The gathering at Davos, Switzerland, this month was a chance for business people to grapple with social responsibility at a time when it’s being increasingly demanded of corporate leaders. It came after 181 chief executives from the U.S. Business Roundtable signed a statement last August saying they would lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and share owners.
It seemed momentous but not to Henry Mintzberg, the great debunker. The McGill University professor reached back to 1981 – nearly four decades ago – when the same organization similarly declared in a statement on corporate responsibility that “giving enlightened consideration to balancing the legitimate claims of all its constituents, a corporation will best serve the interest of the shareholders.”
But in 1997, amid Jack Welch’s tenure as CEO of General Electric, when he fixated on shareholder value and many of us worshipped his leadership approach, the Business Roundtable flipped. The CEOs warned: “The notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors. It is, moreover, an unworkable notion because it would leave the board with no criterion for resolving conflicts between interests of stockholders and of other stakeholders or among different groups of stakeholders.”
In 2012, three years after Mr. Welch declared shareholder value to be “the dumbest idea in the world," the Roundtable also reversed itself somewhat, saying, “It is the responsibility of the corporation to deal with its employees, customers, suppliers and other constituencies in a fair and equitable manner.”
Prof. Mintzberg asks on his blog: “If the CEOs were right in 1981, why did they go wrong in 1997? And if they reversed that wrong in 2012, why do they have to repeat that reversal now? The abuses of shareholder value did not exactly diminish in the past seven years, so why should we take the latest proclamation any more seriously?”
He also jabs at them for the 1997 statement about how difficult it is to balance the different interests: “How about judgment?”
These statements and the annual discussions at Davos draw lots of attention, but in the end accomplish very little. Prof. Mintzberg suggests they get real. He recommends the CEOs reserve half the seats on their boards for elected representatives of the workers. That may seem untethered from reality on his part, but it’s actually the rule in Germany, where the economy has hummed along since the mid-1970s when that seemingly heretical policy was instituted.
“If the CEOs of Corporate America don’t like this idea, here’s another: Get rid of executive compensation schemes and quarterly reports that drive their attention toward short-run gains in the stock price, so often at the expense of worker security," Prof. Mintzberg continues. “And another: Stop lobbying for tax changes that favour corporate shareholders over other people in society. And while you are at it, support a living minimum wage for workers.”
Pushan Dutt, a professor of economics at French business school INSEAD, says grandiose, vague virtue-signalling statements such as the Business Roundtable pledge just engender cynicism. He suggests corporations adopt a Hippocratic Oath, as doctors do, starting with, “Do no evil.”
It would include paying taxes and adhering to laws and regulations, not denying science, ensuring stakeholders are represented in your organization and addressing inequality in your own firm by disclosing remuneration by skill level and gender.
It reminds me of my suggestion to improve the employment brand in Kingston organizations by pledging to treat every application throughout the recruiting process like it came from their child. As for do no evil, CEOs should carefully consider Jeffrey Pfeffer’s searing Dying for a Paycheck, on how work is endangering many white-collar workers.
While the Business Roundtable statements and the annual preening at Davos might shape the business zeitgeist, the reality for managers in the trenches in corporations is that, unless their organization has some declared social responsibility thrust, their job is to make a very healthy profit so that everyone’s RRSPs and investments – not the least our own – will grow.
Some of us can make social progress within the broad scope of our job and the people we report to. Others – people in dying industries or other struggling companies – know that the first rule is to keep the enterprise alive. Some of us work in organizations that have a noble purpose or at least noble elements, but others are in organizations where damage is done daily to the environment, as one example. We can try to do better, but the scope might be very limited.
Managing, however, in Prof. Mintzberg’s world, involves judgment. It also requires balance. It’s a long way from Davos and the Business Roundtable to the trenches.
Do your best.
- Slate magazine recently named the 30 most evil tech companies. Heading the list: Amazon, Facebook, Alphabet (Google’s parent), Palantir Technologies and Uber. Huawei was 11th, while Apple was sixth and Microsoft seventh.
- Linda Fisher Thornton, a consultant on corporate ethics, suggests asking: How closely do our strategic plans for this year align with your stated values and the ethical treatment of others?
- A three-year study of the best places to work in the United States found they put people first, help employees pursue their passions, empower people to own their own projects, encourage authenticity and create opportunities for workers to connect on a personal level. “For organizations interested in changing their cultures, these will start you down the right path," advises Michael O’Malley, one of the researchers.
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