Navigating Success and Sustainability: Three Stories of Steward Leadership

Eighteenth-century economist Adam Smith propagated profit maximization as the incentive for businesses to create goods and services that society needs. He argued that free-market competition would ensure consumers get the best quality product at the cheapest price.

200 years later, Milton Friedman agreed in his seminal 1970 New York Times op-ed that the sole responsibility of business is to maximize profits ‘so long as it stays within the rules of the game’. Incentives coupled with some regulations were to henceforth safeguard societal interests.

Instead, incentives created bad behaviour. Regulations were routinely bypassed with intelligent loopholes. Despite this—to encourage sustainability today—we are again using incentives and regulations. That’s predominantly what the ESG framework focuses on. And what do we see? Rampant greenwashing and box-ticking.

To address today’s existential challenges, we need innovation of the highest order. Innovation can neither be legislated nor driven by extrinsic incentives alone. We need a values-driven revolution. We need steward leadership—the ability to create a win-win-win future for stakeholders, society, and the environment. ESG must upgrade to ESL, where the ‘L’ stands for Steward Leadership. In ESL, ‘G’ is a subset of ‘L’.

Sustainable Sustainability lays out a practical, step-by-step playbook for any commercial entity that wants to succeed at marrying profit and purpose.

The excerpt below has been adapted from Rajeev Peshawaria's latest book, Sustainable Sustainability: Why Esg Is Not Enough.

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In a world confronting pressing environmental and social challenges, the business community's role is more critical than ever. Yet, in the rush to demonstrate commitment, some fall into the trap of greenwashing or purpose-washing, offering only a façade of responsibility. How can we inspire genuine change and move beyond superficial promises to a reality where businesses contribute meaningfully to our planet's and society's health? This question introduces us to the concept of “steward leadership,” a model where the genuine desire and persistence to create a collective better future align with profit and purpose, integrating the needs of stakeholders, society, future generations, and the environment.

Through the inspiring journeys of three diverse entities – Faber-Castell, Doi Tung Development Project, and the Tata Group – we uncover the essence of this transformative approach to business leadership that has motivated organizations to thrive and succeed in achieving sustainability and profitability for generations.

Faber-Castell: Over 260 years of doing well by doing good

German pencil maker Faber-Castell has a long history of placing sustainability at the core of its business strategy. Based on the belief that happy employees would work harder to make the business successful, Lothar von Faber, the company’s fourth-generation leader, introduced employee benefits like health insurance forty years before they became the law in Germany. Later, he set up a savings bank and pension fund for employees, built housing for them, provided financial support for schools and established a day nursery for employees’ children.

Each successive generation did the same and made addressing environmental and social issues central to strategy and execution. Count Anton-Wolfgang von Faber-Castell, the eighth generation— and last—family member to helm the business was no exception. For example, even when the business was going through a challenging time in the 1980s, he invested heavily in sustainable forestry in Brazil. The trees planted in Brazil would take twenty years to mature, but after that, all the wood needed for FC pencils would come from forests certified as sustainable by the Forest Stewardship Council.

Even while the family has since passed on the reins of the company to professional management, the family, the board and the management continue to grow the company profitably with sustainability at the heart of everything they do. What has driven this ethos at Faber-Castell for over 260 years?

Doi Tung Development Project

Until 1987, the Doi Tung region in northern Thailand was a hotbed of crime. Opium plantations, human and drug trafficking, prostitution and other unlawful pursuits were the only means of livelihood for ethnic villagers of the region. There were no schools or hospitals nearby and villagers resorted to opium as medication to ease their pain. Heavily armed independent militia controlled the area and the once lush green region was almost barren because of indiscriminate deforestation.

All of this changed with the arrival of the Princess Mother and her deputy, Khun Chai. Thanks to their untiring efforts, today, not only is the region completely reforested, but it is also a shining example of community sustainability. Villagers now own and operate a profitable coffee and macadamia nuts production and export business, handicrafts, textiles, cafés and tourism. It has also become a living open university of the circular economy concept. ‘Students’ from around the world come to learn about environmental and social sustainability. It took a strong vision and even stronger execution to overcome considerable obstacles to transform the region from the crime-infested hellhole it once was into a thriving and peaceful hub of economic prosperity.

The Tata Group: 155 years of community-focused growth

“In a free enterprise, the community is not just another stakeholder in business, but is in fact the very purpose of its existence,” Jamsetji Tata, the founder of the Tata Group, said in the 1800s.

The UK-educated Jamsetji wanted to alleviate poverty in India and saw industrialization as the means to do so. In 1874, he established the Central India Spinning, Weaving and Manufacturing Company in Nagpur, which became his laboratory for technology and social welfare. Polluted water was a common cause of illness, so he installed a water filtration plant and arranged for sanitary huts. He then opened a grain depot and a dispensary, before introducing a provident fund and pension schemes for his employees. He also introduced a system of apprenticeship.

Each successive generation of the family built on the societal sustainability focus that Jamsetji established. Over 150 years, notable leaders such as Sir Dorabji Tata, J.R.D. Tata and Ratan Tata have expanded their business across several verticals, including aviation, steel, energy, textiles, software and retail. They did so while firmly abiding by the values of the founder. Like Faber-Castell and the Doi Tung Development Project, sustainability is at the core of the Tatas’ strategy, execution and culture.

Today, the over $300-billion conglomerate continues to grow profitably in over 100 countries, and 66 percent of the share capital of Tata Sons—the holding company—is still owned by charitable trusts.

What is common among the Faber-Castell, Doi Tung and Tata stories? What has motivated these three organizations to do well by doing good? Was it an effective deterrent in the form of strict regulations? Was it incentives, measurements and rewards? Or was it something else?

The single largest motivator for these organizations was steward leadership. This leadership ethos transcends the traditional confines of business acumen, extending into the realms of ethical responsibility and a profound connection to the well-being of our planet and society. Steward leaders like Lothar von Faber, Count Anton-Wolfgang, Jamsetji Tata, and Princess Mother embodied a sense of duty that went beyond the pursuit of wealth or compliance with regulations; they were driven by a vision of contributing positively to the world and leaving a legacy of good stewardship.

Steward leadership is not about responding reactively to external pressures but rather about harnessing a proactive drive to do the most possible good for society and the environment. This perspective is fueled by the leaders' core values and purpose, giving rise to what is known as “leadership energy”—the resilient force that propels leaders to pursue a better future against all odds. This energy has historically empowered figures like Nelson Mandela to persevere through unimaginable trials. Today’s business leaders are called to embrace this steward leadership approach, aiming to create value for shareholders and all stakeholders, including society at large, future generations, and the environment. By choosing to be steward leaders, they commit to a path of integrity and purpose, cultivating a collective better future and embodying the essence of doing well by doing good.

Adapted excerpt from Sustainable Sustainability: Why Esg Is Not Enough.
First published by Penguin Business.
Copyright © Rajeev Peshawaria 2023.
All rights reserved.