Business Worth Doing 2011 - Business Value Group International

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Business Worth Doing A New Balanced Stakeholder System for the 21st Century

JANUARY

2011

The world’s economy is struggling, with the exception of a few countries. The proliferation of bad business practices in the western world has finally caught up with society. How to unravel and rebuild is difficult and complex. It requires a new construct, a new language and a new way of committing to a future that benefits all stakeholders. Join us in a new business system conversation and follow a path of renewed commitment to Business Worth Doing that works for all.

Patrick Hehir

BUSINESS WORTH DOING | 2011(PRELIM)

Tony Petrella

www.bvgintl.com 1

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Abstract ................................................................................ 3 The Need and Scope ........................................................ 4 Economics, Capitalism and Free Enterprise: ....... 5 Ego and Soul ....................................................................... 6 Stakeholders....................................................................... 7 Balanced Stakeholder System ..................................... 9 The Business Leader’s Role ...................................... 10 The Stakeholders Explained ..................................... 11 A. Customers as Stakeholders............................. 11 B. Investors as Stakeholders ............................... 12 C. Suppliers as Stakeholders ............................... 14 D. Employees as Stakeholders ............................ 14 Business Worth Doing Continuum......................... 17 A Shift to the Right is in Order ................................. 19 The Other Players in the Societal System ........... 20 Concluding Comments ................................................ 22 Bibliography .................................................................... 23


www.bvgintl.com 2

Abstract

are facing significant austerity measures. Mountains of

At time of writing, the after-effects of the global

to be the first in decades who will be less well off than

economic crisis of 2008-2009 are still being felt by the

their parents and grandparents.

majority of developed nations. The developing and poorer nations are affected also, but to a lesser degree. The speed, scale, voracity and global nature of the downturn and the near collapse of the global financial system provided ample evidence that the global and interdependent world economy has arrived. The world

public and private debt are setting the next generation up

What is equally disturbing is that these western nations, and all stakeholders within the various economic and political systems, are struggling to find solutions in a highly interactive, systemic, economic and political world. The Problem: The situation that we face has four, highly interactive, major elements:

changed and most economists never saw the downturn coming. As a result, the economics profession is in some



There is a mountain of private and public debt.

disarray. Adam Smith (1703-1790) the famed father of



The US economy, the largest and the model for the world, is overly focused on consumption and not production.

understood an individual‘s pursuit of one‘s self interest



There are insufficient job opportunities.

as being central to human motivation but suggested that



The current business systems reward only the few at the expense of the many.

economics still has relevance. He was a huge advocate of the free enterprise system and of open economies. He

it needed to be virtuous in nature so as to contribute to the sustainable and equitable trade balances of nations. What led to this downturn would likely have profoundly disappointed Adam Smith. If he were alive in the 21 st century he surely would have predicted it. But he too, may have been powerless to prevent it due to its velocity and the massive imbalances and excessive leverage employed. Over the past 30 years there has been a growing gap between the ultra rich and the rest of society. The US face a situation where ―the top 1% of the population posses a greater net worth than the bottom 90% ―.1 Before the crises the financial services industry accounted for 40% of all US corporate profits without the creation of much if any value. The result is a massively imbalanced US economic system that is

Our view is that there needs to be a systemic reset in the business systems of the world. The solution, while focused on businesses, must rest on the bedrock of strong societal values – values that have been the foundation of many socio-economic systems for generations and which must be re-established. A large part of the solution comes via what we call a “Balanced Stakeholder System” approach for all business enterprises. The architectural elements of that system are outlined in this paper. Taken collectively businesses have the greatest power to change the course of our economic ship. Government, civil society, media, education also must play an enabling role. When everyone is aligned in an open virtuous system, we can do big things.

contributing to the significant destruction of the fabric of its society. In the US, the situation threatens the famed American Dream where an individual, even one who has a humble beginning, through hard work and prudent behavior, can advance and prosper. The US is not alone in this predicament. The majority of western countries

1 Nicholas D. Kristof, THE NEW YORK TIMES, January 2, 2011


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We have witnessed yet another boom bust cycle, this one being undeniably the largest since the great depression. It

The Need and Scope This paper builds on prior great work by many. It is intended to provide an actionable and systemic solution that can begin a new conversation in the global business community. Together people can create an environment that results in having Business Worth Doing that provides benefit to all stakeholders, not just the few. The recent acceleration of the indebtedness of the western world, the ballooning of large imbalances in global trade and the growing gap between rich and poor demands a rebalancing of the business models and systems. These imbalances have contributed to the shrinking of the middle class in most countries of the western world, particularly in the USA. This situation has been worsening over the past two to three decades. The imbalances are rooted in greed, selfishness, the use of massive leverage and, finally, the short-term thinking of many in the business world. This same situation looks

is being coined the Great Recession by many economists and journalists. Although boom bust cycles are not uncommon, they rarely are as systemic or have such widespread impact. While much of the bubble was linked indirectly to housing, many western countries were excessively leveraged even beyond the housing industry. Consumption (financed by varying kinds of debt) continued to expand with little awareness by the general public of the decline in production in a number of economies. There was little appreciation of the long term danger of such strategies. Most of the institutions that are in place to help keep things in balance were either oblivious to the danger or colluded with a flawed system. This includes politicians in most countries. The result was a widespread financial crisis. David Cameron, the British Prime Minister, captured some of the essence of this phenomenon and said in a speech in the House of Commons, ―it is time for us to start making things rather than ‗making up‘ things.‖2 We agree.

like it is beginning to occur now in the developing world.

Lest more evidence is needed to emphasize the scale of

China as one example appears to be facing some civil

the effects of this unbalanced way of working, and the

discontent and unrest due to the inequitable distribution

pressure that is now on the political and business leaders

of wealth during their current period of massive

of today, the conversations at the G20 meetings of 2010

economic expansion. The purpose of this paper is to

are worthy of note. In Nov 2010 in Seoul, South Korea,

present a way forward for all businesses and all nations.

state leaders at that G 20 summit engaged in debate

The deep recession centered in the western world actually began in 2007 and future generations are on the hook for huge debt as a result of it. Working class tax payers now face the prospect of paying for the greed and excesses of the few who gained the most. This is particularly noticeable in the US, Greece, Portugal, Ireland, UK and Spain. It is a classic case of privatizing profit and socializing losses. In the US there is the potential to destabilize the fabric of society and kill the American Dream. (Arianna Huffington‘s book Third

about the un-sustainability of the current trade imbalances and the levels of debt that exists among the large trading partners. The experts‘ commentary raised significant concerns about the selfish and short term behavior that is driving much economic behavior. They assert that these practices could ultimately lead to greater protectionist trade practices with less global wealth creation as a result. These conversations serve as a reminder that we are in the midst of, and struggling with, a shift to a global economy.

World America provides an in depth view of the US

Many people do have a new appreciation and deeper

story.) The book puts a personal face on the massive sell-

understanding of the instability of the global business

out of the middle and working class by the wealthy and speaks to the resulting widespread discontent and anger

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BBC Broadcasting, 3/23/11.

that prevails.


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system as well as the growing gap between the haves and

―Adam Smith, the father of modern economics, is often

the have-nots that we speak of. Many are aware of the

cited as arguing for ―the invisible hand" and free

unsustainable (and some say unjust) nature of the

markets: firms, in the pursuit of profits, are led, as if by

leadership practices and business systems that contribute

an invisible hand, to do what is best for the world. But

to where we find ourselves today. There is also a

unlike his followers, Adam Smith was aware of some of

growing consensus that there is increasing social

the limitations of free markets, and research since then

pressure to transform capitalism as we know it. For some

has further clarified why free markets, by themselves,

help in determining a new path, we suggest a return to

often do not lead to what is best‖. (Stiglitz, 2006)

some of the basics that the business enterprise was historically founded upon.

Few economists foresaw the recent financial system crises coming. Many believed the markets to be rational

Economics, Capitalism and Free Enterprise:

and expected that, with self regulation, the business/financial system could self correct. This was particularly true in the US where people felt that monetary policy (money supply) and fiscal policy

The public corporation is arguably the greatest vehicle to

(sources and uses of money) of the Federal Reserve and

support the expansion of capitalism as a vital economic

the Treasury could correct or prevent financial crises.

system. It, through shared ownership, raises capital for

Many E.U. countries, essentially modeling their financial

business expansion and it distributes the risk of an

policies on those of the US, followed suit.

entrepreneurial undertaking. Because of their success, large multinationals are symbols of the globalized world.

Another Nobel Prize winning economist, Paul Krugman

Some have revenues greater than the GDP of many

who is currently professor of economics at Princeton

countries. While there are regulations to ensure that

University, said: ―They (Economists) turned a blind eye

companies follow ethical and moral standards and codes,

to the limitations of human rationality that often leads to

since the 1980‘s there has been a competing drive

bubbles and busts; to problems of institutions that run

towards less regulation or deregulation. The Economist

amok; to the imperfections of markets –especially

Milton Friedman, while having made many fine

financial markets – that can cause the economy‘s

contributions to economic thinking, purported that the

operating system to undergo sudden, unpredictable

purpose of a business is purely to make a profit. He also

crashes; and to the dangers created when regulators don‘t

strongly urged for less and less government involvement

believe in regulation.‖ (Krugman, 2009)

in the private sector. One of the main historical arguments leveraged in support of these moves around deregulation has been a metaphor that famed economist Adam Smith used called the ―invisible hand‖. Most economists have been ardent supporters of this concept – that markets are self correcting and need no intervention. There is now a growing belief that the ‗invisible hand‖ has been woefully misinterpreted and has contributed significantly to our current economic problems.

Finally, Mr. Gavin Kennedy, a retired Professor of Strathclyde University, Glasgow who has dedicated much of his life to the interpretation of Adam Smith‘s work wrote:3 ―Modern economists took an isolated metaphor [the invisible hand] used rarely by Adam Smith, and in his name invented a wholly misleading belief of how commercial markets function and how people in them necessarily and unintentionally work for public benefit, independent of the consequences of their

Joseph E. Stiglitz the Nobel Prize winning economist,

actions … it does not explain anything close to the

former chairman of the World Bank and former economic advisor to Bill Clinton wrote:


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The Journal of the American Institute for Economic Research, 2009

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explanatory value offered by economics as a science,

In Jim Collins‘ latest work, How the Mighty Fall

even where Smith left it.‖

(Collins, 2009) one of the causes of failure he mentions

In relation to the ―invisible hand‖, it seems we have been duped. Let us consider for a moment, three principles of capitalism that we contend need to be at the center of the understanding and operation of a viable global economy.

is the arrogance and inflated egos of top executives where things end up with the enterprise essentially serving the leaders and not the other way around. There are many manifestations of this problem and one that we find particularly troublesome is the ever- widening compensation gap between executives and regular hourly direct employees. ―In 1980, the average CEO was paid

They are:

around 40 times the average worker; now the multiple is

 Free trade and open marketplaces are key elements for a wholesome and sustainable global economy for the long term.

above 400‖. (Economist, 2003) This debate now has

 The pursuit of one‘s self interest is primal in nature. It provides the drive and motivational force for innovation, as well as value and wealth creation.

compensation at hedge funds, private equity, venture

 The entire system MUST be kept in balance. There needs to be a ―visible hand‖ i.e. sensible regulation. Individuals also must exercise personal judgment with a moral compass. Regulation alone is insufficient. It is not scalable and often interferes too much.

industrial companies. This is not a healthy situation and

These principles are foundation stones of our free enterprise system and serve as a major source of energy for economic vitality.

shifted (post crisis) to be more focused on the executive compensation of the finance industry. Executive capitalists, investment and commercial banks now dwarfs those of many CEO‘s of more traditional it needs to be addressed before some form of social upheaval occurs. The inflated ego is out of control. Harvey Hornstein in his book The Haves and the Have Nots explains the psychological source of this behavior and what to do about it. He explains that ―it is an unleashing of ‗we-boosting‘ at the expense of ‗the others‘ – a natural human impulse that prompts one

Ego and Soul

group of people to elevate its status at the expense of

Human ambition and desire for power and control will

Humans have ideals and values. The majority of the

always affect the way businesses and societies work. Let

population seeks to live by them. They harshly judge

us call this ―ego‖. This characteristic has much to do

those who violate these ideals and values thus thereby

with human progress and the free and full pursuit of

creating societal norms. The majority of people seek

one‘s self-interest is critically important for the vitality,

security, inclusion, control, fairness, acceptance,

energy and progress of business systems and society in

continuity, fulfillment, hope and trust in their personal

general. However there is a dark and troublesome side

and business relationships. And perhaps even more

of people – all people – that stems from insecurity, fear

intimately, they respond to respect, kindness,

and greed as well as the desire to dominate. This human

compassion, love and sympathy. How people convene,

condition, when unchecked, often gives rise to

engage, interact and build relationships—and do business

arrogance, grandiosity, hubris and an all knowing

with one another—contributes to our personal

attitude and behavior – this is what is called an inflated

fulfillment, sense of accomplishment and our happiness.

ego. This condition, too often found in people who rise

We can call this ―soul‖.

other groups.‖ (Hornstein, 2002)

to executive positions, can be very destructive. We need to be more aware of this dark side, the damage it can

From a human or behavioral perspective it is important

cause, and how to deal with it.

to realize that the solution going forward for sustainable


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business systems is NOT either/or. Ego and Soul are

language of the shareholder. The stakeholder concept

equally important and form part of an integrated, whole

first received widespread notice after the publication of

person. In a business context, if one exists at the expense

an internal memorandum at the Stanford Research

of the other, trouble will surely follow. For the past thirty

Institute in 1963. Their definition is: “those groups

years, inflated ego has been far too dominant in the

without whose support the organization would cease to

western world. This, coupled with a financial system that

exist”. These researchers were convinced (as are many

has operated with little regulation, while employing

business people) that multiple entities contribute to a

massive leverage, and no ―invisible hand‖ – allows us to

healthy business enterprise and each stakeholder has just

see how and why the economic imbalances occurred.

as important a stake in the success of the business as the

Prof. Kennedy writes that Smith ―did not consider it appropriate for society to be run by or for ‗merchants and

shareholder does. Thus the ―stakeholder theory‖ was born.

manufacturers‘, and nor did he accept that the rich and

Again referencing Adam Smith, we can infer his support

powerful, including kings, had the right to oppress with

for the stakeholder theory. Quote: ―The proper

punitive laws‖. (Kennedy, 2011) In both his works

performance of every service seems to require, that‘s its

Wealth of Nations and The Theory of Moral Sentiments

pay or recompense should be, as exactly as possible,

Smith also speaks of the need for ―natural balance of an

proportioned to the nature of the services. If any service

st

industry‖. In the 21 century we have witnessed the

is very much underpaid, it is very apt to suffer by the

formation of a gross imbalance in our economic systems.

meanness and incapacity of the greater part of those who

We will tackle this matter in the following pages.

are employed in it.‖ (Smith, 1776) 4

To build a sustainable economic business system, leaders

Many authors have added to and advanced stakeholder

need to be mindful of people‘s thoughts, ideas,

theory and it is impossible to quote or reference them

sentiments and behaviors, such that both ―ego‖ and

all.5 R Edward Freeman of the Darden School at

―soul‖ co-exist amidst the complexity of running a

University of Virginia has probably made the most

business. Economic and financial thinking must expand

extensive recent contribution to the field. In a book titled

to include the human needs and dynamics of all the

Firms of Endearment, Raj Sisodia, Jag Sheth and David

stakeholders. Business leaders can manage the

B. Wolf, the authors, finally have provided hard evidence

complexities of an enterprise‘s total set of relationships

of financial returns over a 10 year period ending June

with all its various stakeholders. It is possible to set a

2006 for an interesting set of 17 companies. The

course that is of benefit to all. The model we propose

companies, which they vetted for commitment to

supports this goal and rests on the principle of balancing

following stakeholder principles, financially

stakeholder needs thereby creating a sustainable business

outperformed the 11 ―good to great‖6 companies by a

eco system. The model outlines how time, the

factor of 3 and outperformed the S&P by a factor of 8.

relationship complexities, and the varying and diverse needs/desires of all stakeholders affect the balance and long term sustainability of the entire economic system.

Stakeholders During the Industrial Age, the 19th and early 20th centuries the term stakeholder was infrequently used. Business conversations were mainly dominated by the


The Conscious Capitalism Alliance, a group of CEO‘s and entrepreneurs promotes a new kind of capitalism which leverages stakeholder theory. ―Companies following this approach generate value that matters;

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Pg 410

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Strategic Management: A Stakeholder Approach, R.E. Freeman, 1984. 6 Good to Great, Collins, 2001.

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emotional, social, and financial….for all their

Taking concepts from theory to implementation is

stakeholders. Not because it‘s ‗politically correct‘; but

challenging. Stakeholder theory explains ―what‖ should

because it‘s the ultimate path to long term competitive

be done, but not ―how‖ to do it. In this paper we present

advantage.‖

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elements of the ―HOW‖.

There is another group called B-Lab that certifies

The steps to the ―how‖:

corporations as being socially and environmentally

 It begins with the leadership of an organization embracing an economic mindset that places stakeholder interests on a par with financial objectives. This means that the consequences for all stakeholders need to be taken into account before embarking on any significant business initiative.

responsible. The certification requires the rewriting of the articles of incorporation to reflect the company‘s legal obligation to consider the needs and interests of all stakeholders. Finally, Dr Klaus Schwab, chairman of the World Economic Forum (W.E.F.) and convener of the annual meeting at Davos, has long been an advocate of stakeholder principles. At the Davos conference, political and business leaders from around the world focus on how to develop sustainable economies. In spite of all of the evidence to support it, stakeholder theory has been slow to take hold. A major reason for the slow adoption is the deeply held belief that free markets can self regulate and that the purpose of business is purely to make a profit. This belief has led to the widespread abuse of power by leadership and created a huge shift in the balance of power to the shareholder and

 Secondly, that there is a recognition of the fact that there are ―currencies‖ of exchange between the enterprise and the various stakeholders that go far beyond simply money.  Thirdly, that all stakeholders must be fairly rewarded commensurate with their contribution, plus a sense of justice and fairness between all parties must prevail.  And finally, that the nature of the relationship between the enterprise and the stakeholder in terms of mutual interest, commitment, caring and continuity needs to be understood and honored. All of these aspects are covered in this essay. The model below is the starting point in our journey. Figure 1.0 is the simple pictorial model showing the principal stakeholder relationships that exist (there are others) with a business enterprise.

the financial community at the expense of other stakeholders. This has further resulted in massive skewing of the incentive systems to give large financial rewards to a few at the expense of the many. Other reasons for the slow adoption of stakeholder theory include fear of change and comfort with the status quo. Also people tend to ignore data that contradicts their world view. We want people to know that there is an alternative to unsustainable business policies and practices. Equally important, people can with a new mindset, make a difference and create new outcomes. All stakeholders, both direct and indirect, can be held accountable to higher standards of business conduct.

7 Conscious Capitalism.org…What is Conscious Capitalism.


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Balanced Stakeholder System

The model above places the business enterprise in the

Marketplace 2010) Markets have grown in size and

center because multiple exchanges of offerings and

complexity because they are now globally connected and

benefits take place here. The high level goals are:

interdependent. Trade barriers have dropped while

 To produce products and/or services that create value and satisfy a need in the marketplace. 8

capital and goods flow more freely and relatively

 To distribute wealth equitably among stakeholders so that people derive benefits commensurate with their risks and their contribution.

global powers such as India, China, Russia and Brazil

inexpensively. Competition is fierce and involves huge that can serve almost any market on a virtual basis via the internet.

 To create long term sustainable enterprises.  To build business cultures where ALL stakeholders feel valued, confident and able to voluntarily apply their talent and effort.

The principle of exchange

A vibrant, balanced stakeholder system hinges on three

into the business system with certain offerings,

fundamental elements or principles.

expectations, needs and wants. There is an interaction

Exchange is central to any effective marketplace and the stakeholder system. Each stakeholder voluntarily enters

with another stakeholder and during the course of the They are:

interaction, offerings are made and accepted because they are perceived to be of value to the other party. They

The Marketplace

The Principle of Exchange

The Principle of Fairness.

essentially satisfy needs and provide benefits. This is a two-way exchange as depicted in Fig. 1 above. When the benefits derived match or exceed the initial expectations

The marketplace:

of each party, both parties are satisfied. As long as this

―A marketplace is the space, actual, virtual or

continues to be the case, each party will voluntarily

metaphorical in which the market operates.‖ (Wikipedia

continue to contribute and participate in the system in a positive and wholesome manner.

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Financial engineering creates no real value.


www.bvgintl.com 9

It is important to note that the exchange between parties,

work together harmoniously and succeed in their various

more often than not, involves more than a currency of

roles and together as a team.

money. Considering money as the only, or primary, medium of exchange is far too limiting. Unfortunately,

The Business Leader‘s Role

in the business thinking of today, money – especially short term payoff – has often overshadowed other deeper

The business leader who wishes to lead and operate

and more valued medium to long term benefits.

using the Balanced Stakeholder System must respond fully to all stakeholder needs and recognize the systemic

The principle of fairness:

interdependence that requires balancing all the forces

Underlying the exchange of value is the principle of

that affect each stakeholder. Failing to ensure this

balance and fairness. The relationship between

balance is in place eventually leads to the decline and

stakeholders must be balanced and equitable to be

possible destruction of the enterprise‘s culture and

sustained – valued offerings and valued benefits on both

business system

sides. People have the innate ability to judge or measure equitability and fairness. This capacity has been present for eons. When a stakeholder believes the exchange is not equitable, the exchange becomes unbalanced and the dynamics shift. If the imbalance is not addressed and corrected, negative outcomes will follow such as distrust, resentment, withholding of information and resources. The spirit of engagement is damaged and long term problems arise. Raw, short-term economic motives begin to drive the relationship. Responsiveness, speed and decision-making deteriorate. Relationships become closed and conditional and often turn transactional, or worse, defensive and mean spirited. For the people involved, the work loses meaning and fulfillment. Productivity drops, innovation slows down and competitiveness is lost. The stakeholder approach helps establish a sense of fairness and justice because all involved are aware of what is at stake. It requires a spirit of positive intent, respect for others, a sense of genuine inquiry, as well as a desire to listen and learn. With that, people will have better dialogue and a better understanding of what is involved in each exchange. This results in quicker resolutions to issues when misunderstandings occur. This contributes to the creation of high trust environments where, if practiced by the leader, all parties can live by and leverage. This will create a powerful culture where

When leaders know all the currencies that need be exchanged, and understand the full spectrum of relationships that exist, they can make conscious and intentional choices to create wholesome and sustainable business environments. This entails understanding the multiple factors that lead to the differing expectations of each stakeholder. One generic approach to all stakeholders does not work. This by the way is not easy. A non-stakeholder business system is far less challenging to run. Leaders can avoid difficult conversations, can extract great short term wealth for themselves, surround themselves with yes men, and leave before the business fails completely. This happens too often. Society today is putting renewed pressure, and will continue to do so, on boards and management to build more long term sustainable businesses that create real value in the marketplace. The long-term success of all enterprises is inextricably linked to this stakeholder approach. It is also vital to the long-term viability of a macro-economic environment of dependent communities that are indirectly affected. For the 21st century business leaders must be more relationship-oriented with stakeholders paired with a strong economic orientation. With both they can better meet the differing stakeholder needs and expectations. This enhances their chances for achieving tremendous long-term positive business results.

better and more rapid judgments/decisions can be made. It leads to an environment or culture where everyone can


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Sisodia et al9 report the results of research into

One of Jim Collins‘ 10 boldest declarations is that ―all

companies such as Whole Foods, Harley

great companies had a purpose that had nothing to do

Davidson,Southwest Airlines,Amazon and Google that

directly with making money‖. In another study, led by

have supported a stakeholder approaach to business.

Jason Jennings, 40,000 global companies were studied.

Though not included in their work, the new Ford Motor

From these companies the authors picked 10 that grew

company under Alan Mulally has recently embraced the

revenue AND operating profits by more than 10% for ten

stakeholder approach. Using this approach Ford

consecutive years. One of the top 5 things they had in

managed a wholesome transformation between 2006 to

common. ―They all had a noble cause which was the

2011. This was done during an exceptionally difficult

non-financial reason for doing what they do‖. 11

time and in a troubled industry. Ford restructured their debt, changed their management team, developed a simple plan and went to work. Their stock price grew from $1.45 in 2008 to $15 in early 2011. For other impressive data, take a look at the difference between the Ford cars of today compared to early 2000‘s. In the US in 2010 they were able to command a premium of over $3k per vehicle over competitors due to their innovative technology. Unlike their competitors is the U.S. they did all this without taking any bail out from the governement. Their turnaround centered on building quality and value into their product and employing a Balanced Stakeholder System. It is possible. This is NOT a fantasy.

While both of the authors put economic and financial success as the primary criteria for a company‘s inclusion in their work, their research clearly shows a crucial link between the success of the enterprise and its stated reason for being. The reason for being is it‘s foundational service to society. These companies‘ do not view the customer only as a source of revenue to feed the enterprise and reward their investors and themselves. While investment capital is vital for any company to get started, it is the business that the customer provides to the enterprise that is undeniably one of the largest sources of ongoing growth, health and prosperity for the enterprise. For all these reasons, and more, the customer should be given the primary place among all

The Stakeholders Explained

stakeholders. The needs of the other stakeholders have

This section defines some of the interactions between the

customers.

primary stakeholders and the enterprise.

absolutely no chance of being satisfied if there are no

Each enterprise must take a detailed and inclusive view

A. Customers as Stakeholders

of the entire value chain i.e. even beyond their direct

Countless respected authors and organizations espouse

consumption by the person or group that makes their

the importance of the customer to a business. We have

discretionary purchase. Each enterprise needs to know

heard many slogans such as ‗the customer is always

precisely where it fits in the total value chain that it is a

right‘, ‗customer first‘, and ‗the customer is our reason

part of and be aware of the dependencies that exist as a

for being and our purpose is to serve them better than our

result of that position.

customer. This view needs to extend to the final point of

competitors.‘ Let us reaffirm why a company goes into business in the first place. The answer goes a lot deeper than financial reward.

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Firms of Endearment, Sisodia, B. Wolf, & Seth, 2007


Good to Great, Jim Collins, 2001 (This book is based on four years of research covering 1435 companies. In the author’s judgment only 11 companies made the transition from good to great. 10

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Think BIG-Act Small, Jason Jennings, 2005

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Fig 3.

exchanges and benefits may be so dynamic that they Stakeholder

Inputs/Offerings

Derived Benefits

Customer

Access to an End Market, Revenue, Security, A Reference, Credibility, Access to greater market

Business Flow, Product Supply, Receipt of Services, Enabling Value chain to continue ultimately to final end consumer, Contribution to Vision Achievement, Success, Goodwill

seem endless. In these highly synergistic and co=creative type of relationships it is common for partners to be so

Enterprise

Offering of Product or Service, Value, Cost, Quality, Delivery, Ideas for improvement

Revenue, Cash Flow, Income, Earnings, ROI, Challenges, Reference Account

Figure 2.0

focused on greater mutually beneficial goals that they forget that they work for separate organizations. The mindset and conditions for this stage or level of relationship maturity are described in Level 5 of the Business Worth Doing Continuum. (Figure 7) B. Investors as Stakeholders Though we do not give investors the pole position, there is no denying the criticality of the investor to an enterprise especially at the formation and early stages of the company. The initial capital granted to a new

The above Fig 2.0 provides further insight into some of

company is vital to give the founder‘s ideas life. It is

the offerings and benefits in the exchange process

important to note that great investors are not just a source

between the Customer and the Enterprise.

of capital. In the right type of relationship they are much

The customer provides or offers access to the end market, or possibly, indirect access to an end consumer. The obvious derived benefit for the enterprise is a source of revenue and cash. However there is much more. The

more: ideas, advice, professional services, access to a talent pool, and to customers. They can also have the expertise to set up properly scaled administrative and governance systems.

customer can also offer desperately needed security and

In exchange the investors receive from the enterprise a

stability. They can become a referenceable client that can

return on their investments. They may also obtain

then be leveraged to expand the enterprise‘s business. They may legitimize the enterprise in the eyes of others. The enterprise offers a product or service. Many of these can, in fact, be enablers of other benefits for the customer. The enterprise delivers solutions of value, cost effectiveness and competitiveness to the customer. In

diversification in their portfolio, lowering overall risk. Venture capitalists and private equity groups who fund successful start ups gain credibility, prestige, a source of confidence and security that can be used to attract more funds at higher fees. Figure 3.0

cases where the customer is not the end consumer, the offering or solution may significantly bolster the

Stakeholder

Inputs/Offerings

Derived Benefits

Investor or Shareholder

Capital, Liquidity, Ideas Governance, Advice, Professional Services and Customer Network, source of innovation, Stability

ROI, Growth Opportunity, Portfolio Diversification, Security, Prestige

Enterprise

Business Model, Marketable Product, Strong Team, Trust, Investment Vehicle, Confidence and Legitimacy

Expanded network, Visibility to Operate, Opportunity, Vitality, Financial Freedom, Security, Access to expert experience

customer‘s financial returns and ability to gain market share. It can offer reliability and confidence via good value, quality, reliable delivery and superior service. Confident assurance of supply in a market that is perishable can lead to market share growth. Additionally as an enterprise builds a closer relationship with the customer it can be a source of innovative ideas that further enable the customer to be more successful in their market. In the long term a mutual interdependence can be developed such that both synergistically prosper. The


PG 12

The enterprise offers the business idea, the product or service and a business model. It provides enthusiastic

Figure 4.0

Trader or Speculator

Investor

and talented teams that have the confidence and staying

Mindset

Short term

Long term

Time Horizon

Intraday to days and weeks

Quarters to years and decades

Methods

Ride on momentum

Monitor longer term company and industry trends

Analysis

Mainly technical analysis

Mostly fundamentals with deep dive on 3 financial statements* as well as industry analysis

Relationship with company Management

Usually no contact.

Meet with management, to better understand company strategy and the management competence.

No strategic support.

Often have board seats and available to offer advice and support.

power to overcome the obstacles that occur. All this comes with variable risk factors. However, the higher the spirit of the engagement is, as in Level 4 or 5 in Figure 7.0, the less risk there is in the enterprise. Investors are in the business of risk reduction and wealth creation. An open virtuous system with high trust and high levels of competence always provides a more rapid path to success. Many view the private equity (P.E.) and venture capitalist (V.C.) industry as overly aggressive and engaged in casino capitalism with early stage private entities. Some believe the industry has commoditized the role of the CEO. The Balanced Stakeholder System

Company

principles clearly show that not every venture capitalist

Support

or private equity firm is like this. Investor VS Trader or Speculator

Strategy

Stakeholder Understanding

Only cares about short term profit regardless of consequence to other stakeholders

Have a balanced understanding that all stakeholders need to have their needs met. They see it as a risk reduction component and part of what ensures the business can perform well

Focus on profits, not on sustainability.

Generally understand and committed to sustainability of company

As we focus on the investor who provides capital, we wish to delineate the differences between an investor and a speculator or trader. (See Fig 4.0 opposite) The mindset, approaches and goals between them are almost opposite. Unfortunately many traders/speculators have undue influence on CEO‘s because of the pressure to meet quarterly financial expectations of the market. These pressures increase when traders play momentum, or pump-and-dump games, or engage in stock shorting. All of which has significant short-term impact on stock price. Leaders who are too influenced by quarterly returns will inevitably make poor business decisions.

Value Investor —hunt for bargains/ price below company worth

Industry agnostic, quick in and out, limits on the downside

Company Sustainability

Growth investors — expansion and growth expected.

* The three financial statements most commonly used are balance sheet, income statement and cash flow statement.

enormous. Many times course corrections are necessary. The most prudent way for a public company to deal with this is to have medium to long range plans and use the quarterly reporting cycles NOT as end states of their own, but rather as way points on a journey and staying with their strategic course. Business leaders must make tough choices and weather short term financial

Managers cannot ignore the quarterly feedback cycle; it may indicate the need for strategic change. Jack Welch, former head of G.E. purportedly said that managing only for the short term is easy, and managing only for the long term is easy; the challenge is how to manage for both the short and long term.

challenges from time to time to eventually succeed in their marketplace. The pressures leader‘s bear are


PG 13

C. Suppliers as Stakeholders In the interdependent supply/value chain of the world today, almost every entity is both customer and supplier. In this stakeholder model the supplier, too, plays the critical role of enabling value to flow through the entire chain. . As with all stakeholders, interruptions in supplies can cause the entire business system to come to a screeching halt.

the relationships, compensated all parties for their expenses, and added $100 million in bonuses split among those companies involved. Though 99% dependence on one supplier is exceptionally high and might present tremendous risk, this kind of interdependent relationship demonstrates what is possible in a Balanced Stakeholder Business System.

D. Employees as Stakeholders

Figure 5.0

One of the authors had the enormous good fortune, to be

Stakeholder

Inputs/Offerings

Derived Benefits

Supplier

Offering of Product or Service, Value, Cost, Quality, Delivery

Revenue, Cash Flow, Income, Earnings, ROI, Reference Account, Challenges

Source of Innovation, Stable End Market, Opportunity, Link into greater market or revenue

Component Supply, Business Flow and Continuation, Vision achievement, Goodwill

employed by Esso Research & Development, an affiliate of Esso (now ExxonMobil) directly out of college, Not only was the pay good, job security guaranteed for those who were competent and committed, but the organizational culture was rooted in the belief of the

Enterprise

importance of valuing the contributions of its employees. Management clearly understood that this organization, made up of scientists and engineers, could contribute only the knowledge, ideas and creativity of its members.

The relationship between supplier and the enterprise is

Their contributions to the parent company would lead to

almost a mirror reflection of the enterprise and customer

new and productive technologies. This author did not

relationship. An additional element is the level of

understand immediately how priceless this organizational

dependence that the supplier may have on the enterprise

culture was. His world view, formed by this culture,

or visa versa. Even with a high level of dependence, the

deeply enriched his work and his value to organizations

relationship can thrive. If the requisite level of trust is in

with which he consulted.

place and the economic exchange is clearly understood many sole source relationships can and do prosper.

The relationship between an employee and his/her employer defines the employee as a stakeholder in an

The best and most public example of this kind of

organizations‘ success. Figure 6 details what is involved

relationship was between Toyota and Aisin, their

in the exchange between the enterprise and the

supplier of brake fluid valves. Toyota received 99% of

employee. For most employees, the organization

their supply from Aisin with only four hours of safety

provides a livelihood, a potential source of security, and

stock. When a fire destroyed Aisin‘s factory in 1997 it

a place to learn and develop new competencies. At best,

was feared that Toyota‘s production line would be down

it is a place to find deep meaning in work. It provides a

for weeks. Through enormous effort and the

community of colleagues who share and shape one‘s

collaboration of multiple suppliers, who were indirectly

identity. The employees‘ relationship with the

impacted and also shut down, the supply chain was

organization goes far beyond the paycheck.

running again within 5 days. During the coordinated response it was reported that there was never any

The organization, in turn, receives from its members:

conversation about cost/price or re-imbursement for all

commitment, loyalty, competence, courage, creativity

the extra effort to get things up and running. It was

and cooperation. Again, the exchange goes far beyond

understood and expected that Toyota would contribute to

money. This kind of relationship is needed in

the costs of getting things back on line. Toyota honored

organizations that do not exclusively employ knowledge


PG 14

workers. If the organization is to survive and thrive in the

business leaders, but included leaders from other realms

long term, it requires the energy, ideas, and commitment

of life.) And then regarding those chosen leaders they

of its members in all functions and positions. The

were asked to list three words that best described these

offerings listed above are at the core of the

leaders. From these open-ended questions they distilled

organization‘s ability to adapt and prosper in an ever

what followers around the world had to say. Four basic

changing environment.

needs were discovered: (Rath & Conchie, 2008) 12

Business leaders have to understand that the individual

 Trust

 Compassion

both wants and needs certain conditions to be established

 Stability

 Hope

by the organization. These needs do not simply disappear once they are initially or momentarily satisfied; they are ongoing in life. If the leaders of the organization don‘t respond appropriately they cannot expect employees to be fully engaged or motivated to do their part to achieve organizational goals. In fact, as we all know, employees can be alienated and even subversive if their reasonable needs are not met. At the highest level of the development of a sound relationship between the employee and the organization, the organization is a source of self-actualization, providing the opportunity for the individual to become all that he or she can become.

Does this picture square with what has been happening in the business world in the United States and other western nations? Unfortunately, not any longer! Down-sizing, right-sizing, and benefit reduction strategies have been the order of the day and are primarily aimed at lowering short term costs. The old, more mature and wholesome, social contracts have been shredded. Too often workers are viewed as equivalent to machine parts or assets that are expendable and easily replaced, not people. Job security flies out the window and thousands of job opportunities are sent off shore chasing the lowest unit of cost. The relationship between employees and

The Gallup organization has been studying human

employers, therefore, becomes tenuous.

behavior for over 70 years. Dr. Donald O‘ Clifton began studying the unique strengths of leaders in the 1960s. He and his colleagues were searching for the keys to effective leadership. Fifty years of Gallup Polls about the world‘s most admired leaders and 20,000 in-depth interviews with senior leaders led to following conclusions: (Rath & Conchie, 2008)

Because greater commitment and security/stability is not offered to them, employees now feel that they must think only of themselves, rather than the welfare of the enterprise. They often don‘t trust the leadership and they feel hopeless and powerless. This shift to a selfish and individualistic mind-set can create a vicious and negative spiral. Employees shift and become less loyal to the

 The most effective leaders are always investing in the strengths of their employees.

organization and tend to ignore the welfare of their

 The most effective leaders surround themselves with the right people and then maximize their teams.

productivity, and innovation are severely impacted. This

 The most effective leaders understand their follower‘s needs.

then develop platitudes enshrined as company values and

working colleagues so key ingredients for teamwork, results in a new less desirable culture. Many companies use language such as loyalty, innovation, collaboration,

Following the research on leadership, Gallup looked into

teamwork and winning but create an environment where

the needs of followers from the followers view point.

none of it is likely to happen. Others have read that

They contacted a random sample of 10,000 followers.

culture is the only truly sustainable advantage, yet pay

The research used two open ended questions to discover

little attention to nurturing a culture of high performance.

what followers wanted from their leaders. First, they asked: What leader has the most positive influence in your daily life? (This question was not limited to


12

This is all explained and elaborated in Strengths Based Leadership by Tom Rath and Barry Conchie.

PG 15

This situation does not exist in all organizations, but it is

with a service, stewardship and balanced stakeholder

certainly true of many. In the primarily financial

mindset.

calculation of the short term business decision, the employee ends up too often being purely, a factor of cost. This worldview, in the longer term, turns out to be a recipe for disaster. Yes, it needs to be acknowledged that globalization has brought tremendous pressure on corporations to be more efficient than ever. It is also true that many corporations become bloated and overstaffed. But there are many more options to consider other than reactively and simply viewing an employee as a unit of cost. The corporation is not purely a money-making machine. Money and profit is a result, not the purpose.

Whole foods founder and CEO Jim Mackey is another. He has publicly stated that he caps his salary at 19 times the hourly wage earner. He has successfully built an $8Billion high end grocery chain. He too is an ardent supporter of the stakeholder philosophy and is an active contributor to the conscious capitalism movement. Mackey said in a paper that he wrote as part of his role in the Conscious Capitalism group ―Unfortunately current business thinking does not easily grasp systems interdependencies and therefore often lacks ecological consciousness or a sense of responsibility for other

During challenging times leaders have alternatives to the

constituencies, or other stakeholders other than

quick reactive response to cut. They can re-tool, re-train,

investors‖. (Mackey, 2010

re-distribute, re-structure, or re-organize. Many times a lack of medium-term planning (not to mention long-term

Another well established company that is often admired

planning) leads to reactive actions that serve as snapshot

is Herman Miller, Inc. It has faced massive global

moments to re-dress balance sheets or take advantages of

pressures as an office furnishings company. Max DePree,

a window for one time charges or accounting write offs.

a former president of the company, wrote a delightful,

This often destroys the spirit and soul of an enterprise.

even poetic, book on leadership entitled Leadership Is An

While cuts are sometimes inevitable, the process for

Art. He wrote: ―Relationships are at the heart and center

managing them can be vastly improved.

of the capitalist system, both contractual relationships and deeper, more enabling covenantal relationships.‖

Building on the notes earlier from Gallup, the employee stakeholder table captures some of the positive

(DePree, 1983)13 DePree goes on to say that ―leaders

dynamics at play for a wholesome exchange between the

Figure 6.0

Stakeholder

Inputs/Offerings

Derived Benefits

employee and the enterprise.

Employee

Ideas, Energy, Action, Engagement, Commitment, Goodwill, Competence

Employment, Salary and Benefits, Stability, Security, Inclusion, Acceptance, Hope, Compassion, A place to: learn, connect, grow and self actualize.

Enterprise

Opportunity, Rewards, Benefits, Resources, Community, A Place to engage and pursue dreams.

Ideas, Energy, Effort, Productivity, Innovation, New Products, Processes, Competitiveness, Business results, Earnings, Culture

How big is the consequence of not doing right by the employee or other stakeholders? Huge! But for now let‘s look at three companies in challenging markets as real models. These three companies foster wholesome employee-enterprise relationships. Ford Motor Company has recently been in the news for doing a remarkable job in its restructure and turnaround. During the early 2000‘s when a lot of heavy lifting was done by Bill Ford and his team, Mr. Ford took a salary of

need to be more inclusive of their followers:

$1 until the business achieved its successful turnaround. He searched tirelessly for the right CEO and brought in

First there are always certain marks of being included,

Alan Mulally from Boeing who is the epitome of a leader

being needed, being involved, being cared for as an 13


p. 56

PG 16

individual, fair wages and benefits, having the

somewhere between Levels 1 and 5 and the following

opportunity to do one‘s best, having the opportunity to

provides a brief outline of how to think about each level.

understand, having a piece of the action‖ (DePree, 1983) Level 1: And finally DePree describes gifts and perceptions of being inclusive and ended by stating that employees get ―the gift of meaning: not superfluous, but worthy, not superficial, but integral; not disposable, but permanent.‖ 14

Snake oil salesman or On-Line Scam. Here today, gone tomorrow! Extremely short term, reactive and exploitative. ―I am

(DePree, 1983) Even in very tough economic times of

only interested in winning and it is not important whether

today Herman Miller still subscribes to the tenets that he

you win or not.‖ A business like this hits the market

put in place. It has faced the decline of its US

quickly, has minimal sunk costs or risks, and captures

marketplace and operates profitably in a global

money, folds up its tent and moves on to the next victim.

marketplace.

In bygone days this may well be best characterized by the traveling snake-oil sales men. It features shoddy

These are just examples from three industries that are

products that come and go. These days products like this

notorious for being ultra competitive. Part of these

are often sold via snazzy infomercials or on-line

companies competitiveness undoubtedly comes from

marketing scams aimed at the most vulnerable. Level 1

their commitment to a value and balanced stakeholder

businesses are purely protectional. Quick Money is the

business system appraoch. This approach gives rise to a

only motivation. There is zero concern for the Customer

culture that can shift with the ever changing tides of the

(often in this case, the victim) regardless of their

marketplace. Their approach inverts the traditional

circumstance and there is never an intention to build a

hierachical pyramid and places the value adding

long term relationship. People within any stakeholder

employees at the top and the leadership at the

group in the business system are generally seen as

bottom.These examples illustrate much of the thinking

completely disposable. The work environment is

and values that we are suggesting at the 5th level of our

dominated by a few strong inflated egos‘ and often

Business Worth Doing Continuum which is outlined in

attracts like-minded exploitative people who have a get-

the next section.

rich-quick mindset regardless of the consequence.

Business Worth Doing Continuum

Level 2:

The continuum in Fig 7.0 depicts the organization‘s

Relatively short-term. Understands and tries to practice

developmental state in terms of how it behaves while

Win/Win however it is mainly transactional. People are

running its business. The six primary influences are

always guarded. The enterprise needs repeat business, is

represented on the Y axis. It is necessary to deconstruct

concerned that the Customer does have his principle or

and come face to face with these to understand the

highest order needs met, but they usually satisfy the bare

connectedness, interdependence and convergence that

minimum. There is minimal loyalty and the customer

influence how a business system operates. One can

will switch quickly if there is even a slightly better

clearly see that the combined effect of these six alone,

alternative. People are seen as necessary costs and are

results in differing and classical types of enterprises

tolerated. The work environment is challenging and

going from Level 1 to Level 5. All organizations fall

people stay because they do not have many alternative

Temporary Street Vendor. Here today and tomorrow, possible repeat business.

options. 14

p. 60


PG 17

18

Level 1

Level 2

Level 3

Level 4

Level 5

Minimal

Some

Moderate

Significant

Maximum

Investment and Risk

Minimal investment and low risk, quick exit

Some modest investment and risk, can exit easily

Moderate investment and risk. Exit can be tricky

Significant investment and risk and difficult to exit

Significant investment and risk and committed to long term

Time Duration of Customer Engagement

Minutes

Minutes to Hours/Days

Days to Weeks to Months to Qtrs

Months to Qtrs to Years

Qtrs/Years to Decades to Generations

Exchange Process

Monetary One Way (Win/Lose Maybe Lose/Lose in long term)

Monetary Both Ways (Win/Lose to basic Win/Win)

Monetary+ Value+ Esteem (Win/Win)

Monetary+ Value+ Esteem+ Goodwill (Win/Win+)

Monetary+ Value+ Esteem+ Goodwill+ Greater Good (Co-Creative)

Trust Levels

No trust

Guarded

Vulnerable

Transparent

Complete Trust

People

Disposable

Costs

Assets or Contact Resources

Associates and Business Partners

Mutually committed Sources of Energy, Vitality & Innovation

Nature of the Engagement

Protectional

Transactional

Relational

Positively Intentional

Co-Creatively Innovational Expansive

Fig 7.0

Level 3:

on the balances sheet and are incentivized by creative

Semi permanent sales outlet.

bonus systems. The work environment is tolerable where

Better quality, repeat business expected.

some employees can have fairly positive engagements which are conditioned on they getting their needs met.

Here, there is more than money at stake. There is a medium-term mindset due to generally having some sunken investment. However most business investments have early stage release clauses and leasing of assets is

Level 4: Established business with a reputation for quality, service and value. Loyal customers.

prevalent to enable quick exits. There is always a tendency to shift to short-termism if excessive pressure

The Level 4 enterprise is committed to the medium to

builds. The business leaders say they care about

long term relationships and appreciates the needs and

customer satisfaction and ensuring some value flows,

expectations of the Customer and other stakeholders.

even if it is forced. The basic needs of the customer are

They are able to satisfy these needs in a way that all

satisfied but not in a wholesome authentic manner. The

parties can be satisfied in a wholesome manner. The

business exchanges begin to build deeper levels of

business engagements become deeper. There are

relationships. Money is still of prime importance but

significant sunk costs or investments, though leasing is

other non-monetary benefits are being derived and are

used for capital efficiency and flexibility/adaptability.

beginning to be talked about. Business margins are at or

There is strong interdependence with all stakeholder

below industry average. People are still viewed as assets

groups. The enterprise management is visible, committed


www.bvgintl.com 18

and particularly focused on the customer, building good

Loyalty is high among all stakeholder groups. They have

relationships and referenceable accounts. The company

found productive and healthy ways to foster innovation

has a positive reputation within the industry, and is a

and creativity. They understand that patience as well as

decent place to work. Money and returns continue to be

urgency is required. They are totally comfortable with

important; margins tend to be higher than the industry

ambiguity, uncertainty and the contradictions that often

average within their sector. People are seen as valuable

seem evident.

resources and employee engagement is good. The management system is dynamic and the top leaders and large parts of the organization are proficient systems

Level 5: Institutionalized store. Here for long haul, stellar reputation with loyal following The enterprise is totally committed for the long term to

thinkers. They treat employees and ALL stakeholders as key sources of energy and VITALITY.

A Shift to the Right is in Order

their place in the industry. Their investments are significant and they own their most important assets. The

All organizations fall somewhere between Levels 1 and 5,

institutional level commitment and results garner a

and Fig 8.0 anecdotally explains the approximate current

reputation for being a trusted, sustainable and resilient

distribution according to random samples of the business

entity. It has proven (regardless of size) that it can

population. While there are companies at Levels 4 and 5

morph, change and adapt even re-invent itself, depending

which is commendable, when one looks at the large

on the external market pressures. The company usually

multinationals, the distribution is still heavily skewed to

makes these moves long before others see the threat.

the lower end of the scale. What we are suggesting is a

They can move fast and mobilize resources due to their

shift to the right in the direction of Level 5. It is

culture of openness and high performance. People within

completely unrealistic to expect that everyone can and

the system hold each other accountable, but in a

would shift to Level 5 but it is possible to shift the

supportive and developmental manner. They are adept at

majority of the players to the right over a ten to twenty

balancing the need for speed and quick decisions with

year period. There is a multiplicity of ways of measuring

the need to be mindful of the long term impact to all.

this and much of the metrics are already in place.

Fig 8.0


PG 19

20

Another way to think about this shift or movement is similar to that explained in the diffusion of innovation (Rogers, 1962) which was developed to help explain the level of adoption of innovation by people, organizations

the sample listed in the early adopters‘ stage or the greater list of FoE‘s companies or B-Corporations, are there to provide proof of a working model. These and other companies have proven that it is possible and economically beneficial to adopt the stakeholder

Fig 9.0

approach. These early adopters did not need a system. They knew in their hearts the right way to build a company and most if not all of them did lead with their hearts. It is not uncommon for these leaders to be viewed in a similar light to the head of a family. They are leading the way and many have been exceptionally open in sharing their learning‘s along the journey, which is a classic response to doing good IN the world and FOR the world. On behalf of all those stakeholders that cling to hope because of you, we say thank you.

and cultures. See Fig 9.0 below for an adapted version.

The Other Players in the Societal System

We believe that the innovators and early adopters do not really need much of a management system to follow. The leaders in this community are usually committed to this way of working as part of their fundamental or ideological beliefs or their worldview. However the early

See Fig 10.0 While beyond the scope of this paper there are others that have an influence and effect on an enterprise.

majority needs a management or business system

Government: All societies accept that government‘s

construct to follow. They generally tend to only adopt a

role is to represent the needs, interests and wishes of its

new approach after it has been well proven, where there

people. It is also the only organization that has the scope

are plenty of examples and the majority of the risk has

and power to deal with the long term horizon

been extracted. They may also need other pressures or

(generational cycles) and can enable large-scale societal

forces that can drive movement or change such as

change. However, an ever-increasing number of

consumer/marketplace behavior, Government

governments are under the influence of the wealthy and

regulations, and societal pressure from NGO‘s e.t.c.

powerful. While many in the US complain of corruption

Given that it is the beginning of the 21st century, the time

in developing countries many foreigners consider the

for seriously committing to this movement is opportune.

United States‘ lobbying and special interest system to be

It is tremendous that so many great companies, such as

a form of legalized corruption.


www.bvgintl.com 20

21

Fig 10.0

The Balanced Stakeholder System can help any

development without economic progress is

government that wants to implement a new business

impossible‖.15

centered mechanism to improve the political – economic system. Ultimately it provides a language and a lens that could unify bi-partisan ideas that build constructive economic policy. Many parties genuinely want to pursue a path to a balanced and sustainable business environment. The balanced stakeholder system is a building block in the drive to create a robust foundation that will bring prosperity to the next two generations of the world‘s global society.

Society has many volunteer groups that play important roles in preserving the conscience of society and many quite effectively bring pressure to correct unsustainable and unjust practices. Political action groups can form to force politicians, who either do not seem to be listening or are not representing their constituents, to address pressing public problems. Education: All stakeholders are influenced by the

Society: Society includes organized religions, non-profit

education they receive. Those who go to business

organizations, foundations and the media. These groups

schools are influenced by the increasingly dominant

represent the spirit and the culture of a nation as well as

focus the schools place on the financial aspects of

the nonpolitical voice of the people. Non-profit

business. These same schools mostly ignore the other

organizations have long been staunch supporters of

purposes of a business enterprise – fulfilling a crucial

sustainable business practices that benefit all. For

role in society. Graduates of these schools have

example, Dr. Klaus Schwab, chairman of the World Economic Forum, said, ―Economic progress without social development is not sustainable, while social BUSINESS WORTH DOING | 2011(PRELIM)

15

Schwab, 2010

www.bvgintl.com 21

contributed to the spread of a narrow view of the purpose

practice. It provides a path that enables people to lead

of business. This needs to change.

differently and continually improve the effectiveness of their businesses. With this system they can achieve great

It is important to learn from the recent recession. Teachers and schools must balance their curricula. Ethics and human values must be given importance along with financial and economic education. Schools

success in the marketplace on ALL metrics; customer satisfaction/loyalty, revenue growth, profit, employee retention, revenue growth, speed to market as examples of just a few.

will need to fully understand, and teach, the principle that corporations are human systems and must be

In Good to Great, Jim Collins points out that the leaders

managed and led with this in mind. Profits are vital;

of these companies differentiate themselves in the area of

however they are a result NOT the reason for being.

humility, authenticity, transparency, personal ethics,

Corporate Social Responsibility Movement:

values and a strong commitment to their organization‘s development. Effective leaders tend to be courageous,

America‘s Sarbanes Oxley Act of 2002, (the ‗Public

mature and possess a willingness to be vulnerable. They

Company Accounting reform and Investor Protection

demonstrate high levels of self awareness and self

Act‘), stimulated a new era of ethics and behavior in the

understanding coupled with an ability to empathize and

corporate world. Although there was considerable

build high trust relationships with people at all levels.

resistance to the changes, CEO‘s and the financial

These leaders create the conditions for success and build

community took their responsibilities seriously and

a culture in which all stakeholders can win; a culture that

supported resource allocation that led to compliance.

is next to impossible for competitors to imitate. This

While the industry benefitted from becoming more

type of leadership is at the heart of the balanced

transparent and ethical, further improvement is needed.

stakeholder system.

Companies today have internal audit functions and have adopted new and revised codes of conduct, but many

This more balanced and sustainable way of operating

perceive these as a cost of doing business or the price of

provides a framework to meet the challenges and

compliance rather than a business improvement. The

opportunities that exist in today‘s world. Globalization

balanced stakeholder system approach is a further step

presents enormous opportunities for prosperity for all.

that ensures that ethics and compliance obligations

And the global impact and reach of the recent recession

become integrated in the business system. They will no

demonstrates both the fragility and inter-connection of

longer be a separate and detached obligation.

the global marketplace. This economic inter-dependence of nation states is here to stay. We must create a more

Concluding Comments

balanced and sustainable way of operating. Leaders who take their organizations in the direction of Level 5 on the

Our paper presents the elements of a business systems

Business Worth Doing Continuum (outlined in Fig7.0)

approach that can give new life to the balanced

will build thriving organizations and have an enthusiastic

stakeholder theory and take it from a theory to a practice.

and committed workforce.

We believe that it can contribute to a vibrant practice and begin to establish global best practices. This can be another advance such as division of labor, the quality movement, activity based costing, balanced scorecard, lean six sigma and others that have improved business

Let us collectively make a mark on the 21st century – learn the lessons from past mistakes and create a future that future generations deserve. This is worth fighting for. We hope that many leaders choose to join us on this journey.


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