The State of the Movement

It was 8am on a glorious winter day in 2007 and the blue and orange line trains streamed into the station. The doors open and hundreds of young people in smart looking suits stepped off the train and formed lines for the escalator. As they reached the street, the dome of the United States Capitol Building loomed large, filling them with a sense of pride as they entered the offices that do the messy work of democracy. I'm Amanda Catherine Roman. And I'm Nathan Haven. Welcome to episode 9 of 10 Things You Should Know About Stakeholder Capitalism. Amanda and I were among those young staffers headed to work that day in 2007. We didn't know each other at the time, and we worked on different sides of the aisle, but we both believed that we were part of making the world a better place. In our first episode, we talked about the concept of how a thesis gets proposed and an antithesis quickly helps to explain what doesn't work about the thesis, and that eventually a synthesis emerges. Revealing a larger truth were both the thesis and the antithesis are correct. After years of working in politics, Amanda and I tired of the endless battles between thesis and antithesis, and we both struck out in search of a different way forward. And it was 8 a.m. on a glorious winter day in 2018 that I stepped into a closed restaurant on 10th Avenue in New York City for my first meeting with Amanda. We immediately connected about our enduring and shared passion to use our careers to build a world that works for everyone. And our shared belief that in this new paradigm for business, we have found a synthesis that aligns our divergent worldviews into an essential collaboration. One that, less than two years later, let us to co-create this podcast. This episode is going to be a little different. Over the last 8 episodes, we hope that you've learned a lot, been inspired, and hopefully you've had some ideas for yourself and maybe even your whole company. It's now time for us to show you what's behind the curtain of this miniseries. It's important that we level with you. Progress has been made to be sure, but that progress has been slow compared to the challenges for which it offers hope. In many ways, we are still just beginning this journey. And while the stories we've heard up until this point can help us to find our way, they are all, at least at this moment, still significant outliers. You'll remember Jay Jacob from our first episode. The economics of mutuality just launched publicly this summer. And while their model is really robust, most business people have never heard of it. Here's what Jay sees for next steps. There's lots of movements around the world that are trying to affect systemic change that will transform business behavior. And I think all of these movements are aligned now around the why you should do that and why it's necessary to do it quickly. But there's not a lot of work being done on the, how do you do it practically? Since the beginning of this work more than a decade ago, we focused on the how. And so we've got something and we want to share it. It's not perfect. We'd like to find the right partners to co-create aspects of it and adapt it to different contexts in different sectors of the economy. For example, we've come across some private equity that are very, very keen on economics of mutuality as potentially being the way in which investment can be transformed. If you think about investment, you know, there's a traditional investment, which was kind of 1.0, which was just about maximizing shareholder returns, and it doesn't matter what damage you do to the environment or to people or to communities. And then there's the ESG kind of 2.0, ESG is more about acknowledging that there are impacts to the environment or people, but it's still about maximizing shareholder returns. A lot of investors look at ESG increasingly as really important, but something that's not delivering more than kind of your reputation. And then there's kind of the 3.0 version of investing, which is impact investing, where investors are willing to trade some profit to do some good, but it's a suboptimal way of investing because you don't need trade-offs with economics of mutuality. So these investors are looking at, can we set up a fund to test this and acquire companies that we think could be conducive to being transformed through economics of mutuality and then kind of turn them over to us to help them embed economics of mutuality principles, metrics and management practices, and then see how they perform. Rajasodhiya, our guest in episode 2, has been working to build this movement for over a decade. He's about to mention a bunch of organizations, and we've got links to all of them and more on our website. As these ideas percolate in the world and more businesses start and operate in this way, they are simply out competing and out succeeding. So over time, traditional businesses will find themselves challenged to attract employees, to attract customers and to attract capital because they are better alternatives out there. But that's a slow process, and we need to accelerate that. And what we're doing now is joining forces with similar movements that have been operating on parallel tracks with different language and slightly different emphasis, but we're now coming together under the umbrella of Imperative 21, sponsored by the Ford Foundation. So it's conscious capitalism, B-Corp, B-Team, inclusive capitalism, just capital, and C-E-C-P, and a few others are also looking at joining. And I think by doing that, we will then create even greater momentum. There is a sense of urgency because of the consequences of the old way of doing things. We cannot continue down that path any further. We will realize that it is later than we thought. But despite the work that is happening in all of the various parts of this movement, the successful transition to stakeholder capitalism is far from a foregone conclusion. The existing system had a lot of ways in which it kept itself in place. Whether it's Wall Street, whether it's business school professors and their theories, and then of course those theories becoming self-fulfilling that people start acting that way. That's how they then lead and manage. We are taught in business school, the five forces of competition, where your customers are potential threats to you, suppliers are threats to you, new entrants are threats to you. I mean, everybody becomes a threat. So we have a mindset that has existed. We have people that have been drawn to and succeeded under the old paradigm. And those are people who are really the gatekeepers. They are the board members, they are the CEOs of many companies. They care about money in power and they have personally accumulated enormous amounts of money in power under that old paradigm. Now everybody else is suffering in those systems, right? Their customers' health is worsening, their employee engagement is terrible. People are getting heart attacks on Monday. But they themselves are getting massive bonuses and huge amounts of stock options and they're buying back their own shares to raise the share price. So by their own value system, they are prospering and say, "What's wrong with the existing system? I'm doing just fine." There's a fundamental values misalignment between the leadership of companies and most of the people in those companies. When Paul Polman came into Unilever and he had this value system around sustainability, around meaning, around purpose, around values, he did not meet massive resistance within the company. People are waiting for this but the leadership is the bottleneck. We have kind of bread for this. We've hired and promoted people who are all about the numbers and when you do that, you're going to have a high percentage of sociopaths in leadership roles. It's something like 20%, which is the same percentage that you find in a high security prison. Now in the overall population is about 1%, but our system is selecting and elevating people who are resolutely about delivering numbers at whatever human cost. They do what it takes to get the job done and the job done means get the numbers, right? Meet the goals. Don't be driven by a cherished outcome, numbers and market share and profitability and share price because if you're driven by a cherished outcome, then you will engage in wrong actions to achieve that outcome. Instead focus on the right actions and those right actions will result in the right outcomes. If you're on a trapeze, you're not going to let go of the old one until there's a new one coming towards you. And so I think that's what's been missing in the past and we are trying to offer that new thing that you can latch on to. So 2019 was a watershed year with the business roundtable adopting a new statement of the purpose of business around creating value for all stakeholders. And then Davos had their Davos declaration, the World Economic Forum in December, which talked about stakeholder capitalism as well and Larry Fink and Blackrock and some of the other larger money managers have been talking about these things. So I think we were approaching a tipping point and I think we're closer than we might realize. Bob Chapman, our guest from episode five, is not as optimistic about the state of progress. Nobody at Harvard, Stanford, McKinsey, nobody debates this. It is just so far away from where we are and what we teach and what we do that they just don't know how to go from here to there. We can't go to our people and say, you know, we need to care about our stakeholders. The people will say is sure, okay, but how do you do it? It's a little bit like going to an organization and saying, look, Chinese have gained prominence in the world. We all need to speak Chinese. So as of Monday, we are going to speak Chinese and everybody say, okay, what's the problem is I don't know how to speak Chinese. I know several of the people on the CEO roundtable, and they're well-intentioned people, but they're stuck in a system that says, you know, you can say all the nice platitudes you want. But you better give me the value I expect out of this business. Years ago, we had a senior board member who was a guy named Bob Lantigan who was chairman of all in Z Illinois. He was on the board of Chrysler Corporation and Mercedes-Benz. I said to him, I said, I'm just curious, you've been on a number of public boards. How often do you discuss culture at public company board meetings? He paused and he said, well, once at Chrysler Corporation, we talked about executive compensation. That's as close as he could come to the subject. Studies don't discuss culture. Boards have a DNA and if we're not meeting the analyst expectations, if the investors aren't pleased with our performance, we got a problem. And that's what Boards talk about, okay? This is a huge journey for the CEO roundtable to say that, remember, they said that as Bernie Sanders and others were starting to talk about socialism. We had more young people in favor of socialism than I think we've ever had. If you were the stewards of the free enterprise system, you better get your voice up there. Have we seen dramatic changes in the leadership of major corporations towards all stakeholders? Not a inch. So it was a great statement, but we can't ask people to care. We have to teach people to care. We have proven you can teach people to care. So at this point, let's rewind all the way back to our first episode. Who is a stakeholder and what value are we supposed to be maximizing exactly? There are a lot of different organizations with different perspectives on that, but despite the lack of a clear definition, the term stakeholder capitalism seems to be catching on. Right there, that is a big part of why progress is so slow right now. All of the big players in this movement have their own definition for what the new paradigm is. B-corps are measured on 200 questions, conscious capitalism has four pillars, just capital has a thorough assessment and on and on. And that's before we get into ESG, CSR, the UN Sustainable Development Goals, finding your why, various theories of employee motivation, there is so much noise out there that a leader could be forgiven if they don't want to wade through all of that stuff while, you know, they've got a company to run. Then as exactly why a group of people from across this broad movement came together in the summer of 2019, to try to see if they could all agree on an answer to a simple question. What are the essential competencies that a company must possess to operate in the new paradigm of business? The debate raged for days and included the perspectives of scores of people. And to everyone's amazement, they aligned on a comprehensive list of essential competencies with just six things on it. And those six things are going to sound really familiar right now because the podcast you have been listening to was built around them. We offer for your consideration the following definition of stakeholder capitalism. Stakeholder capitalism is an economic system in which businesses strive to create value for all of their stakeholders by continually increasing their performance in six mutually reinforcing areas. Number one, the company builds long-term trusting partnerships through open communication and transparency that helps all of the people impacted by the business to thrive. If you're focused on what your purpose is, treat people the way you want to be treated and you make decisions through that filter, it's very clear what decision needs to be made. Number two, the company cultivates the talents and potential of the people it impacts to help them live their best life. All 12,000 people that work for us is somebody's precious child. Number three, the company deliberately dismantles systems of discrimination to achieve an inclusive, equitable and just society. Banning the boxes is one of the most important choices to help other people grow. Number four, the company makes as much money as it can to help everyone who works with it to achieve financial security and improve their quality of life. Opportunity is a great equalizer and if you give us the opportunity we will make it happen. Number five, the company conserves and restores resources in the creation and delivery of its products and services for the benefit of future generations. The idea is that we're going to increase our impact because the impact could be positive. And number six, the company's reason for being is to solve a specific, worthy problem. The ultimate purpose of Café Momentum is to change the way the juvenile justice system works as a whole. We'll be the first to admit that this is a tall order. So tall, in fact, that we believe none of the companies we've profiled in this series is strong on more than a couple of these. Some have excellent cultures but have not addressed the systemic barriers that keep women and people of color underrepresented and likely underpaid in senior positions. Others are very good on that count but have not yet tackled their ecological performance. And others may still be set up to make their owners and founders rich while paying more junior people as little as possible. As the group debated this definition, two things became clear. The first is that we can't think of stakeholder capitalism as a late switch. Because frankly, we have not yet met a company anywhere on earth that is above reproach on all of this. The transition to stakeholder capitalism takes time and many companies are already on their way on parts of this definition. And the second thing was that all six of these things is indeed essential if the new paradigm of business is to meet the challenges our generation must solve. Anything less, and our solution is like a car with four wheels and only three tires. It won't get us where we need to go. Einstein said that we need to find solutions to problems that are as simple as possible but no simpler. If stakeholder capitalism is to be more than marketing for the business roundtable, then this definition has to turn into the moonshot of our time. Borrowing Mr. Chapman's metaphor, we need to teach people a lot of people how to speak Chinese and fast. It's not going to happen in a weekend retreat in the woods. We need the equivalent of an immersion program integrated into a company's day-to-day operations for several months or longer. As we looked at the landscape of what the movement has already created, we saw programs that teach one or maybe two of the competencies in silos. But we didn't find anything that can teach these competencies in a way that leverages them together to reveal their mutually reinforcing power for accelerating change and therefore performance. So, we built the thing we needed. It's a year-long program that will start or accelerate this transformation in a company and it's called the Intrapreneur Accelerator. You can learn more about it at intrapreneuracelerator.biz. It seems to us that the reason there aren't more stories like the ones we've shared in this series is that most of us feel that the problems facing the world are just too big and that change is too hard for us to do much of anything alone. But that's just it. When we stand up for this transformation, we quickly discover that we are not alone. Because this change, brewing, no longer is it deep beneath the surface. The way these trains moving, exposing us to think about our purpose. I'm not scared to sing breath-illusion, but so will rest until we find a solution. At some point, we all have to choose what our career is going to be about. As we said in our opening, Amanda and I believe that shifting the paradigm of business is the synthesis our world needs. The way that you change a system is that you change the purpose of the system, then the behavior of the system starts to change. That takes a leader to bring that to the company. Do you know what a leader is? A leader is someone who can see how things can be improved and who rallies people to move towards that better vision. A leader can be anyone, maybe you. The ninth thing you should know about stakeholder capitalism is that your company can make the transition to stakeholder capitalism. But it's only going to happen if you stand up for what is possible and refuse to settle for anything less. Our final episode returns with a story that takes you into the trenches with three committed leaders who are six years into their entrepreneurial quest to make their mark and transform their company. It was important to have that debate and discussion because we knew at the end that we meant it and that we would fight for it because we were all in absolute alignment around our purpose. If you act on your purpose, if you execute this on a daily basis, what is this going to look like in ten years? What will you have accomplished? Ten things you should know about stakeholder capitalism is a project of the Institute for Corporate Transformation. This episode was edited by Nathan Church and produced by Havie Pro Cinema and features music from Jenner Dine, Nina Gray and Mr. Move. Ten things you should know about stakeholder capitalism is written and directed by Nathan Hevy. If you want to know more about how our proposed definition for stakeholder capitalism came to be and maybe even participate in a pilot project to see how your stakeholders believe your company is performing in those areas, you can do both at stakeholderscore.com. If you haven't already, check out stakeholder capitalism.biz for all of the links we mentioned in this episode and more. And while you're there, give us your email so we can keep in touch with you as this transformation unfolds. Thanks for listening. [Music]