I believe we’re seeing a new kind of leadership emerging.
It’s been a truism that leadership is about maximizing business results, whatever it takes. As the economist Milton Friedman depressingly put it:
The business of business is business.
He argued that a CEO who spent resources on anything that did not enhance shareholder value was failing his duties and could be fired or sued.
This kind of thinking is still incredibly prevalent in the business world and it leads to attitudes and actions that are incredibly damaging.
This is the kind of thinking that lets a corporation:
- Fire 1,000s of employees to raise stock prices temporarily.
- Engage in environmentally damaging production.
- Introduce a culture of overwork that works employees to the bone while damaging their careers, their health and their private lives.
- Confuse and cheat customers into buying as much as possible at the highest price possible, rather than helping customers buy what they need.
- Exploit workers, always paying them as little as they can get away with to make more money for their investors.
- Create toxic cultures where employees live in near-constant fear and frustration.
You may think me dystopian but these things go on daily in corporations all over the world. And ultimately executives think they are right to do these kinds of things because their only responsibility is shareholder value. They take no responsibilities to do good in the world – or even avoid doing bad.
In fact, they have been so immersed in this kind of thinking that they can do incredible harm and feel no remorse. I have seen way too many press releases where a CEO explains why she/he fired 1,000s of employees to “enhance stakeholder value” without showing even a shred of regret or emotional investment in the fact that their leadership is now harming 1000s of families.
And that is why I think we need a new kind of executive – one that is motivated primarily by doing good. Or, in other words, by increasing happiness.
And I do see a lot of these leaders. They are not perfect people but they have a clear vision of what they want in the world and rather than just maximizing shareholder value, they want to create more happiness in 4 domains:
- For themselves
- For their employees
- For their customers
- For the world
These leaders create organizations that are a force for good in the world. They lead in a way that is sustainable – not just environmentally but also economically and psychologically.
Their employees’ lives are better and happier for working there. Customers’ lives are improved by the company’s services or products. And the world is in some way a better place because this company exists.
And don’t ignore the first one: These leaders are happy themselves, because they know that their leadership is making things better, not worse.
There are many examples of these leaders in all industries and all over the world. I’ll be writing a book about them next. The ones I know of include Tony Hsieh, Richard Branson, Ben Zander, Ricardo Semler, Lars Kolind, Vineet Nayar, Thyra Frank, Rich Sheridan, Herb Kelleher, Colleen Barrett, Charlie Kim, Patch Adams, Odd Reitan, Ingvar Kamprad, Yvon Chouinard and many, many others.
Your take
Do you see more happy leadership or more if the old kind out there? What does either of them do to you?
And if you know any other happy leaders, I’d love to hear about them.
Alexander, I’d love to hear your impressions about The B Team’s work to bring more humanity into business, including an emphasis on providing work that is meaningful. I find their language encouraging, but have to admit that I react with skepticism to news of corporations making human needs a priority. It’s one thing to put out press releases. It’s another to put a lasting plan into action. Do you find their work credible, and what do you think we should look for as confirmation that they’re the real thing?
Good question. I know very little about them but with all such initiatives, let’s judge them by their actions, not their rhetoric :)
Your four domains are accurate and put in the correct order: 1. For themselves 2. For their employees. 3. For their customers 4. For the world. All one has to do is report a bad experience and these domains become clearer. I believe all to often leaders are thing about ways to get out of the predicament foremost. Second, they are trying to show support for their workers by listening to their side and supporting this perspective even if it might be incorrect. The customer focus comes in third and the world fourth. The thought of how to live out the companies vision and mission gets tossed aside to often and is frequently forgotten. All you need to do is ask an employee to describe the vision and mission statements and will find that most lose sight of the reason for their actions.
Alexander, I do believe that “The business of business is business.” it is the core of it, people create a business in order to serve a need or perceived need and create something which sustains them as a result. That said I should seriously clarify on this.
The old way of doing things, whereby the customer was put second to the money and the deal is a very poor way of doing business, at least in my opinion. One of the people I studied under shared with me the origin of the word “Sell”, it comes from the Germanic and old English word “sellan” and the old Norse “selja” which has to give or to serve as meanings. That is what many lost sight of. It is through serving people in an ethical and mutually beneficial manner that real business works. Look at brands such as the Virgin brand created by Richard Branson, leading brands like that have service and customer happiness as core to the way that they work, and as a result their businesses do incredibly well. Place the customer below other things, yield poor service and business will falter and potentially fail.
I have been living in Japan for many years now, within shops you see amazing customer service. However within companies the manner in which many people treat their employees is shocking, real iron hand stuff.
I have a complete belief in treating people fairly, on the inside of the business and the clients too. I carry it through every business transaction I do, and through every interaction I have with staff and consultants, the short of it is that I have seen amazing results happen. People in general wish to be appreciated and feel valued, and realistically it is very easy to achieve that, even more so though it is completely justified to achieve that.
So whilst I do believe that “The business of business is business.” the core behind that which makes the business a good business is one of caring and valuing of people. Spreading happiness and joy through every interaction and transaction and thereby brightening the world and life as a result of doing business.
Well in that case I think we agree :) It’s just that the traditional understanding of “the business of business is business” is more along the lines of “it doesn’t matter who you screw over as long as it makes a quick buck.”
Having spent some time as a civic dignitary I am amazed that business don’t make more use of the power of happiness. All leaders have the power to spread happiness yet few do. It take such little effort and creates so much of value. Please keep encourage leaders to think more about happiness. Thanks Duncan.
Creating happiness and a good employee experience is absolute key to good management. When you have happy employees, you have a happy company and your customers will be happier.
There is such a thing as premium for running a risk. For the entrepreneur, this is the reason they can get very rich.
Who is running the greater risk in a business. The employee who has one job and his/her livelihood connected to this job or the investor who may hold the stock for 6 months/5 milliseconds?
Maximizing shareholder value as the first priority for organizations is a fallacy building on the wrong theoretical premise that the shareholder is carrying more risk than the employee. In a personally owned business, that may be the case but not in general among LLCs.
Having read some of Milton Friedman’s writings, and seen some video of him online, I don’t get the sense that he meant that management should make employees miserable in order to increase the shareholder value.
Management are employees as well; they are working for those who own stock. These owners might be rich people. But usually they are also senior citizens with limited incomes, struggling young adults who are trying to save for the future, lower middle class or middle class, etc. It is management’s job to the best it can to benefit these people, and let THEM decide on which benevolent ways they want to use the profits.
When management makes decisions against the shareholders’ wishes, and that hurt the shareholders, even if this involves benevolence toward some other group of people, management is arrogating for itself a right that does not belong to it—the shareholders’ right to use the profits in the benevolent ways as chosen by the shareholders.
And if the shareholder is not rich, this could mean putting food on their own table, or paying the rent, or buying clothing, etc.
I agree that Friedman does not directly advocate making anyone miserable on purpose. Here’s a good summation of his views from wikipedia:
Friedman argued that a company should have no “social responsibility” to the public or society because its only concern is to increase profits for itself and for its shareholders and that the shareholders in their private capacity are the ones with the social responsibility. He wrote about this concept in his book Capitalism and Freedom. In it he states that when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.
I disagree fundamentally with this view. I strongly believe that any business should be a force for good, not just a force for profits. Incidentally, I also believe that this is the best path to long-term sustained profitability.
And furthermore, Friedman’s insistence on profit-maximization can easily lead to the kinds of behavior we’ve seen at Enron and others.
This article also has a great rebuttal to Friedman:
http://www.forbes.com/sites/stevedenning/2013/06/26/the-origin-of-the-worlds-dumbest-idea-milton-friedman/
Thanks for the link, I read the article; interesting thoughts.
I think we all agree–you, me, Friedman—that if being a force for good, presumably as defined by the CEO, will lead to long-term sustained profitability for the company, then it must be done. (In fact, I think we all agree with everything that you write about—-people need to be happy and feel like they’re contributing to a good cause if a company is going to be successful.)
But should companies try to be benevolent to outside groups if it will hurt the company, or if it is against the wishes of the shareholders?
I have to disagree with the author of the article you cited. If a company had one owner, we’d call him the owner. If it had two or three owners, we’d call it a partnership of ownership. Why does the status of owner suddenly change if there are 100 or 1,000 owners, and we call them shareholders in a corporation?
Imagine we owned a company, and the CEO we hired gave away half the profits to his favorite charity against our wishes. Wouldn’t we justifiably say that the CEO was being immoral, because those profits were for US to give to OUR favorite charities?
I didn’t check, but I’d bet that Enron did a lot of community service. Maddoff certainly did. Corrupt corporation management, just like corrupt government leadership, just like corrupt individuals, love to do anything to fool us. Is their a correlation between community service and lower corruption? I wonder if their are any studies on this.
Interesting thoughts, Andy.
For me, this goes way beyond community service and CSR and into the very idea of what a company is. Friedman argued that the only responsibility a company has is to increase shareholder value and I argue that this idea is harmful and wrong and precisely the kind of thinking that leads to Enron-style scandals.
There’s also a great rebuttal of it here, in an article provocatively called “The Origin Of ‘The World’s Dumbest Idea’: Milton Friedman”
http://www.forbes.com/sites/stevedenning/2013/06/26/the-origin-of-the-worlds-dumbest-idea-milton-friedman/