BiGS Actionable intelligence: Business leaders didn't always operate their businesses to maximize shareholder value. For most of the last 200 years, they focused on their personal values, ethics and faith and often made decisions with a goal of positively influencing peoples' lives and the planet, new Harvard Business School research shows.
April 27, 2023 — In the 1950s,
American Motor Company CEO and future Michigan Governor George
Romney tried selling small cars to Americans, believing it was
his duty to keep larger, more wasteful cars off the roads.
In the 1960s, Control Data
Corporation CEO William Norris, shocked by race riots after the
assassination of Dr. Martin Luther King Jr., was inspired to build
factories in Midwestern inner cities to provide stable incomes for
Black Americans.
Each politically conservative, the two
men conducted business using their personal values in a way that
would help society — instead of strictly maximizing value for
shareholders. This was long before people referred to corporate
social responsibility (CSR) or environmental, social, governance
(ESG).
To get a fresh perspective about
business ethics that is rooted in history for today’s CEOs, Harvard
Business School Professor Geoffrey
Jones analyzed the intent of dozens of “deeply responsible”
businessmen and women in various industries and countries over a
200-year span, starting in the 1800s.
The
BiGS Fix recently interviewed Jones on campus to ask him about
his takeaways for today’s CEOs.
Jones, by the way, recently published
his new book, Deeply Responsible Business: A Global History of
Values-Driven Leadership. For more details, check
out this article about his book by our sister publication,
Working Knowledge.
The bottom-line approach? It’s
really a new phenomenon
Jones’ biggest takeaway has to do
with current presumptions that business founders and CEOs have always
been motivated solely by the bottom line. Not true.
People are blindly following a business
philosophy that’s only 50 years old and is proven to have produced
some bad outcomes, Jones says. CEOs, he said, should think about
their personal values, and perhaps their faith, to reduce negative
impacts on society.
“Capitalism should be seen as helping
all of the community, as opposed to making just a few people rich,”
Jones told The BiGS Fix. “You can be deeply responsibility and
build successful businesses and brands. And you don’t have to be
some superman or superwoman. And yes, it’s still worth doing.”
Three common themes of ‘deeply
responsible’ businesses
1. Have respect for all stakeholders,
including workers.
The world’s first industrial nation,
Britain was the first to see the massive social and economic shifts
triggered by industrialization — which triggered the Quaker
capitalism movement in the 1800s. Against that backdrop, devout
Quaker George Cadbury — led by his spiritual and ethical
beliefs — worked to alleviate the widespread poverty and inequality
he saw among people while building his chocolate empire:
- Built housing for residents of his factory town, which was recently voted “one of the nicest places to live” in Britain.
- Breaking with industry norms, shut down the factory on public holidays and became the first employer in Birmingham to make Saturday a half day of work.
- Personally taught hundreds of men how to read, often by visiting their homes, which were usually in slums.
2. Have a duty to support your
community.
Religion motivated many deeply
responsible founders, such as J. N. Tata, the Parsi textile
manufacturer in colonial India whose Zoroastrian spirituality
inspired him to use his wealth to enrich his community. He built a
hydroelectric plant in Mumbai, hoping to make it a “smokeless city”
by replacing coal with cleaner hydropower. He also planted trees and
created a wildlife sanctuary to make the country more
self-sufficient. Today, the Tata Group is one of the largest and most
respected corporations in India.
“In a free enterprise,” Tata is
quoted as saying, “the community is not just another stakeholder in
the business but in fact the very purpose of its existence.”
3. Have a commitment to selling a
useful product.
In 1973, Yvon Chouinard started
the California-based, ecologically and socially responsible fashion
brand Patagonia, as an unlikely offshoot of his previous
rock-climbing equipment business, Chouinard Equipment.
Patagonia’s rise was hardly guaranteed, as Jones points out,
because fashion “lay at the heart of the consumer culture so
disliked by hippies and other critics of materialism,” and fashion
uses chemicals that harm the environment. Chouinard risked building a
progressive, for-profit business for an audience that was highly
skeptical of consumerism.
The outcome? Customers loved
Patagonia’s products and appreciated that they were designed to
last, generating value from a philosophical perspective. They paid
the higher prices that Patagonia charged relative to competitors,
generating profits for the company.
Chouinard said in one interview, “The
capitalist ideal is you grow a company and focus on making it as
profitable as possible. Then, when you cash out, you become a
philanthropist. We believe a company has a responsibility to do that
all along — for the sake of the employees, for the sake of the
planet.” And in 2022, he and his family transferred ownership to a
trust to make the mission permanent. The slogan, “Earth is now our
only shareholder,” resides outside their shop in Harvard Square.
‘Deeply responsible’ values can
help CEOs navigate today’s problems
The world, of course, has changed since
Tata, Romney, Norris and even Chouinard began their ventures, with
community, society and/or faith in mind.
Today’s CEOs face highly conflicting
demands: on the one hand, investors’ profit expectations and on the
other, pressure to address environmental and social concerns, such as
climate change and racial and ethnic inequalities. Politicization of
business ethics further clouds the picture. Given our complex times,
we asked Jones for words of advice:
On greenwashing: How can
executives avoid doing only window dressing when trying to address
urgent environmental and social problems?
- Jones’ advice: “It would be a good idea if people asked themselves a simple question: Does our product or service benefit society and the environment or not? If the answer is no, what alternatives exist? Could we do things in a different way and survive?”
On political backlash: How
should business leaders respond when facing some public backlash
against incorporating issues such as climate and inequality in
business strategy?
- Jones: “The ethical and moral thing to do is to act appropriately, regardless of political politicization. There’s a younger generation that wants to work for responsible firms and to buy from responsible firms. If you show integrity, there are going to be rewards.”
On ESG: Jones recommends that
businesses lobby government for public policies that mandate
reporting on common metrics for ESG (or other common standards) used
to screen investments, to create a more valid and equitable approach.
However, he believes values are more important than metrics.
- Jones: “What matters is people’s values. How you generate those values is a trickier conversation.”
Intrigued? Bookmark The BiGS Fix and join our BiGS community on LinkedIn. Each week, we’ll bring you the latest research and insights to help you better manage for climate change and other pressing societal issues such as race and AI. If you have feedback or ideas, let us know! Reach out to Editor Barbara DeLollis at bdelollis@hbs.edu or on LinkedIn.