Toward a New Capitalism

Modern capitalism is under fire—even the US political debate rings with it. Questions include what is simply “good business” vs crony capitalism, and what about the interests of the consumer? The business world is being forced to come up with new ways to respond. Whether it’s the public resistance to the autocratic regime in Venezuela or the vehement anti-capitalist rhetoric of Occupy Wall Street and the Sanders movement that took it up, capitalism as we know it is feeling a bit of an earthquake, and the corporate world is feeling some aftershocks. Naturally, there will always be a contingency that blames big business for perpetuating the worst woes of capitalism such as the income gap, global warming, or the economic collapse of 2008. For years, companies have fought long and hard to put to rest any negative associations with terms like “profit,” “corporate,” and “bottom line.” But this approach only enforces the binary. Now, some businesses are taking a more creative approach in which they fully own and embrace the power of capitalism to make money and a positive impact.

I’ve ventured into this territory before in writing about top business executives who are channeling their social and financial capital toward a greater good. Powerful figures like Sheryl Sandberg, Tim Cook, and Marc Benioff, to name a few, are pioneers of this fascinating new trend: the CEO-turned-activist. We’ve seen this in Sheryl Sandberg’s mission to empower women, Howard Shultz’s Race Together Campaign, and Mark Benioff’s protest over the recent “religious freedom” act in North Carolina. The message is evident: this isn’t your father’s capitalism.

This type of activist social change is not the typical corporate responsibility policy we usually see, but instead a scalable business strategy with long-term benefits. Changing the world has become profitable. Fortune seemed to agree when they released “Change the World,” a list recognizing fifty companies with measurable positive social impact in their core business strategies. With corporate behemoths like GlaxoSmithKline, Nike, and Nestle—yes, Nestle—in the top ten, the criteria extend beyond “doing good” and focus on practices that strive towards social change and profit.

The “Change the World” list was formed with the help of Harvard Business School professor Michael E. Porter. In an article originally published in Harvard Business Review, Porter and his colleague Mark R. Kramer introduce the theory of “shared value,” a management strategy focused on creating measurable value by acknowledging and addressing social problems. “Shared value” lays the foundation for Fortune’s “Change the World” list and sheds light on the increasing popularity of CEO activists.

When the article was published in 2011, Porter and Kramer reported that public trust in corporations was extremely low. Tune in to any news cycle and you’ll find the statement still applies today—in spades. Porter and Kramer blame it on businesses’ focus on short-term profit, a move that may delight shareholders in the short run but could also “overlook the greatest unmet needs in the market as well as broader influences on their long-term success.” The charges Porter and Kramer leverage against corporate America rival those of any disgruntled everyday Joe. If companies weren’t blinded by short-term profit and this outdated notion of value creation, they ask, “why else would [they] ignore the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of suppliers, and the economic distress of the communities in which they produce and sell?” Why indeed.

Fortune’s eye-opening “Change the World” list demonstrates that what makes the selected firms’ social impact so valuable is that they did not set out to be do-gooders. In fact, many corporations on the list—such as Mastercard, Coca-Cola, and Bank of America—are of the ilk that make those skeptical of corporations turn away in disgust. For those firms on Fortune’s list, social change is a secondary result of improved business models and realigned visions, which is exactly what Porter and Kramer called for years ago when “shared value” was in its genesis.

Today, smart business leaders and CEOs are recognizing that even after the customer is served, a modern company’s work isn’t done. Socially conscious firms that practice “shared value” have the potential not only to generate profit, and quite a lot of it, but also to reshape modern capitalism’s relationship with society. These changes aren’t taking place through full-scale business transformations. Rather, businesses are taking new approaches to their corporate visions and transforming the ways in which they approach their markets, customers, suppliers, and communities. While these changes often start small, the impact can be huge. If “shared value” becomes what it takes for businesses to get to the top, everybody wins.

Corporate Activism Heats Up in North Carolina

The onetime corporate leadership mind-set to “be seen and not heard” when it came to politics has undergone a rapid shift—hitting a fever pitch in this controversial election season. In March, North Carolina lawmakers passed a bill that would roll back the rights of LGBT people by allowing business owners to refuse service to LGBT individuals, force people to use restrooms that correspond with the biological sex on their birth certificates regardless of how they identify, and limit a spate of job protections for members of the LGBT community. Proponents of the law say that the intent is to safeguard religious freedoms and to protect women’s privacy in the restroom. But the growing list of vocal opponents claim that it’s nothing more than blatant discrimination and that it constitutes a civil rights violation. Since the bill passed, there has been a deluge of national criticism from community leaders, celebrities, and artists—musicians from Bruce Springsteen to Itzhak Perlman have canceled performances in the state. These are all folks you expect to hear from about social issues. But the cascade of corporate leaders who’ve spoken out has been extraordinary, with CEOs from Apple, Wells Fargo, IBM, Salesforce, PayPal, and the NBA denouncing the law. Over 120 national companies have now signed a letter condemning the law. The mayors of New York, San Francisco, and Seattle have banned government travel to the state of North Carolina. But for the already economically unstable state, this dissent is much more than a slap on the wrist, as CEOs of major companies are not just speaking out but making sure North Carolina faces major economic consequences. Most recently Pepsi—which was invented in North Carolina and still employs thousands in the state—came out against the law, and Google Ventures CEO Bill Maris has announced a boycott of funding to any start-ups in the state until the law is repealed. You can see a full list of companies that have come out for and against the bill here, and the differences between the lists—both in number and scope—are shocking.

And it’s not just talk and tweets. As a result of the bill, PayPal canceled expansion plans that would have brought 400 jobs to the state; Deutsche Bank froze creation of 250 jobs; A+E Networks, Lionsgate, and 21st Century Fox have all vowed not to film there until the law is repealed (joining Fox, Miramax, and the Weinstein Company in the pledge). Now, the Department of Justice is threatening to pull federal funds if the state doesn’t repeal the law.

It’s no surprise then that business leaders in North Carolina are worried about what effects the law might have on their bottom line. Bob Page, CEO of NC-based Replacements, Ltd., sent out a letter to customers ensuring that there would be no discrimination: “I want to make one thing clear,” he said in his eloquent statement. “Replacements, Ltd. affirms the dignity and beauty of each and every person. You will always be warmly welcomed.”

State leadership is anything but aligned on the subject, with Attorney General Roy Cooper calling the bill “a national embarrassment” and claiming it would set the state economy back.

With a who’s who of the corporate world putting pressure on the state, it remains to be seen whether state leadership will choose this hill as the one to die on (economically speaking): but one thing is certain, the power of CEO activism is real, and it’s likely here to stay.

How CEO Activism Goes Beyond Business

CEOs of large companies loom larger in the public sphere than ever before. As names like Jeff Bezos, Mark Zuckerberg, and Marc Benioff become increasingly familiar to the average consumer, they’re able to put faces to the companies they buy from. In 2016, corporations are conflated with the people who run them, and for better or worse—and their actions don’t go unnoticed. As discussed last week, some prominent business leaders are channeling their influence to champion causes they feel strongly about. Once upon a time, if you’d asked a CEO to speak publicly about a contentious political issue, your chances of getting anything more than a “no comment” were minimal. But as influential CEOs move into ever more public roles due to the evolving media landscape and changing expectations from their workforce, many now feel compelled to take a stand about the issues they—and their customers—care about. However, if a trend is going to sweep the business world, it needs to benefit not only the greater good but also a company’s bottom line. So how does CEO activism fare in this respect?

Starbucks CEO Howard Schultz has become well known as an activist CEO, joining others such as Google’s Eric Schmidt, Goldman Sachs’ Lloyd Blankfein, and Apple’s Timothy Cook in recently taking public stances on controversial issues like gender equality, race, and same-sex marriage laws. In March of 2015, Schultz launched his Race Together campaign, an initiative intended to spark conversations about race in our country at a time when stories about the deaths of unarmed black men at the hands of police were dominating news cycles. As part of the campaign, Schultz asked baristas to write Race Together on Starbucks cups, urging them to have conversations with customers about race relations in America. It was a bold move, and unfortunately for Schultz, this likely well-intended effort was not taken well by the public. Critics saw the effort as both tone-deaf and a naked marketing ploy. Many pointed out the also uncomfortable fact that Starbucks’ leadership is predominantly white and that asking the far more diverse and lower-paid baristas to get into such a loaded topic with customers felt wrongheaded at best.

The Race Together debacle might have turned into a cautionary tale about CEO activism, and indeed the campaign itself was swiftly put to rest. But rather than damaging Schultz’s reputation, it illuminated his identity as a progressive CEO. The overwhelming public attention garnered by the initiative shed light on Starbucks’ past and future efforts to benefit the greater good. In tandem with Race Together, Starbucks committed to hiring ten thousand disadvantaged youths over the next three years as well as opening stores in communities with large minority populations. This February, Schultz released a video announcing his mission to urge more Americans to vote and has spoken out about gun control, marriage equality, and affordable education.

Schultz’s willingness to talk about controversial topics is headline-grabbing material, but is this type of activism politically expedient or just talk? With the rise of CEO-turned-activists in today’s corporate culture, Aaron Chatterji, an associate professor of strategy at Duke, set out to understand the effect of this newer and less understood activism both on public opinion and the bottom line of those companies that engage in it.

Since it is difficult to measure whether CEO activism truly makes a difference, Chatterji decided to conduct an experiment. He and his team used a market research firm to ask almost 3,400 individuals whether they supported Indiana’s Religious Freedom Restoration Act. The question was accompanied by a statement cautioning that the law would allow discrimination. For some, the statement was unattributed. Other respondents were told the statement came from Apple CEO Tim Cook; others, that it came from a CEO of a smaller Indiana-based company; and a fourth group, that it came from the mayor of Indianapolis. The results showed that the impact of the statement when coming from CEO Tim Cook was on par with that of the mayor.

The team asked another 2,176 respondents the likelihood that they would buy Apple products. Some were told about Cook’s stance against the discrimination law, some were informed about his business practices, and some were given no information about Cook or the company. When people already opposed to the religious freedom law were told about his views on discrimination, their intentions to buy Apple products increased.

These findings point to an interesting pattern. According to Chatterji, “it might be hard to change people’s minds any more than the next person, but when CEOs make social statements, their potential consumers are paying attention.” This isn’t surprising. While a CEO’s outspoken rhetoric is partially intended to bolster his or her company’s reputation and bottom line, its power extends much further. The CEO is something of a vaunted figure in America, and their opinions make a difference.

Whether or not we agree with the sentiments of CEO activists, the trend reveals a positive shift in corporate influence in the political sphere. Historically, the involvement of corporations in politics has happened via shady practices and lobbying for an advantageous law or regulation. But CEO activism is different. It’s transparent. Yes, profits are in mind, but when a rabble-rousing CEO speaks about a controversial issue, it is, above all, a highly visible tactic that allows employees, customers, and media to form their own opinions. If CEOs can sway public opinion about issues like race and climate change, they might as well use their platform to benefit the greater good.

Are Activist CEOs Bullies or Beacons?

Many of the CEOs and leaders I’ve featured on my blog have ended up here for ignominious reasons: from sexual harassment claims too numerous to mention (Dov Charney) to expletive-laced screaming fits (Peter Arnell) to abusing their power at the head of a literally sacred institution (Mark Driscoll). But lately, a new trend in CEO behavior is giving me hope and proving that belligerence is not the natural reaction to having power. Behold the emergence of the activist CEO: those corporate leaders willing to take a stand on controversial issues in hopes of using their influence for good. Not everyone is on board with CEOs putting their money where their mouths—and hearts—are. Depending on whom you ask, Marc Benioff, CEO of the software company Salesforce—currently valued at around $3 billion—is either a man of principle who uses his influence on behalf of social justice, or a leftist bully who imposes his values on state lawmakers.

He made headlines recently, along with other business heavy hitters such as Microsoft, PayPal, and Deutsche Bank, when he was outspoken in his disgust about North Carolina’s controversial bathroom law—joining the coalition to pressure the state’s governor to repeal the law or risk losing business. This is not his first foray into social activism; he also came out swinging against Indiana’s Religious Freedom Restoration Act and Georgia’s proposed bill to allow discrimination against same-sex couples.

Once upon a time, a large corporation wouldn’t have touched an issue like this with a ten-foot pole. But now, many feel that being outspoken about social issues is a savvy move and something that’s expected of CEOs, particularly those looking to attract top millennial talent. Young workers are often looking for more than just a job when they interview with a company. Those who have their pick of employers factor in everything from parental leave policies to on-campus amenities to the company’s corporate values when choosing where they want to spend their working hours. Benioff is quoted in a recent Wall Street Journal piece as saying, “The next generation of CEOs must advocate for all stakeholders—employees, customers, community, the environment, everybody, not just for shareholders.”

These CEOs’ motivation isn’t purely altruistic of course. A recent study by the New York Times showed that taking an activist role also has a positive impact on a company’s brand sentiment—with those respondents who were told about a company’s discrimination concerns reporting that they were likelier to buy the company’s products.

CEOs affecting public policy is, in and of itself, nothing new. But this activism trend is far different from the long tradition of influencing lawmakers through back channels such as lobbyists and campaign donations. The implications of Citizens United have reached far and wide, with endless campaign ads of questionable veracity running each election cycle (if, in fact, we can ever be said to be not in an election cycle in the modern era). These ads are often sponsored by groups with benign-sounding names (Americans for America, We Love USA PAC) and opaque origins. Lots of money trades hands, but it’s next to impossible to figure out who is giving how much to what cause.

CEO activism is the opposite. In the case of Benioff, he’s taking to his Twitter account to denounce discriminatory laws, making his stance clearly known. This has been true on the other side of the political spectrum as well: many found the anti-marriage-equality sentiments of Chick-fil-A CEO Dan Cathy repugnant, but it’s helpful in a way, that he’d let them be known. That way, those who disagree with him can have all the facts before, say, accepting a corporate sponsorship from the company, or perhaps just stopping in for a chicken sandwich.

This represents something new and dramatic in the role of a CEO, whether it’s a public or privately owned firm, and I’ll dig deeper into the academic research on further consequences of activist CEOs in my next post. What we’ve examined so far is just the tip of a very refreshing iceberg.

On Greed and Goodness

With Thanksgiving this week, the holiday season—in all its chaotic consumerist glory—is officially upon us. REI made headlines earlier this month for its decision to buck the annual retail race to the bottom that is Black Friday, and instead close its doors on the biggest shopping day of the year. The company has received heaps of praise in the wake of the announcement for the perceived kindness to employees, the social good of encouraging its customers to do something healthy, and also for what is an incredibly savvy marketing move. REI has been purposely public about its decision in online, print, and in-store advertising and via its social media campaign #OptOutside. Many will be watching the numbers carefully to see if REI will benefit, but if it does, will that lessen the fact that it’s doing something good? How comfortably can these two things coexist? Looking for purity of intentions with business is wrongheaded, as most companies can only do good when it’s also good for business. The mean men I’ve discussed on this blog rely on the misapprehension that one must be mean to be effective, when, in fact, study after study shows us that empathy and humility makes leaders more effective.

I’ve noticed a similar conundrum being presented as I follow the increasingly profitable and socially acceptable work of “activist investors” as they’re called: venture capitalists who buy large or controlling interests in a company with the intention to effect big changes within it. The investors—once referred to as “vulture capitalists”—used to suffer from a rather villainous reputation and were feared for the sweeping changes they’d make once they were in the driver’s seat of a corporation. But they’ve undergone something of an image makeover in the past several years, and I’m struck by the success their newer strategies have had in changing corporate behavior. Certainly these investors are motivated by profit rather than goodness, but they’ve also shown us how a powerful outsider can bring to light failures of leadership in unprecedented ways. Carl Icahn, Nelson Peltz, Bill Ackman, Dan Loeb, and others have honed their ability over the past decade to use the media for marshalling empathy from the masses for their own self-serving needs. They announce their large stake in the company’s stock and simultaneously make us feel sorry for the everyday shareholder who is getting screwed by inept management. The activist investor nimbly positions himself as the iconic hero on the white horse, ready to save the company in return for a few board seats. If their argument resonates with shareholders, the stock marches up in price, and they ultimately sell for a profit. Again, their motives are profit driven, but when bad CEOs are ousted, or obvious strategic decisions for the good for the firm are ignored, everyone wins.

Rethinking the role of capitalism—from the retail industry to hedge funds in finance—to make it a more robust system for serving societies is a necessary step in undermining ruthless corporate cultures that remain far too present and are just bad for business. William Greider’s The Soul of Capitalism and Bill McKibben’s Deep Economy: The Wealth of Communities and the Durable Future are great road maps for moving in this direction, providing solutions where there becomes little collective tolerance for mean men in power. In these tomes, reform appears in a surprising variety of characters, from conservative business managers to small-town civic leaders, social agitators, and labor activists.

American capitalism can and must be aligned more closely with what people want and need in their lives, with what American society needs for a healthy, balanced, and humane future. Increasingly, there’s greater acknowledgment of the flaws in corporate governance and enforcement models, more pushback against an over-the-top and even ruthless retail-industry culture. We may have a long way to go, but the realignment of our business strategies with our human values is making progress—something to be thankful for.