Reducing the widening gap between rich and poor has become one of the defining challenges of our time. While governments are traditionally expected to address inequality through taxation and redistribution, companies also have considerable influence over how wealth and opportunity are created in the first place.

Research and discussions brought together by IESE Business School’s Institute for Sustainable Leadership suggest that corporate leaders should therefore consider inequality not merely as a social or political issue, but as a question of leadership, governance and long-term business sustainability.

Companies shape inequality before governments redistribute wealth

An important distinction can be made between wealth and income.

Governments can redistribute accumulated wealth through instruments such as taxation. Businesses, however, influence how income is initially distributed. They determine salaries, create employment opportunities, decide who receives promotions and training, and establish how the financial rewards generated by an organisation are divided.

This means that companies can either reinforce existing inequalities or help reduce them.

The decisions leaders make about wages, governance, ownership, education and career development can therefore have consequences far beyond the boundaries of their organisation.

Leadership begins with purpose

Oxford professor Colin Mayer argues that companies should reconsider their fundamental purpose.

Profitability remains necessary: Without profits, companies cannot survive, invest or innovate. But Mayer argues that profit should result from solving problems rather than from creating them.

This requires leaders to ask a deceptively simple question:

Why does our company exist?

A clearly defined purpose can subsequently influence strategy, investment, governance, performance measurement and remuneration.

Mayer’s approach also places responsibility on boards and shareholders. Corporate purpose should not remain a statement on a website; it should become part of how decisions are actually made.

Leadership and the wage gap

Pay is another area where corporate leadership has a direct impact.

IESE professor Marta Elvira’s research has examined wage inequality, including the unusually large representation of financial-sector employees among the highest earners.

Another issue is the gender pay gap among executives. Early career decisions can have consequences many years later. Employees who receive demanding assignments and promotions earlier can enter a self-reinforcing cycle of greater responsibility, higher compensation and further promotion.

Companies can counter this by applying more objective criteria to assignments and early promotions and by providing mentoring designed to reduce bias.

AI makes employee development more important

Artificial intelligence introduces another dimension.

Technological change is making it increasingly difficult to predict which jobs will remain secure. Employees with fewer qualifications can be particularly vulnerable when companies respond to disruption primarily by cutting jobs.

An alternative leadership response is investment.

Training and education can allow employees to acquire new skills, become more productive and move into better-paid positions. From this perspective, technological disruption does not inevitably have to produce unemployment.

The leadership question becomes not simply “Which jobs can technology eliminate?”, but “How can technology and education create new opportunities for our people?”

Five principles for purpose-driven leadership

Mayer’s SCORE model provides leaders with a practical framework.

First, simplify the organisation’s purpose so employees and external stakeholders can understand it.

Second, connect strategic decisions and capital allocation to that purpose.

Third, create ownership by ensuring that employees, shareholders and board members see themselves as contributors to it.

Fourth, reward behaviour and performance that advance the organisation’s stated purpose.

Finally, exemplify that purpose through real actions and credible stories—including acknowledging failures and areas where the organisation has not yet achieved its ambitions.

Leadership beyond the company

No organisation operates in isolation.

Businesses can have a greater impact when they cooperate with governments, educational institutions and other organisations pursuing compatible objectives. Education is particularly important because skills and qualifications remain one of the strongest defences against economic exclusion.

The broader message is that inequality is not exclusively a matter for governments.

The way organisations are governed, the opportunities they give employees, the wages they pay, the people they promote and the purpose their leaders pursue all contribute to the kind of society in which those businesses ultimately have to operate.

For leaders, reducing inequality can therefore be understood not simply as philanthropy, but as part of building organisations—and societies—that remain sustainable over the long term.

Source: Based on “Empresa y desigualdad” (Business and Inequality), IESE Business School Insight 169, published 1 January 2025, drawing on work and contributions from IESE’s Institute for Sustainable Leadership, Fabrizio Ferraro, Colin Mayer, Marta Elvira and others.