Leadership decision - making reimagined

Thirdly, the advantage of a classic business case in helping us choose from alternatives is challenged as comparability becomes more complex. And when considering a range of organisations, this issue gets worse, as there is an evident lack of clear standards on how to make judgements and business decisions when including different aspects of sustainability. This is further amplified by the absence of price/market signals indicating the impact on sustainability.

All of the challenges mentioned work against a fundamental shift in decision-making practices. But if we are to be serious about stakeholder value creation thinking, we must act decisively to overcome the challenges. It is tempting to lean back, wait for regulators to set the bar and enjoy the ride ‘for free’ until the true stakeholder value impact of our decisions is revealed by an external party. Think again and consider the risks. Is a company taking that approach likely to be a leading company in the future?

Bridging the gap to better decision-making

While the complexity of sustainable decision-making practices must be acknowledged, pathways are emerging to help companies transition to a new paradigm: focus, simplification and standardisation.

Focus emerges as an essential factor when it comes to navigating the sustainability landscape. Assessing all the potential factors related to sustainability will lead to confusion; from employee working conditions to waste management and from carbon emissions to societal value creation. That is why decisions should be made based on the most material factors according both to external science-based standards and stakeholder perceptions, as well as internal importance of long-term value creation and the strategic direction of a company. In financial services, trust, security and transparency are material factors, while sustainable water usage, for example, is less of an issue. The first step in navigating decision-making is reducing the long list of potential factors to a short list of high-impact factors in the given context.

To cut through complexity, the ability to simplify is an important skill. One approach to simplification is establishing clear rules about organisational non-negotiables; basic stop-go rules. Implement, for instance, does not work for the tobacco industry and this is a non-negotiable standard. Another approach is defining clear thresholds and values in that a decision cannot challenge or pass. A simple example is to make sure that any investment decision must always be in line with achieving the goals of the Paris Agreement in terms of reducing carbon emissions.

Another pathway to navigate the new realities of sustainable decision-making is standardisation. Standardisation can happen internally as the organisation develops decision-making tools and processes that can be scaled across a range of business decisions, taking more aspects into account. Such practices are well-established in mature organisations that have already moved from purely financial logic to more nuanced decision-making frameworks in which several aspects are evaluated in composite scoring models, thus maintaining comparable metrics. In addition to the financial impact, aspects such as the strategic importance, potential risk factors and fit with organisational capabilities are typically considered systematically. In the future, the impact on people and the planet should be included in such frameworks.

Standardisation can also happen externally when organisations are either forced to comply with certain standards through regulation or when they voluntarily commit to external standards, such as setting targets for carbon emissions according to science-based targets (SBTi) or similar emerging commitment standards. Across internal and external standardisation, data definition, collection, analytics, disclosure and availability are key enablers of making both effective and efficient decisions. And for this to be meaningful, it must be across the full value chain.

The science of organisational decision-making has progressed significantly in recent years due to advances in behavioural economics, helping to make leaders aware of the many unconscious biases at play when making great decisions. Taking the next step forward requires us to move beyond simplistic decision-making based on classic financial reasoning to a new level of awareness that will help us make better and more sustainable decisions.

Questions worth considering

Do you have a clearly defined approach for making major decisions that is used consistently across your organisation?

What elements of your organisational decision-making capability need to be upgraded to include relevant sustainability dimensions?

How will you navigate the complexity challenges of making more sustainable decisions in your specific organisational context?

What are the fundamental principles that should guide you in the future to create value for all stakeholders and society?