Finding Purpose and Managing Stakeholders: The New Story of Business

Summary

The speaker reflects on the evolving perception of business, emphasizing the need for a new narrative where purpose and profits coexist. He critiques the outdated view of business as solely profit-driven and advocates for a holistic approach that includes stakeholders, ethics, and humanity. He highlights the potential for business to address global challenges like inequality and climate change. By adopting this new mindset, the speaker believes businesses can be both financially successful and socially responsible, ultimately creating a better world.

Takeaways

• 😀 Stakeholders have become increasingly important, although the speaker believes people are focusing on them for the wrong reasons.
• 💡 The speaker's academic journey started with idealism, earning a PhD in philosophy and ending up in business ethics, often met with skepticism.
• 🔄 Business is undergoing a conceptual revolution, with a shift from solely profit-driven models to a more purpose-driven approach.
• 💼 Business isn't just about profits—it's about purpose as well, similar to how red blood cells are necessary for life but not the purpose of living.
• 💰 The speaker emphasizes that profits are essential for business, but maximizing shareholder value should not be the sole focus.
• 🌍 Business is embedded in society and must address relationships with institutions like healthcare, education, and government, while also considering environmental impacts.
• 👥 Stakeholder and shareholder value can coexist, as businesses create value not just for investors but for customers, suppliers, employees, and communities.
• 🤝 Businesspeople should be seen as complex human beings, driven by more than just self-interest, blending personal, moral, and economic motives.
• ⚖️ Business and ethics must be intertwined. As long as business ethics is a joke, real progress is unlikely.
• 🔑 The speaker concludes with optimism, suggesting that business can solve societal problems like inequality, climate change, and democratic challenges, as long as we strive for a better version of it.

Q & A

What does the speaker believe about the current perception of stakeholders?

The speaker believes that while stakeholders are now receiving attention, it might be for the wrong reasons. However, they have been discussing stakeholders for 40 years, even when no one cared initially.

Why did the speaker pursue a postdoctoral position at Wharton?

The speaker ended up at Wharton because their girlfriend (now wife of 42 years) was there, demonstrating a personal reason behind their professional move.

What conceptual revolution does the speaker believe we are on the cusp of?

The speaker believes we are on the verge of a conceptual revolution about business, which, if done correctly, could lead to one of the greatest ages for humankind.

What is the 'old story' of business, according to the speaker?

The 'old story' of business is that it’s primarily about money and profits, with a focus on outcompeting others and maximizing shareholder value.

How does the speaker critique the common view of business ethics?

The speaker humorously notes that when they mention teaching business ethics, people often laugh, reflecting the stereotype that business ethics is an oxymoron, much like 'jumbo shrimp.'

What are some of the movements the speaker highlights that are reshaping business thinking?

The speaker mentions several movements, including CSR (Corporate Social Responsibility), philanthropy, sustainability, social entrepreneurship, Just Capital, inclusive capitalism, conscious capitalism, and ESG (Environmental, Social, and Governance) investing.

What does the speaker believe about the purpose of business?

The speaker argues that the purpose of business is not just to maximize shareholder value, comparing it to how the purpose of life isn’t just to make red blood cells. Purpose and profits must coexist.

How does the speaker view profits in relation to business?

The speaker acknowledges that businesses need profits to survive, but argues against the idea that making profits is the sole purpose of business. Profits and purpose must go hand-in-hand.

What are the five key principles the speaker outlines for the new way of thinking about business?

The five key principles are: Purpose and profits, stakeholders and shareholders, society and markets, humanity and economics, and business and ethics.

Does the speaker believe managing a business with these principles guarantees success?

The speaker asserts that there is no guarantee of success, but many studies have shown that it is possible to be financially successful while managing according to these principles. While not easy, it is worthwhile.

Outlines

00:00

🎤 Reflecting on 40 Years of Stakeholder Conversations

The speaker begins by humorously recounting how stakeholders became a central topic in business only after 35 years of discussing it. He shares a lighthearted story about how his father jokingly predicted job prospects in philosophy, despite it seeming impractical. He then transitions into his unexpected career shift into business education, which happened largely because of his wife. The speaker emphasizes the need to regain the youthful optimism and enthusiasm he once had and hints at a conceptual revolution in business. He critiques the traditional view of business as profit-driven and humorously touches on the skepticism around business ethics, before acknowledging positive changes in the way people think about business today.

05:00

💡 The Flaws of 'Maximizing Shareholder Value'

The speaker critiques the commonly held belief that the purpose of business is to maximize shareholder value. He compares this notion to the idea that while humans need red blood cells to live, the purpose of life isn’t to make red blood cells. Similarly, profits are necessary for businesses to survive, but they shouldn’t be the sole purpose. He emphasizes that businesses should strive for both purpose and profits. He also recounts a conversation with a renowned restaurateur who echoed the sentiment that money was not the initial driving force behind their successful venture. The speaker insists that profits and purpose must coexist.

10:01

🌍 Balancing Stakeholders and Shareholders

The speaker argues that businesses should prioritize both stakeholders and shareholders. He emphasizes that companies naturally create value for customers, employees, and other stakeholders, and this is just common sense. The speaker humorously references his wife's comment on the simplicity of this idea and touches on the need for businesses to be embedded in society, interacting with institutions like healthcare, education, and government. He also stresses that businesses are embedded in the physical world and must address its challenges. Finally, he calls for a more human-centric view of business, rejecting the idea that people are merely self-interested, short-term profit maximizers.

Keywords

💡Stakeholders

Stakeholders are individuals or groups affected by or having an interest in the business. The speaker emphasizes that businesses create and sometimes destroy value for stakeholders such as customers, employees, suppliers, communities, and shareholders. This concept is central to his argument that businesses should not only focus on profits but also on the welfare of all stakeholders involved.

💡Purpose and Profits

The phrase 'Purpose and Profits' refers to the idea that a business should have a purpose beyond just making money while still generating profits. The speaker criticizes the notion that the sole purpose of a business is to maximize shareholder value. Instead, he argues that profits are essential but must be balanced with a meaningful purpose. He uses the analogy of red blood cells, essential for life, but not the purpose of life itself, to illustrate this point.

💡Shareholders

Shareholders are individuals or entities that own shares in a company and are primarily interested in financial returns. The speaker argues that while shareholders are important, businesses must also consider other stakeholders. He promotes the idea of balancing stakeholder and shareholder interests, rather than prioritizing one over the other.

💡Social Entrepreneurship

Social entrepreneurship refers to businesses that aim to solve social problems while being financially sustainable. The speaker highlights the rise of social entrepreneurship as one of the many movements reshaping business thinking. It shows the growing interest in business models that address societal issues like inequality and sustainability.

💡CSR (Corporate Social Responsibility)

CSR involves businesses taking responsibility for their impact on society and the environment. The speaker notes that while CSR is an older concept, it has gained more prominence in recent years as businesses recognize the importance of sustainability and philanthropy. CSR is part of the broader movement toward more socially responsible business practices.

💡ESG (Environmental, Social, and Governance)

ESG refers to a set of criteria used to evaluate a company’s ethical impact and sustainability practices. The speaker mentions ESG as one of the ways businesses are held accountable to more than just financial metrics. It reflects a growing trend where investors and companies prioritize environmental and social responsibility alongside governance standards.

💡Conscious Capitalism

Conscious capitalism is a philosophy that emphasizes that businesses should operate ethically while pursuing profits, focusing on a higher purpose, and considering the needs of all stakeholders. The speaker references conscious capitalism as one of the many modern approaches to rethinking business, highlighting its emphasis on ethical and purpose-driven business models.

💡Society and Markets

The concept of 'Society and Markets' underscores the idea that businesses operate within both societal and market systems. The speaker argues that while businesses are embedded in markets, they are equally embedded in society, and their actions affect institutions like healthcare, education, and government. This interdependence requires businesses to balance market interests with their societal responsibilities.

💡Business Ethics

Business ethics refers to the moral principles that guide the conduct of business. The speaker humorously notes that many people find 'business ethics' to be an oxymoron, but he insists that business and ethics must be integrated. He argues that ethical behavior should not be a joke, as ethical conduct is essential for creating a sustainable and fair business environment.

💡Inequality

Inequality refers to the unequal distribution of wealth, opportunities, and privileges within a society. The speaker identifies inequality as one of the societal problems that businesses can help address. He calls on businesses to be part of the solution to problems like inequality, alongside other issues like global warming and the state of democracy.

Highlights

The speaker has been discussing stakeholders for 40 years, with little initial interest, but it's now gaining attention, albeit for the wrong reasons.

The speaker jokes about getting a PhD in philosophy and his father's sarcastic comment about new 'philosophy factories,' highlighting the impracticality of the degree in business terms.

The speaker ended up at a business school postdoc at Wharton due to following his girlfriend, now wife of 42 years, showing the personal motivations behind professional decisions.

Despite the overwhelming problems of the world today, the speaker believes we are on the cusp of a conceptual revolution in business that could lead to one of humanity's greatest ages.

The old story of business being solely about profit maximization is outdated, with people now recognizing the importance of concepts like CSR, philanthropy, sustainability, and stakeholder capitalism.

The speaker emphasizes that business needs a new narrative – one that includes purpose and profits, stakeholders and shareholders, and ethics and humanity, rather than just profits.

The concept that profits are necessary for business survival is likened to red blood cells being necessary for human life, but not the sole purpose of it.

Entrepreneurs don’t start businesses just to make money; they often endure long periods without profit because they are driven by purpose.

The rise of various movements like Just Capital, inclusive capitalism, conscious capitalism, and ESG investing represents a broader shift towards responsible and ethical business practices.

The speaker argues that business must be seen as embedded in both society and markets, with significant relationships to institutions like healthcare, education, and government.

Businesspeople are human beings with full humanity, not just one-dimensional self-interested entities, and this recognition is essential to transforming business.

Business and ethics must be integrated. As long as business ethics is seen as a joke, there will continue to be problems.

The speaker outlines five principles that define the new way of thinking about business: purpose and profits, stakeholders and shareholders, society and markets, humanity and economics, and business and ethics.

There is no guarantee of financial success with these new business approaches, but studies show it is possible to be financially successful while managing in this new way.

The speech ends with the speaker quoting Miles Davis: 'So what?' emphasizing that it's up to people to create a better world and version of business by solving societal problems like inequality and global warming.

Transcripts

- I've been talking about stakeholders for 40 years

and for about the first 35, nobody cared,

(audience laughs)

now they seem to I think for probably the wrong reason

but that's a different thing.

Look a lot of years ago in a burst of youthful

enthusiasm, idealism, and optimism,

I got a PhD in philosophy.

(audience laughs)

My father was on board, he said,

well you won't have trouble finding a job,

they just opened a whole bunch of new philosophy factories

out by the interstate

(audience laughs)

you'll be just fine with that.

So I was very lucky to actually end up at a business school

and truth be told I ended up as a postdoc at Wharton

basically because my girlfriend was there.

(audience laughs)

And now wife of 42 years, so that part worked out okay.

So that was okay.

But I wanna try to recreate that burst of idealism

and optimism because it's easy to get I think

overwhelmed by thinking about problems

that are in the world today

and there are plenty of them.

I actually think however that we are on the cusp

of a real conceptual revolution about business.

That if we do it right, can lead to nothing less

than one of the greatest ages of humankind

that we've ever seen.

But we need a new story of business.

You know the old story, business is about the money.

It's about profits.

The short form is as MBAs, you're a bunch of greedy

little bastards out trying to do each other in.

(audience laughs)

All right, you're gonna out compete, et cetera, et cetera.

Or you're willing to work if you're incentivized

the right way.

And by the way, when I tell people I teach business ethics

they have to manage not to laugh.

(audience laughs)

They say things like, oh, I didn't know business had any,

oh, it's an oxymoron like jumbo shrimp.

I went to Duke, I used to say Duke football,

but I don't anymore.

So if there are Dukeys here I wanna be clear about that.

You know our bar in Cophenhagen.

That must be a short course.

But there's good news here and I wanna bring the good news

that I hope puts the summit

in a sort of different perspective

because it's easy to have a sort of doom and gloom idea

when you think about some of the awful stuff

that goes on.

I really think that there are movements and companies

that are changing the very way we think about business.

For instance, more and more people are interested

in CSR and philanthropy and sustainability,

even though those are old ideas.

The movement on social entrepreneurship,

there's a firm called Just Capital,

there's inclusive capitalism,

there's Richard Branson's version of this,

there's my friends who do conscious capitalism,

there's new capitalism, responsible capitalism,

stakeholder capitalism, connected capitalism,

even Wall Street gets in the act with ESG,

and impact investing.

The principles for responsible investment,

the latest number I saw was had something like

$70 trillion under management by those principles.

Just say ESG turns out to be important.

I don't think there's any going back to the old days

of just thinking about the money and shareholders.

Several years ago, I was at a meeting in the last days

of the Obama administration, at the White House

with a lot of people who had started many of these movements

and the point of the meeting was to figure out,

well which one's the right one.

What's the right brand?

And I started to think, maybe that's the wrong question.

Maybe we oughta think about what are the principle ideas

that are behind this.

The sort of key ideas, that whatever the brand

turns out to be, it's gonna have to deal with these things

and we think there are five of them.

I have two co-authors, Bobby Parmar, and Kirsten Martin,

and they were doing this book called The Power of And,

I think, titles are hard to come by,

it's like band names, all the good ones have been taken.

So there's these five things, the first one

is that, and they all go with and,

it's purpose and profits.

We make a mistake about purpose when we say

the purpose of business is to maximize shareholder value.

There's a lot of reasons that that's a mistake.

But the main one I like to think about, you know,

I need red blood cells to live,

everybody okay with that,

we might have some scientists in the audience,

that's acknowledging, my whole knowledge of science

was in that sentence, (audience laughs)

but the purpose of my life is not to make red blood cells.

Even when a few years ago, I spent a really fun filled

weekend having both of my hips replaced.

And I had to worry about making red blood cells.

It didn't follow that the purpose of my life

was to make red blood cells.

Businesses must have profits to live,

saying profits are bad is stupid.

And let's give our finance colleagues the benefit

of the doubt.

Businesses must have profits at the weighted average cost

of capital.

They have a complicated formula for figuring that out,

it's always about 10%, but you know, it's their gig,

(audience laughs)

and I don't wanna stir around with their gig.

So it's purpose and profit.

Entrepreneurs don't start a business to make as much money

as they can.

When students come to me and say, you know I'm gonna start

a business, I'm gonna make money, I tell them

get a job.

You gotta better chance of getting rich,

than you do starting something.

As Claus Meyer who started this great restaurant

in Copenhagen, called Noma, often seen as the best

restaurant in the world, said to me once,

he said, you know, we didn't start Noma to make

as much money as we could because we didn't make any

for the first 19 years.

It's about purpose and it's about profits.

And people realize this now.

If you look at Larry Fink's letter to CEOs,

many many people are trying to figure out

this idea of purpose.

But it's not purpose or profits, it's both.

It's stakeholders and shareholders.

Look I'm the most pro shareholder guy in the world,

eventually I'd like some investments to pay off,

so I don't have to do this anymore, you know.

But I'm not very good at that.

But stakeholders, look every business,

creates and sometimes destroys value for customers,

suppliers, employees, communities and people

with the money,

always has, I've never understood why anyone saw that

as anything but common sense.

In the words of my wonderful wife when she read my old

stakeholder book that I published in the 80s,

she said, well, this is common sense,

you'll never make a living with this.

And it turned out okay.

It's purpose and profits,

stakeholders and shareholders,

it's business embedded in society; two ways I'll come to,

and embedded in markets.

Yet we spend most of our time talking about business

and markets.

Equally business is embedded in society.

It's embedded in the institutions like healthcare

and education and government.

And we need to know what the relationships are with those.

And it's embedded in the physical world.

We can overcome those challenges,

but we only do that by transforming the physical world

to do that, and that's in part what you're talking about

at this conference.

So purpose and profits, stakeholders and shareholders,

society and markets,

I shouldn't even have to say this,

we gotta see businesspeople as human beings,

with our full humanity.

We are not just one dimensional short term

maximizers of our economic self-interest.

There are people who are like that.

We call them sociopaths.

(audience laughs)

Then usually we elect them to high office.

(audience laughs)

I simply wanna point out that for me

that was a non-partisan statement.

(audience laughs)

Et cetera.

Human beings are complicated,

as anybody who's ever been in love,

who's ever had a child,

knows we're not just self-interested,

we're self-interested and other regarding

pretty much at the same time.

You know we have more than economic interests,

we have political and moral,

social interest.

So we gotta see things as our full humanity here

and finally we gotta put business and ethics together.

As long as business ethics is a joke,

we're gonna have a problem.

So these five principles, regardless of what wins,

purpose and profits, stakeholders and shareholders,

society and markets, humanity and economics,

and business and ethics,

define this new way to think about business.

So people wanna know can you make money at this.

Will you make money?

They wanna know will you make money

if you manage things this way.

What they want is a guarantee.

My sense says if you really need a guarantee,

you probably should look into buying a refrigerator.

They come with guarantees.

Management theories generally don't.

What you wanna know is is it possible.

Is it possible to do what we know in our hearts is right

and be successful?

The proof of possibility is in,

study after study after study have shown

that you can manage in this new way

and you can be financially successful.

So the idea that is it a guarantee,

absolutely not.

Is it easy?

No, it's not easy.

But because it's not easy,

it's something that's worth doing.

Let me end with my favorite question

by the great philosopher, the trumpeter, Miles Davis.

So what, what's a human being?

A human being is someone if you think about this thing

what we can do is we invent vocabularies to solve

our problems, from the vocabulary around metal,

to the vocabulary around glass,

to the magic of the physics on the inside,

and then we cooperate together to make those things real.

Can we solve societal problems like inequality,

like global warming, like democracy?

My answer to that is absolutely.

And your job is to create a world, and create a version

of business that's better.

(audience claps)