Last August, 181 CEOs of America’s largest companies, led by JP Morgan’s Jamie Dimon, signed a letter purporting to re-state “The Purpose of The Corporation.” The sponsoring Business Roundtable took an entire page of the New York Times to share this letter, which reversed a 1997 Business Roundtable statement about the primacy of shareholder value. This new statement of purpose made clear that corporations must recognize their purpose also includes creating value for customers, employees, suppliers, as well as host communities.
CEOs recognizing the importance – and even their need – to create value for customers, employees, suppliers, and host communities should not be news. But the Business Roundtable’s restatement of the Purpose of the Corporation does appear to reflect a meaningful move among top CEOs towards the multi-stakeholder capitalism that has for decades been at the heart of the field of Corporate Sustainability and reflected in relevant global standard setters such as the Global Reporting Initiative (GRI) and the Dow Jones Sustainability Index (DJSI). (See Bob Massie’s “Welcome to the ESG Evolution” in Institutional Investor for a cogent history of the move towards a more sustainable capitalism).
The World Economic Forum (WEF) that meets in Davos each winter was founded originally as the European Management Conference and its founder Klaus Schwab has advocated for Multi-stakeholder Capitalism since the first Davos Manifesto in 1973. This January, WEF provided “Davis Manifesto 2020” that Professor Schwab specifically positioned as a “Third Way” between the Shareholder Capitalism that even the 181 American CEOs of Business Roundtable rejected in August, and “Statist” approach which Schwab fears the phenomenal growth of China has made appear attractive. And this “Third Way” is a Multi-Stakeholder, shared purpose driven, approach to long-term value creation. A more sustainable capitalism; less about extraction and the morally vacuous “values” of exchange and more about collaborative creativity and higher, shared, standards.
Enter Rebecca Henderson, a friend and intellectual hero of mine who is a University Professor at Harvard. In her new book, Henderson is as case-based as you would expect a Harvard Business School professor to be. The case studies she provides include those from Aetna, Cadbury, P&G, Japan’s GPIF, and even Basque Country’s 13 billion USD Mondragon Corporation (a 270+ company, 74,000+ worker owned co-operative/holding company). These cases demonstrate the advantage of a shared purpose driven, multi-stakeholder, long-term value creation and, related, impact-conscious long-term financing like that provided by Rudolf Steiner influenced Triodos Bank in the Netherlands.
Henderson’s superbly readable book advises on the need to recognize that an exclusive focus on shareholder value creates unsustainable external costs – which is not exactly news. Moreover, she specifically advises through chapters on the need to:
Outside of #5 (which I will address elsewhere) this framework is a smart and helpful summary of the field of more sustainable business as it has evolved over the last two decades. So, it is fair to ask if she is “Reimagining Capitalism” or just describing its customer oriented “high road” vanguard?
In Henderson’s book and in her selected case studies, she demonstrates an example of “transcending” the internalized expectations of short-term capitalism, and how she and the leaders she cites offer a new “paradigm” or mental model that “re-imagines” a part of capitalism. Henderson cites Aetna CEO Mark Bertolini who reimagined how his thousands of minimum wage workers would be paid. After he helped his son battle cancer, Bertolini came to see that increasing the minimum wage of workers so they could stay off food stamps and afford healthcare premiums had moral and financial returns that together warranted the additional $20 million in costs to enable Aetna to live a shared purpose of promoting health.
If Bertolini had not face the loss of his son and experienced the challenge of caring for loved ones while working, Aetna’s handsomely compensated CEO may not have fully appreciate the human frailty of his minimum wage workers. He discovered these workers often could not pay their own healthcare premiums. Without enduring his own searing experience, Bertolini may not have been able to transcend the “bottom-line” mindset of his CFO and Board of Directors who were not impressed by the $20 million in additional cost. But Bertolini, by Henderson’s telling, had achieved an entirely different view that could recognize the “top-line” advantages deriving from the sense of “shared purpose” that arose out of also protecting minimum wage employees’ health, especially when there were costs and risks involved in both demonstrating and enabling Aetna’s shared purpose in advancing health.
Henderson also goes back in time to provide examples that also reflect – in a manner she does not call out – how leaders leverage “transcendence” to offer a “paradigm change” to drive their enterprises to market leadership. She describes how the Cadbury brothers in England became leaders in the global chocolate market by beginning in a place totally outside the market: their religion. Henderson describes how the Quaker brothers starting with 11 employees and an indebted firm rejected the then soaring popularity of “Scientific Management” in a 1914 article one of them penned. At a time of appalling working conditions at their competitors, the brothers insisted on treating all employees as family and observed that an employer’s relationship to an employee must be a relationship to “a gentlemen and a citizen.” They were rewarded with market-winning creativity and effort.
Henderson also examines very large, more modern examples where again the highlighted leader transcends the received system and provides a paradigm change that re-imagines it. As an unconventional plant manager, Charlie Krone – who studied cutting edge management theory and practiced Tibetan mysticism – was able to do just this in a P&G plant in Lima, Ohio. This plant that was designed to “embody learning” from frontline workers, had minimal hierarchy, and reportedly required half the cost of a conventional plant as it leveraged a deliberate sense of shared purpose.
Henderson goes on to describe multiple leaders including Hiro Mizuno, the CIO at Japan’s gigantic Government Pension Investment Fund (GPIF), who has invested to advance Japan’s entire economy in a novel strategy to advance GPIF’s remarkable broad investment portfolio. In doing so, he is expressing a culture many centuries older than the capital markets that manifest in his feeling that his grandmother would insist he quit his job if he could not consider its broader social and environmental impacts.
Henderson shares all this before revealing at the end of her book that she herself has been challenged by the shockingly unexpected death of her first husband. His death forced her to personal growth and, ultimately, her own ability to transcend the expectations of the world’s leading business schools at MIT and Harvard where she has taught for decades. Now Henderson stands as a brilliant example of what another visionary female leader, Donella Meadows, recognized when she argued that those who could transcend even their most cherished conceits and self-concern, can come to offer a needed new paradigm that enables one to rise above management and lead. Henderson has offered a practical blueprint of how to do just that in “Reimaging Capitalism In a World on Fire.”
