/are-narcissistic-ceos-all-bad

10. https://www.economist.com/business/2015/05/09/the-anti-bribery-business

11. https://www.sup.org/books/title/?id=25832

12. https://www.sup.org/books/title/?id=25725

13. https://hbr.org/1983/09/moral-mazes-bureaucracy-and-managerial-work