What’s So Hard About Doing the Right Thing? Consider the Incentives

It seems so simple. So many issues would be solved if everyone just made decisions that were fair and just. Equal pay for equal work? Of course! A vote for every registered citizen? Sounds logical! Yet often we feel let down by the decisions those in charge make. In fact, their decisions frequently seem counterintuitive.

So why does this happen? Why is it – apparently – so hard to do what seems right? And what can we do about it?

Business and Politics

In an interview this April, Ford Foundation President Darren Walker touched on some of these questions. His conclusion was pointed: “The incentives today in America often discourage courage.”

The interview focused on Georgia’s restrictive new voter laws, and specifically, the decision Georgia-based companies faced on whether or not to speak out against them. Walker noted that, despite public pressure, many executives were initially reluctant to take a stand. To illustrate why, he invoked Michael Jordan’s famous quote: “Republicans buy sneakers, too.” In other words, protecting the company’s profits is considered the highest priority for its executives. From that narrow perspective, it’s best not to speak up on controversial issues.

The problem is that, when leaders who have the economic clout to influence these issues choose not to do so, the status quo is preserved and nothing changes.

So let’s take a look at that key word in Darren Walker’s quote – incentives. How did they get us to this place? And how might we use them to get to a better place instead?

The Profit Incentive

To answer the first question, we only need to look at Milton Friedman and his 1970s manifesto “The Social Responsibility of Business is to Increase its Profits.”

Friedman’s philosophy has encouraged many corporations to prioritize short-term profit; both in their business objectives, and in their incentive structures. Perhaps the most obvious example is the financial industry, where bonuses based on profit often far exceed base salaries.

Thanks to the 2008 financial meltdown, the result of these incentive structures is clear. Banks encouraged their employees to maximize short-term profits, and did not incentivize them to manage risk. As a result, proper risk management was thrown out, and we all know what happened next.

Society Demands New Incentives

The aftermath of the financial crisis (or rather, the lack thereof) has shown how hard it is to change things within a system that continues to promote shareholder profit as its primary goal. On the surface, not much has changed, and it looks like we’re simply waiting for the next greed-driven meltdown.

So how can we start incentivizing good, rather than greed?

The answer can be found in those things that are changing. There is growing public pressure on corporations to act responsibly, and a plethora of movements within the business world that follow these new demands.

One obvious response to the desire for a different form of leadership is the movement to promote women- and minority-owned businesses. While still vastly underrepresented, these businesses are growing, and their growth is receiving broad and increasing support – from consumer initiatives to dedicated incubator programs and preferential access to government contracts.

Another notable attempt at changing Friedman’s narrative is the B Corp movement. B Corps, or Benefit Corporations, are companies that prioritize social and environmental goals in addition to profit, and these goals are shared between the company and its shareholders.

 The success of the B Corp movement shows that another approach is possible, and that speaking out doesn’t have to damage your profitability. Take Ben & Jerry’s, one of the movement’s early drivers, and a company that has been very vocal on a range of contentious issues. Looking at its ubiquitous presence and devoted consumers, this approach certainly hasn’t hurt the company’s bottom line.

Investor Preferences Are Shifting, Too

It’s not just the general public that’s demanding a different form of leadership. Even investors are starting to shift their priorities. For example, Blackrock’s ESG funds have grown almost 1000% from 2018 to 2020, and they predict the entire ESG investment market will reach as much as $1 trillion by 2030.

Sure, corporations may still find themselves battling activist investors when they de-prioritize short-term profit. However, the growth of sustainable investment funds means that companies now have the option to access capital that is aligned with a more sustainable vision.

In addition, we can see a growing interest in alternative governance structures, which are more likely to incentivize courageous leadership. One of these is the co-operative, where a company’s shareholders are (usually) either its workers or its customers. Twelve percent of all people in the world are part of a co-operative, and these numbers have been growing in recent years.

Co-operatives are designed to ensure long-term sustainability and to serve their community. By nature, they encourage their leaders to act on their moral intuition, rather than on pure profit motives.

A Call to Action: Incentivizing Courage in the Workplace

These are just some examples of slow shifts towards a paradigm that encourages more brave leadership.

At the heart of this paradigm shift are ordinary people who take extraordinary actions – like those in our book and on this blog.

Often, these leaders are driven by internal motivation. But even though that’s the case, external motivation clearly matters, and in this blog post, we’ve tried to shine a light on the role these external incentives can play in either encouraging or discouraging a braver form of leadership.

So looking back, what do you think those Georgia-based executives should have done? What would need to change, in order to make them more likely to do so in the future? And what does your own organization do to encourage its leaders to do what they think is right – to lead from courage?

Share your thoughts on our LinkedIn page! And don’t forget to check out our previous blog posts that are relevant to this topic – like how real innovation and change require and environment that encourages brave leadership, or how to do this in practice from a leadership perspective.