First in a series on Higher Ambition at the Academy of Management 2013 annual meeting. Capitalism in Question was the guiding theme of formal and informal discussions at the 2013 Academy of Management (AOM) meetings held in Orlando Florida in August. As part of this rich discussion, the Center put together a Higher Ambition panel discussion led by Michael Beer. This AOM’s overarching question about capitalism was motivated by the economic and social costs incurred by societies around the world as a result of the deep worldwide recession and collapse of markets in 2008 as well as numerous scandals over the years. Discussions centered on how the context for companies and their leaders –capital markets, board of directors and business school curricula – might have to change, and how companies and their leaders might reframe the purpose of their companies and manage them in a way that created both economic and social value. “Capitalism has been a powerful force for good, but business is uniquely suited to contribute value to employees, customers, community and society without degrading long-term shareholder value,” said Michael Beer of the Center for Higher Ambition. The Center has been at the forefront of research on practices for delivering both positive social impact and exemplary financial returns. Beer led a symposium at AOM, Building Sustainable Higher Ambition Companies. Taking its name from the book Higher Ambition, the symposium brought together executives and academic thought leaders. Beer said that contrary to those who have advocated that the only purpose of a company is to produce profits for shareholders, such as the well-known economist Milton Freedman, higher ambition leaders and companies see their purpose as creating both economic and social value. Fred Keller, CEO of Cascade Engineering, said, “The potential for business to help solve the world’s problems is real and significant. Whether or not we take up that challenge and opportunity will shape our legacies more than anything we do in our individual companies.” Cascade has made good on this pledge by hiring long-term unemployed people and successfully integrating them into the company, fundamentally affecting their lives positively and at the same time changing the culture of the company into a more caring and collaborative one. This thought was echoed by Richard Gochnauer, former CEO of United Stationers. “Governments are increasingly failing to address social needs. No group is better positioned to help fill this void than business, if higher ambition leaders can successfully transform the role and purpose of business,” he said. There is still a long way to go on that front said Ed Lawler, Director of the Center for Effective Organizations and Distinguished Professor of Business at the University of Southern California. He noted that the overwhelming number of executives and academics still subscribe to the notion that financial measures are all that matter. The incidence of sustainability performance is increasing but it is not yet dominant he said. “According to a recent survey we conducted, most company boards lack the expertise in this area,” Lawler said. “As do most corporate human resource departments.” This will have to change in order for companies to embrace non-traditional goals according to Lawler. Also joining the panel was Dr. Raj Sisodia of Bentley University and co-author of Conscious Capitalism with Whole Foods CEO John Mackey. Sisodia emphasized that “businesses galvanized by higher purposes that serve and align the interests of all their major stakeholders” have the potential for “advancing the quality of life for billions of people” while also enhancing corporate performance. This is companies such as Southwest Airlines, Amazon.com, and Tata to name a few. These are not niche players and they’ve shown that this new path is viable. There was rich discussion around alternative governance models such as Benefit Corporations (B Corps). B Corp provides a framework and certification for companies that want to provide societal benefits as well as shareholder returns. Certification requires that the company embrace governance structures and processes to enable the company to adhere to its espoused purpose of social good. Lawler noted that these are now legal in more states. Keller, whose company is one of the largest B Corps, said that the number of companies embracing this model is “small, but significant.” Public companies cannot be B Corps because the exclusive primacy of the fiduciary duty to shareholders in enshrined in law. Keller noted, however, there are only 4,500 public companies in the United States while there are more than 7,000,000 businesses. He said that while there are only about 1,000 registered B Corps, as many as 10,000 companies are using the free B Corp self-evaluation tools. Charles Heckscher of Director of the Center for Workplace Transformation at Rutgers University spoke about the research into the correlation between social performance and financial returns. He said that there is a positive correlation but only in the long term. There is no correlation to share price or CEO compensation. He said that the research to understand the relationship between financial and social good outcomes is “way behind the curve.” This led to a discussion of whether repurposing the firm in terms of creating both economic and social value would constrain or enhance business performance, according to Beer. The conventional wisdom is that social responsibility is a cost to be borne or avoided. Higher ambition companies and their leaders embrace and instead of or; they see their social commitment as integral to attracting and retaining top talent, creating deeper engagement with customers, and enhancing revenue and profitability. Gochnauer said that his experience at United Stationers demonstrated how doing good can help the business grow. “Our customers, most of which were small dealers or resellers, began hearing from associates about the work they and the company was doing to help others. Consequently, the Dealers began to reassess United. United was investing time, talents and funds to help others with no obvious link to growing United’s profit or increasing its shareholder returns. Perhaps United really does care about others and will put its partner’s interests first ahead of their own. Maybe we can trust them. Customers started asking if they could join us as did suppliers. Dealers and suppliers began to see that their employees become excited about helping others and more engaged. Schools, hospitals, non-profits and other organizations that were recipients of United’s and our dealers’ community involvement efforts gave our dealers new business and were more reluctant to switch to other suppliers.” Embracing higher ambition means articulating values that govern the relationship between the company and the full range of stakeholders. These then have to become part of an organization’s daily routine. Cascade’s Keller said of his firm’s approach to values, “It’s who we are. We aren’t advocates for values, we are practitioners. We don’t pretend to be perfect; we just try to get better every day. We try to narrow any gap between what we say and what we do.” Gochnauer said that it was particularly useful to hear the variety on the panel as it included people working on a similar idea – business making the world a better place – yet approaching it from different perspectives. Moving these ideas forward “requires a historical perspective because business has done a lot to improve people’s lives” over time, he said. Further, he noted, it also requires robust research and telling the stories of what’s being done now so that successes can be shared with boards, business schools, executives and others with leverage to influence the present and future. “This year’s AOM was energizing,” said Beer. “It was helpful to see the work being done by others, fellow travelers with the Center for Higher Ambition. The idea of coupling social and financial performance is still not mainstream, but the number of executives, academics, and organizations embracing it is growing. Momentum is building and that is truly exciting.” The text of Fred Keller and Richard Gochnauer’s talks will be the subject of later posts in this series.
(1) The Academy is an international organization of academic researchers and teachers of management as well as management practitioners with an interest in gaining a better understanding of management.