Business Case For Leadership Development


The Business Case for Leadership Development: Corporate Leadership in a Global Economy

Executive Summary

As a result of globalisation, Western business leaders have the option of sourcing materials and labour in countries all over the world. While this often means there is the opportunity for a significant amount of savings in labour costs and eliminating the expense of various regulatory requirements, business leadership in a global marketplace requires executives to extend their vision beyond their traditional relationships among shareholders, management and labour to the local communities in which the company has operation centres. If a corporate business leader fails to take into account the impact the company’s overseas operations have on the local population and the environment, they are positioning the company to lose legitimacy, trust, and social capital among their shareholders as well as the public.

To avoid public relations disasters, such as what Apple faced when the media reported on the exploitive labour conditions at the Foxcomm factory where iPhones are produced, business leaders need to develop deliberative processes when making decisions. These processes need to take into account not only the bottom line, but also issues related to the labour conditions, human rights, and the environmental impact of their global operations centres. Additionally, the executives must be prepared to resolve conflicts amongst local management, government, labour representatives, and environmental groups. Business leaders who take this approach assure the long-term viability of their international operations by avoiding costly fines and the negative media reports that can severely damage a corporate brand.

 Introduction

In the January 2012 issue of the Journal of Business Ethics, Voegtlin, Patzer, and Scherer make their case for the need for a global perspective among corporate leaders. As globalisation has led businesses to operate in a number of countries, which often have diverse regulatory environments, societal mores, and different views of business ethics, business leaders need to move beyond thinking of leadership as merely a proposition amongst management, employees, and shareholders, and extend their vision to the stakeholders in the areas where they have operations. In other words, business leaders need to shift from viewing their responsibilities at the micro level and start including macro level considerations when making leadership decisions.

The operations of multinational corporations transcend the boundaries of various nation-states, causing a situation that has the potential to leave these businesses in a regulatory vacuum since a blanket enforcement of international regulations runs the risk of impinging on the rights of sovereign democratic nations. If business leaders take an approach that takes into account solely value maximisation for shareholders, the corporation runs the risk of human rights violations in developing countries, running afoul of the labour standards recognised in the developed industrial economies, and overexploitation of natural resources. Recent events, such as the BP oil spill in the Gulf of Mexico, the textile factory fire in Bangladesh, which left more than 100 people dead, and the accusations of environmental irresponsibility against Royal Dutch Shell’s Nigerian operations, have demonstrated that harm that can be done to a global brand when issues related to corporate social responsibility are overlooked. Many of these businesses faced consumer boycotts that led to a drop in their share prices as well as a loss of legitimacy, trust, and social capital, thus making the business case for the development of a global leadership.

In order to address these challenges, Voegtlin, Patzer, and Scherer propose that business leadership development with a global perspective needs to include both deliberative processes and expansive conflict resolution. In terms of a deliberative process, the business leaders need to consider the consequences not only at the micro level, but also at the macro level, which includes of all of the possible stakeholders that might be potentially affected by the decisions made by the leader. Based upon this process, the business leader will have to use practical reasoning skills and competent communication skills to resolve conflicts amongst the stakeholders to develop a consensus. It is incumbent for the leader of a global enterprise to be able to recognise not only the business-related issues involved in the process of deliberation and conflict resolution, but also the moral and ethical issues involved. Otherwise, the company is likely to lose the trust of its clientele and stockholders, as well as the company’s legitimacy and goodwill in the marketplace.

Insight

The importance of this approach is exemplified by the recent consumer boycotts of Apple’s iPhone due to the poor labour conditions at the Foxconn factory where the smartphones are manufactured. When this situation hit the presses, along with the technical problems associated with the iPhone 5, the Apple stock price took a plunge. While the leadership of Apple was certainly maximising shareholder value by minimising labour cost, the apparent human rights and labour standard violations eventually took its toll on the Apple brand. With the popularity of social media among human rights and labour activists, boycotts and petitions soon spread like wildfire. Compounding the company’s problems is that Apple’s primary target demographic is the Generation Y and Millennials, who are much more attuned to issues of human rights, social justice, and labour issues than previous generations and these groups publicise their concerns across the various social media platforms. If the executive leadership of Apple had taken into account the conditions at the Foxcomm facility, they could have saved themselves the time and expense of the public relations damage control.

Strategy

A global business leader needs to make decisions on a macro level by considering the effect overseas operations will have on the local economy and community as well as on the people who supply the labour for the operations. When sourcing materials in the global marketplace, it is not enough to take the word of the intermediary arranging the deal. A sophisticated business executive will send a trusted member of management who has both a knowledge of the project and of local culture to inspect the factories, mines, and operations centres where labour and materials are sourced to ensure the conditions meet the standards of developed Western economies. In the event the potential overseas supplier falls short of Western standards, the executive must be prepared to negotiate for better working and safety conditions with the local management team and local governments. Additionally, in the case of procuring raw materials, it is important to evaluate the impact on the environment. Once again, negotiation to resolve conflicts among the local population, government, the management of the mining or drilling operation, and environmental groups is going to be required in most instances to arrive at a consensus about the best way for the operation to be beneficial for all that is concerned. Moreover, the business leader will also need to communicate with shareholders the long-term benefits of this approach.

Application

In a case where a CEO of a major retailer is going to source the textile and sewing work for a new brand of children’s clothing, the executive might consider factories in India, Vietnam, and Brazil. If the corporate decision-maker just takes into account production costs and the expense of transporting the clothing to the distributer and retailers, the CEO is likely to find him or herself facing protests and boycotts like Wal-Mart did when the textile mill in Bangladesh burned. On the other hand, by inspecting the facility to ensure proper safety measures are followed, verifying that the tailors and other workers are receiving fair wages and are working reasonable hours, and confirming that the plant is not polluting the environment, the company will gain recognition as a global leader in corporate social responsibility. Any additional overhead incurred by taking this approach will be more than offset by avoiding the cost of fines and countering negative press.

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