How to Lead in the Stakeholder Era

May 20, 2021

Here is an excerpt from an article written by Hubert Joly for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

Credit: Brian Stauffer

* * *

Focus on purpose and people. The profits will follow.

The Big Idea Series / Getting Serious About Stakeholder Capitalism
*     *     *

In June 2020, I traveled back to Minneapolis for my final board meeting as chairman of Best Buy. As I drove down Hennepin Avenue, storefronts were boarded up on each side of the street. The city was still scarred from the riots and protests that followed the killing of George Floyd that May. Around the same time, forest fires were raging across Australia and, once again, in California. A few months earlier, a new virus had been identified, unleashing a pandemic that was spreading across the world.

The past year has heightened a realization that had started to gain ground prior to the devastation of 2020: Business does not exist in a vacuum. Even before the onset of the Covid-19 pandemic, a growing number of business leaders were shifting away from Milton Friedman’s assertion that the sole purpose of business is to maximize shareholder returns and embracing the idea that business should serve all stakeholders: employees, customers, suppliers, and communities as well as shareholders. Although making money was of course an imperative, many leaders were focusing on why they were in business and who they were serving.

Then a pandemic turned the world upside down. As so many corporations now struggle to emerge from the health crisis and its economic fallout, will businesses and their leaders abandon principles that serve more than just a share price?

I hope not. Now is not the time to retreat. Instead, it is the time to accelerate. The profound multifaceted crisis we are facing has made it even more obvious that business and society cannot thrive if employees, customers, and communities are not healthy; if our planet is on fire; and if our society is fractured. Doing the same things we have been doing for decades while expecting different results would be, in Einstein’s words, the very definition of insanity. What we need today is a refoundation of business and capitalism so that we can build a more sustainable future. It is time for business leaders to embrace a declaration of interdependence that prioritizes the common good and recognizes the humanity of all stakeholders.

A Declaration of Interdependence

Four guiding principles for the next era of capitalism. Find meaning at a personal level. Work is a key part of our search …

I know, based on my own experience and reflections over the past 40 years or so, that shifting a business from maximizing profits to serving employees, customers, suppliers, communities, and shareholders is not easy. It requires leadership. In this article, I share the philosophy I have developed throughout my career and that was at the core of the resurgence of Best Buy. Ultimately, it is about much more than piecemeal CSR or ESG. It is about fundamentally redefining your company around purpose and learning how to unleash the best people have to offer. It’s about putting purpose and people at the heart of business.

The Purpose of Business Is to Contribute to the Common Good

For business to be part of the solution to our collective challenges, we leaders must see companies not as soulless moneymaking entities but as “human organizations” made of individuals working together in support of a shared goal. This goal must contribute to the common good by making a positive difference in people’s lives — what author and consultant Lisa Earle McLeod calls a “noble purpose.” In this approach, making money remains an imperative, but profits are not the ultimate objective; rather, they are the outcome of a successful strategy rooted in purpose. This is how Best Buy turned its fortunes around and rebounded to heights that, back in 2012, few would have imagined possible. Best Buy is not an exception. Like-minded companies described as “firms of endearment” have outperformed the S&P 500 14-fold over a period of 15 years. Multiple studies have confirmed that purpose indeed pays.

How do leaders make this vision a reality? First, they help articulate a noble purpose. It can be found at the intersection of what the world needs, what you and your team are passionate about, what the company is good at, and how it can earn a good return on its investments. What did that look like for Best Buy? After much soul-searching and analysis, we eventually decided that the company’s purpose was to enrich our customers’ lives through technology by addressing key human needs in areas such as entertainment, productivity, communication, food, security, and health and wellness. That had a deep meaning for us as human beings, and it made business sense. It was also a much bigger, more inspiring idea than simply being a consumer electronics retailer.

Sometimes a company’s stated purpose can feel divorced from its operations — just a fancy way to tell the world who you aspire to be. It needs to be more than that. Take Best Buy’s investment in products and services to help aging seniors stay in their homes independently. In working toward its goal to serve 5 million seniors in five years, the company has the potential to significantly accelerate growth. How likely is it that we would have tapped this growing market had our purpose been simply to sell electronics to consumers? Not very. But when your purpose is to enrich lives through technology, that market not only seems possible, it makes total sense.

Leaders must ensure that their company’s purpose goes beyond words and becomes the cornerstone of strategy and operations. Once articulated, Best Buy’s purpose fundamentally transformed our strategy and how we did business, shifting our playing field from the market of consumer electronics to a much broader environment rich in opportunities, which helped to fuel the company’s growth and success.

* * *

Here is a direct link to the complete article.

Hubert Joly is the former chairman and CEO of Best Buy, a senior lecturer at Harvard Business School, and the author, with Caroline Lambert, of The Heart of Business. He has been recognized as one of the top 100 CEOs in the world by Harvard Business Review, one of the top 30 CEOs in the world by Barron’s, and one of the top 10 CEOs in the U.S. by Glassdoor. Joly is now keen to add his voice and his energy to the necessary refoundation of business and capitalism around purpose and people.

 

 

Posted in

Leave a Comment





This site uses Akismet to reduce spam. Learn how your comment data is processed.