Compliance is Not Leadership

As people prepare to laud - or criticize - the US Securities & Exchange Commission for releasing guidelines for reporting climate impacts, it is important to remember that it does not qualify as leadership when an organization is satisfied at being among the best (or is the best) at meeting the minimum standards. Relying on the failure or malfeasance of others in your space is not a valid business model.

At some point every company must make a strategic decision if it is going to run its business by the letter of the law, or aspire to a higher standard.

Whether employee safety, environmental stewardship, labor relations, product quality, community relations -- including taxes paid -- companies have the power to make this decision. And with the power comes the responsibility.

I know of one organization where the person overseeing the sustainability efforts explained their vision was to be in the middle of the pack; not drawing any criticism for falling behind and not risking any from getting too far ahead. 'We are aiming,' they said proudly, 'for defensible mediocrity.'

I don't think anyone would be impressed or inspired by this short-sighted vision. Certainly employees were not inspired, and investors and other stakeholders were not likely to be impressed by a company that was satisfied with reporting its accident rate, avoided large penalties or because it had effective programs in place to actually meet the statutory requirements for its industry when they were put into place.

I know this is an overused metaphor but it is important to be aware that when Titanic sailed she was actually more than compliant with the requirements governing the number of lifeboats. The British Board of Trade required all vessels above 10,000 metric tonnes (11,023 U.S. tons) to carry 16 lifeboats, regardless of the number of passengers. Exceeding the requirements by a whopping 25 percent (four boats) actually put the boat, and company, in an industry-leading position.

Until April 14, 1912 when the regulations were revealed to be woefully inadequate.

When Titanic sailed Board of Trade hadn't updated its regulations for nearly 20 years and the vessel weighed more than four times the maximum the board of trade had considered (and was arguably using the wrong standard -- weight, rather than the in retrospect obvious standard of number of passengers).

Regulatory requirements are often deliberately responsive -- often only put in place after a highly visible and catastrophic failure demonstrates the need for regulatory changes.

Companies that really want to be seen as a leader need to make the strategic decision to take (and often redefine) what it means to lead. Companies that are willing and ready to do this must reject the notion that the failure to do things wrong is the same thing as doing things right.

"We're not just toeing the line, we're raising the bar," was how a former colleague in human resources put it when we discussed a program that would take the company from excellence in compliance to establishing and meeting a bold new standard for the company and, by extension, the industry (and industry in general). Doing so was a brave stance because it would not be easy, but by publicly announcing and reporting against the higher intention, suddenly the dialogue changed from a group of competitors each promoting their accomplishments to who was setting the standard by which everyone was to be compared and measured.

And when you're talking about issues like safety, environmental stewardship, ethics and fiscal responsibility it is far more effective (it gains you more "reputational capital" and stakeholder goodwill) than to be very good at -- and hanging your future on -- only doing what is required to avoid penalties.