Balancing Financial and ESG Metrics: Leadership Challenges in Business

This report examines the crucial role of leadership in business, particularly the challenges leaders face in balancing traditional financial metrics with Environmental, Social, and Governance (ESG) performance. It highlights the increasing importance of Corporate Social Responsibility (CSR) and how CEOs and business leaders are integrating social activities to improve societal and environmental conditions. The report discusses how organizations operate in turbulent environments, emphasizing the integration of CSR with strategic management and corporate governance. It further evaluates the challenges of focusing solely on financial metrics, the need for a steward approach by CEOs, and the importance of considering psychological and situational factors in leadership. Real-world examples of CEOs like Satya Nadella of Microsoft and Tim Cook of Apple are used to illustrate different approaches to balancing financial success with ESG commitments. The report concludes that successful organizations prioritize both financial performance and CSR activities, recognizing the impact of social and environmental responsibility on long-term sustainability and brand reputation. Desklib provides access to this report and many other solved assignments for students.

LEADERSHIP IN BUSINESS

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Contents
Introduction...........................................................................................................................................2
Background of how organisation operate in turbulent environment......................................................2
Some measurements that can be used to measure leader’s success........................................................5
The challenges of focusing on just financial metrics to achieve long-term goals..................................6
The challenges leaders face in balancing financial and ESG performance metrics................................6
Conclusion.............................................................................................................................................8
References...........................................................................................................................................10

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Introduction
With the increasing interest in CSR, the organisations have started incorporating
social activities that will improve the social and environmental condition in the society. This
report brings out the importance of CEO and business leaders in executing the CSR activities
of the company. CEO of the company is obliged to formulate corporate strategies to promote
the image of the organisation by executing social responsibility. CEO is the key decision
maker in CSR related activities. The aim of the report is to establish a link between CEO pay
and company`s performance (Open Air RGU, 2015).
Further, the CEO`s incentives have linked to CSR in two different ways such as not to
limit the analysis of CEO`s monetary incentive rather decide how they have actually
contributed in creating value of portfolio of stock and options. Moreover, as a second way,
such set of non-monetary incentives that would help the company to shape the CEOs decision
to invest in CSR. The report also evaluates and differs the top CEO financial performers from
the successful CSR performers. The successful organisation not only focus to increase its
financial worth but also enforces the importance of CSR activities. Moreover, the activities of
the top performers and business leaders were analysed through the different theories of
leadership and determine how an effective business leader would make difference in the ECG
(Environmental corporate and governance) metrics of the business (Environmental justice
organisations, liabilities and trade, 2013).
Background of how organisation operate in turbulent environment
After the emerging concept of social responsibility in the corporate world. The
organisations have started expanding their focus to make new initiatives for the welfare of the
stakeholders. A pattern of several external conditions affects the life and development of
organisation. CSR is the core activity of the business rather than a standalone program.

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Moreover, the Organisations have started integrating the corporate social responsibility
(CSR) with the strategic management and corporate governance (Vitell, Ramos, & Nishihara,
2010).
Numerous corporates have initiated to develop mechanisms through which they can
report, control, and practise the socially conscious policies. Management historians depicted
various social problems such as poverty, slums, female labour, labour unrest, and child
labour. In order to improve the industrial performance, the welfare schemes were associated
with the problems with both social as well as business problem (Manner, 2010). These
welfare schemes strived to prevent child labour. These welfare initiates forced the
organisations to engage in activities such as provision of hospital clinics, profit sharing,
bathhouses, and recreational facilities.
Gradually when the government made it compulsory and mandatory to accomplish
the fulfilment of social responsibility while conducting the business operations. The
organisation`s reports stated reflecting the social responsibility which lead to improvement in
working conditions of the employees. CSR (corporate social responsibility) is a broad
concept that leads the company to take various steps to make sure that they have positive
social and environment impact on the surrounding (Yuen, & Lim, 2016).
CSR is valued differently in the organisational culture from the philanthropy. If
organisation implement the CSR policy, it would become important ingredient in the value
and culture of the organisation. A CEO should be aware of CSR models that is promoted by
the organisation to benefit itself and act on the plan. A senior executive of the company and
the CEO has the responsibility to manage the CSR activities of the business. The challenge
faced by the CEO is the build and develop an approach that can deliver these lofty

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determinations. Moreover, CEO are the business leaders who has the power to influence the
employee`s way of executing their work in most efficient and ethical manner. Many recent
CEOs have supported innovations and smart collaborating to manage the challenge to serve
the society (Open Air RGU, 2015). Any authority does not form the charismatic leaders; it is
their ability to influence the behaviour and commitment that declares and position them a
leader. New and effective business innovation that can lead to long g-term sustainable growth
in a short time can drive the company to top position.
Moreover, smart collaborating is one of the emerging way to create value to both
business as well as society. Steward approach defines the person as inclined towards the
moral values and act beyond their benefits (Board works consulting inc., 2013). Undoubtedly,
it is the responsibility of the CEO to follow steward approach and behave collectively both
with the employees as well as the stakeholders to fulfil the mandatory CSR activities. In
terms of the CSR, it is presumed that CEOs are closer to steward model because CEO has to
give more importance to social responsibility and ethics. Nevertheless, the CEO promotes
high level of CSR practises in the organisations. Organisations that generally ignore its social
responsibility drive the risk to the bottom line and the brand (Open Air RGU, 2015).
By building a bad reputation in social and environment terms, it can cause negative
effect on the overall profitability and success of the business. Although, the consumers have
already started spending money on products in which they believe. Generally, consumers and
stakeholders engage with companies who have high level of business performance with the
adequate CSR performance. Moreover, the leaders who generally promote new CSR policies
to create and impress the whole organisation by their work could not necessarily give them
long-term sustainability. There are certain psychological factors, which leads them to drive
the certain variables related to situational factors. These psychological factors include
organisational factors, power use and work motivation. Situation factors may include

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management philosophy, individual or collectivism and organisational culture. Several CEOs
are ranked based on independent variables (Larcker, and Rusticus, 2010).
A low score marks that a CEO can incline to behave as an agents rather than a
steward. A high scorer marks that CEOs are inclined to behave as steward. Moreover, it is
reported that a considerable number of the CEOs are increasing their investment in CSR. The
directors of the company will approach to CEO and the senior to know what amount of
finance they have reported to accomplish CSR activities (Rangan, Chase, & Karim, 2012).
Directors undertakes meeting of the CEO and the senior management to explain how they
should interpret the importance of CSR and where they should fit it in the company`s strategy
and risk portfolio (Lubin & Esty, 2010).
CEO ensures that company prefers to treat each element of CSR activity of the
company as a separate element such as employee relations, community relations, and
environmental stewardship. Many CEOs prefer to more integrated and holistic approach to
CSR. Organisational policies may have impact on how board should organise its company in
relation to the governance of CSR. When CSR was recognised as an important component of
the risk portfolio and the corporate strategy, they established the CSR committees. The
manner that is followed by the board to address certain CSR activities should be reflected in
the mission statement of the committee (Cho, Michelon and Patten, 2012).
Some measurements that can be used to measure leader’s success
Strategic CSR (corporate social responsibility) includes the voluntary practises of the
organisation towards society and environment to satisfy the organisation`s stakeholders. The
concept of relating sustainability is same as the implication of social and environmental
issues, which CSR has on the long-term success of the organisation. CSR is considered as
trade-off to the organisation`s financial performance. Moreover, it involves the private

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provision of good image in the public that is able to minimise the negative impact of external
environment (Kasturi, Chase, & Karim, 2015).
In recent times, it is seen that firms that perform their CSR activities up to the mark
are tend to be financially successful in their operations. The successful relationship between
CSR and the financial performance is reflected in the form of customer satisfaction, corporate
image and the job satisfaction. The measurement of success of the business leader or CEO
can be reflected in the context to shipping, CSR can provide add advantage to the
organisations that would differentiate its services in shipping goods (Open Air RGU, 2015).
This advantage of performing CSR can lead to offer of license to operate in environment
sensitive areas, improve the retention of efficient human resources. An organisation can also
lead to cost advantage due to its CSR practises that have been benefiting and improving
environmental performances (Manner, 2010).
The challenges of focusing on just financial metrics to achieve long-term goals
Most companies have been executing some form of social and environment practises
for a long time with a goal to contribute to well-being of the society. Nevertheless, there is an
increasing competitive pressure to cater the CSR activities of the company as a business
discipline. It also expect that every initiative and step towards CSR would result in business
results. The corporate world demands too much of CSR which lead to distraction from the
main aim of the conduct of the business (Valentine, and Fleischman, 2008).
The challenges leaders face in balancing financial and ESG performance metrics
As per the given case study, Tim Collins who is the co-founder of intelligence-based
security Services Company states that no company grows overnight. Nevertheless, by
continuous effort and stuggle with a business mind a “CEO” can lead to high flywheel to
company`s success. Measuring the CEOs efficiency just through the financial value of the

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company`s portfolio is not at all very relevant in recent era. Eliminating the role of CSR in
business can lead to serious legal actions taken on the behalf of the government (Kaufman,
2008). The ranking of business leaders and CEOs is more based on the environmental, social
and governance metrics. In the given case study, when judged solely on the basis of financial
performance, undoubtedly One of the top business leader is Amazon’s founder Jeff Bezos
(Peloza, 2009). More such examples of business leaders and CEOs from the corporate world-
Satya Nadella- The renowned present time CEO of Microsoft have a few words as
blue marked such as opportunity, responsibility, and impact. He firmly believes that
developers have the responsibility to make an impactful and better the world. Recently, india
CSR News Network has announced that Microsoft corporation has announced the strategic
partnership to help the industrial customers to create new value to with new digital solutions.
Microsoft is not only creating IT solutions to support conspicuous consumption. Satya
Nadella is trying to modernise its business lines and grow new business from scratch (Sorkin,
2017).
It enables all the organisations of all the sizes, which can now operate business on
electronic platform considering several critical factors, customer services, relationship sales,
talent processes, and field services. When CEO (Satya Nadella) headed the top-level
management, he announced that Microsoft would donate more than $1.5 billion and further
$149 million in the next year. Moreover, the CSR report reflects the company`s and CEO`s
commitment to transparency to stakeholders to understand the work and track the changes
(Sorkin, 2017).
Tim Cook- Another renowned CEO of Apple in present times is Tim Cook. Although,
there are many ways to measure the performance of a CEO such as stock price, patent filed,
growth rate, market share, brand equity, and valuation of the portfolio. A metric method

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known as AMRI (average monthly revenue increase) is used for measuring long-term impact
rather than short-term (Baker, 2016). Undoubtedly, Tim Cook was in the list of high
performing CEOs but for example Amazon`s Jeff Bezos is one of the achieving and a notable
high tech CEO. The CEO said that in 2015 that the company plans to give most of its fortune
to the charity. When Crook announced that new data entry facility in Waukee, he guaranteed
that these would work fully on renewable energy. Cook has all the company`s corporate
facilities in US to operate them by wind and solar energy (Baker, 2016).
Mark Zuckerberg- Mark Zuckerberg is a renowned business leader Facebook CEO.
This business leader has stated some important statements regarding ESG metrics. In the
wake of business world, companies have started taking a dominant role in promoting and
executing CSR activities. The company promote several reasonable programs to cater their
employees and executives. The concept of ESG metrics generally applies to the efforts of the
organisations and executives. It helps in promoting and creating the purpose of these CSR
activities to become long lasting positive, social, and environmental changes. When it comes
to execute and attain CSR activities. There can be many ways that the company can serve the
communities such as donations, charity, and crowdsourcing to raise the social status. The
amount of charity may be minimum but its usage should affect the overall communities. The
successful CSR programs are those, which are able to integrate both the concepts corporate
responsibility and a true attack plan in solving the problems rather than removing them.
After relating to all the three cases of business leaders of famous companies, it has
raised the importance of a leader as well as the theory of leadership in the ESG metrics. The
behaviour of the leader should be highly influencing because a leader sets the CSR mission
and is obliged to perform the CSR policies to improve the image of the organisation. The
charismatic leaders are the one who are leaders by their deeds and behaviour. In addition to
this, they have greater impact on ESG factors that influence financial performance.

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Moreover, the employees in the organisation are influenced by the strong personality such as
behaviour to cater the society and execute the CSR activities. Despite this, the behaviour of
leader is highly influencing. The role of a business leader is follows-
(Source: Leventhal, 2018)
A business leader undertakes a process to develop and execute a CSR plan. The very
first step is to develop a vision to benefit the society to which he belongs. The democratic
leader discuss the CSR vision to its employees to invite creative CSR plans. The leader
motivates the stakeholders to commit themselves to enhance the long-term sustainability.
Finally, with the overall support from all the stakeholders, a leaders steps into the shoes of
ECG metrics.
There are different approaches through which a leader can perform its CSR activities
with the overall support of top-level management. Transformational and transactional
strategies define the moral based and motivating way of taking the CSR initiative through the
organisation. One of the best method is to include financial surplus interest related with
beneficiaries and pay greater attention to future beneficiaries and even non-beneficiaries. This

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attention can lead to attraction of more investments on the part of the public by getting
impressed by the company`s good reputation. The positive impact of applying theory starts
when investors start executing more contractual relationships with the required investment
for the company (OECD, 2017).
Conclusion
From the above discussion, it can be concluded that with the increasing popularity and
compulsion of ECG metrics in the operation of the business. Apart from the business leaders
and the successful leaders mentioned in the case study, the discussion also has the three more
successful CSR leaders such as Tim Cook, Satya Nadella, and Mark Zuckerberg. They all
reveal their success stories by implementing the CSR strategies in the organisation. However,
the aim of the ESG metrics is to evaluate the influence of selected theory on society,
environment, and governance issues.
ESG focuses on environmental, social, and governance factors and they simply adds as a tool
to evaluate the companies. CSR no longer distributes or distracts the opportunity financial
profit of the company but it takes time to form several CSR policies. CEOs and senior
managers plays an important role in planning and executing CSR plans. The director
highlights to apportion its profit to cater CSR activities to CEO in the general meetings.
Moreover, CEOs started strategic collaborating with the partners who can cater the social
responsibility. This would lead to save time for the CEO, which they can further use in
decision making of important cost structure. To apply the theories in relation to execute the
CSR activities, leaders plays an important role.

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